ESG reporting frameworks and the differences between them
Sep 7, 2022
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Nowadays, there is largely a unanimous agreement on the necessity for companies and organizations to disclose their non-financial performance via annual reports or sustainability reports. Environmental, Social, and Governance (ESG) reporting has become a common part of the corporate reporting calendar of most organizations, although the framework that individual companies choose may vary for different reasons.
Governments, businesses, financial institutions, and stakeholders expect to have access to the information listing a company’s ESG risks and actions taken to mitigate them. With a multitude of global frameworks available, choosing the correct ESG framework for your company can be a complicated task.
Today, we will look briefly into some of the factors, parameters, and metrics to be taken into consideration before choosing a particular ESG framework. In addition, we will briefly describe 14 different ESG benchmarks or frameworks that are most popular the world over.
What to consider while choosing an ESG framework:
Scope for impact – Depending on materiality tests and relevance, companies should opt for a framework that is best aligned with their priorities and maximizes the impact of reporting.
Expectations of stakeholders – This may vary from one company to the next. Ideally, organizations should understand the expectations of their stakeholders before deciding on an ESG framework. For example, the information may be more clearly represented using SASB or GRI, rather than UN SDG and vice versa.
Location – Some ESG frameworks may be mandatory in certain countries, while others may have been developed keeping specific regions in mind.
Sectoral preferences – Some frameworks, such as the GRESB (Global Real Estate Sustainability Benchmark), are specifically developed for the real estate and infrastructure sectors. Organizations should look to choose the framework that best suits the industry they work in.
Framework’s focus – Not all frameworks have the same extent of scope. Some may have an overview of the environmental risks alone, while others may include environmental, social, and governance issues on a macro level.
Popular ESG Frameworks
CDP – Formerly known as the Climate Disclosure Project, CDP is a not-for-profit organization that runs the global disclosure system for investors, companies, cities, states, and regions to manage their environmental impacts. The main areas of a report’s focus when aligned to CDP are Climate Change (greenhouse gas emissions), Water Conservation, and Protection of Forests.
CSA – The CSA Group, headquartered in Canada, comprises two organizations focused on standards development and testing, inspection and certification. Although global in scope, CSA is primarily developed for North America.
ENERGY STAR – Run by the U.S. Environmental Protection Agency (EPA) and the U.S. Department of Energy, Energy Star is the government-backed symbol for energy efficiency, and that provides unbiased, simple, and credible information to consumers and businesses to ensure better decision-making. This symbol is used across products, homes, buildings, and industrial plants to indicate energy efficiency and activities to save on energy costs. As one can guess, this benchmark is best suited for the U.S.A.
GRESB – Formerly known as the Global Real Estate Sustainability Benchmark, it first started in 2009 with a focus purely on the real estate sector. However, the scope of the benchmark has expanded to include infrastructure and other real assets. GRESB is a mission-driven, investor-led organization that provides actionable ESG data to investors and businesses to improve business intelligence, industry engagement, and decision-making
GRI – The Global Reporting Initiative (GRI) is an independent, international organization that helps businesses and others take responsibility for their impacts on the environment, society, and economy by providing a common language, in the form of the GRI Standards, to help them communicate and benchmark. GRI Standards are among the most popular worldwide.
IIRC – Formed in 2010 and formerly known as the International Integrated Reporting Committee and now named Value Reporting Foundation, the VRF aims to create a globally accepted framework to help companies communicate their ability to create value over time.
NABERS AU – The National Australian Built Environment Rating System (NABERS) provides reliable and comparable information on sustainability measurement for the building sector including hotels, shopping centers, apartments, offices, data centers, etc. As the name says, this rating system was developed for Australia in particular. A building is given 1 to 6 stars for efficiency in energy, water, waste, and the indoor environment.
NGER – Again with a focus on Australia, NGER – The National Greenhouse and Energy Reporting scheme was established after the passing of the National Greenhouse and Energy Reporting Act 2007. This scheme is meant to be a single national framework for companies to disclose and disseminate information about greenhouse gas emissions, energy production, energy consumption, and other information as per the legislation.
SASB – Currently under the oversight of the International Sustainability Standards Board, the SASB standards help and guide companies to disclose financial-material sustainability information to their investors. Applicable to 77 different industries, the SASB standards identify environmental, social, and governance issues that are most significant to the financial performance of each industry.
SBTi – A collaboration between CDP, the United Nations Global Compact, World Resources Institute, and the World Wide Fund for Nature (WWF), SBTi stands for Science-Based Targets Initiative. The SBTi promotes and defines best practices in setting science-based targets concerning emissions reduction.
SECR – The UK Government’s energy and carbon reporting framework, SECR stands for Streamlined Energy & Carbon Reporting and came into being on April 1, 2019. Replacing the Carbon Reduction Commitment (CRC) scheme, SECR obligates companies to report on their energy consumption and GHG emissions.
SFDR – SFDR stands for the Sustainable Finance Disclosure Regulation and was developed for the EU and focuses on predetermined metrics for assessing the ESG outcomes of investment. The intention is to determine the sustainability profile of investor funds and make them more comparable for the benefit of the end investor.
TCFD – TCFD stands for Task Force on Climate-related Financial Disclosures. TCFD was designed to provide companies with recommendations on the types of information to be disclosed that would help support investors, lenders, and insurance underwriters. This, as the name suggests, is focused on climate-related risks and designed to help assess and price specific climate-related risks.
UN SDGs – The United Nations Sustainable Development Goals, also known as UN SDGs, is at the heart of the 2030 Agenda for Sustainable Development that was adopted by UN member states in 2015. The goal is to provide peace and prosperity for people and the planet. There are a total of 17 UN SDGs that call on all countries to urgently take action to achieve progress in each of the goals.
The list above shows that there are multiple benchmarks, frameworks, and standards that vary in the scope of ambitions, methods, and processes taken to achieve and disclose information. Companies must be judicious in their decision on which framework to use for reporting depending on circumstances, use-case, etc.
Even once the framework (or combination of frameworks) is selected, and the date to disclose has been collated, assessed, and mapped to align with 2 or 3 frameworks – companies can still find it difficult to use this information effectively and convey their message to stakeholders.
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To overcome this situation, many companies partner with specialized design agencies with specific skill sets that are ideal for creating business reports such as annual reports, integrated reports, sustainability reports, ESG reports, etc. One such agency is Report Yak, with decades of experience and reports that have won the auspicious LACP awards. Check out our showcase here and feel free to reach out to us at the earliest. We’d be happy to get our expert team to help plan your next report.