ESG frameworks provide specific guidelines to measure and report ESG data. Which ESG reporting frameworks exist? How do they differ and why do they matter?
Over the last few decades, issues like transparency, protection of the natural environment, and fair treatment have become critical talking points in both non-profit circles and corporate boardrooms.
Consumers prefer brands doing their part to make a better world and investors see such companies as lower-risk investments and more responsible choices.
The field of ESG — environmental, social and governance — emerged as a way to measure corporate sustainability and illustrate companies’ attentiveness to issues affecting the planet.
Before picking the best ESG framework, companies must understand what ESG reporting is and why it matters. The reason is that publishing a well-thought, data-driven ESG report makes it easier for rating agencies to analyze a company’s ESG practices and can potentially increase its ESG score.
The reporting frameworks mentioned below provide specific guidelines for companies to measure and publish their ESG data and manage risk over the long term. Each framework uses proprietary methodologies and represents an independent and reliable way to compile and report ESG data.
The list of ESG reporting frameworks includes:
While the SASB and GRI report on all ESG metrics, the CDP and TCFD are dedicated to environmental statistics.
The SASB came to be in 2011 to address the need for sustainability accounting standards. With investors showing more and more consideration for how ESG issues impact corporate balance sheets, the requirement emerged for a standardized reporting methodology. Across the globe, companies use SASB in sustainability reports, financial disclosures, corporate websites and annual reports.
The GRI first appeared in 2000 and is today the most popular ESG reporting framework, being used in over 90 countries by corporations, small and medium-sized enterprises (SMEs) and more. GRI helps companies compile, analyze and report ESG data in an easy-to-decipher fashion so investors better understand their sustainability practices.
The CDP focuses on reporting environmental data so corporations can better know their impacts and relay that information to investors. With the mission to fight climate change and reduce environmental degradation, CDP provides detailed data to help guide decision-making. As of 2021, more than 14,000 entities use CDP to report their environmental impacts.
TCFD also concentrates on climate change factors and gives investors the data they need to make informed decisions. It does that by providing comprehensive statistics on the impact of climate change so that investors can reduce their risk and make responsible investments for themselves and the planet.
In 2000, the need for standardized global accounting regulations led to the establishment of the International Financial Reporting Standards (IFRS) Foundation. Since its inception, the foundation has worked toward forming globally accepted, detailed, enforceable and coherent standards for accountability and sustainability.
Now, the IFRS employs two boards to set its standards: the International Accounting Standards Board (IASB) and the International Sustainability Standards Board (ISSB). Currently, the ISSB standards focus on climate with the intention to broaden into other ESG areas and will focus on material disclosures.
The IFRS began collaborating with GRI in March 2022 to design unified sustainability standards to match growing investor interest in ESG data and provide clear, understandable statistics.
The above-mentioned ESG framework examples have differences in their scope, depth, and specificity. Some are specialized, while others are more universal in nature. And while some are narrative-based, others are more statistical.
The SASB, for example, concentrates on the data shareholders need and provides practical and financially accurate statistics to help guide their decision-making.
It caters to 77 industries throughout the 11 sectors, including commercial banks. Public corporations typically use SASB standards, with over 50% of the S&P Global 1200 Index putting them into practice.
Illustrating the detailed nature of the SASB are the six individual areas that apply to commercial banks, including:
From there, SASB metrics become even more intricate, branching off into 12 accounting metrics and two activity metrics.
The GRI framework assists companies in reporting impacts on the environment, the economy, and society as a whole. Because of the GRI’s broad appeal to varying stakeholders, its reporting methods are the most popular worldwide.
Alternatively, the TCFD reporting standards focus on the ever-important issue of climate change, using a principles-based framework. It aims to address opportunities and risks corresponding to climate change. With that information, investors and corporations can better decipher the risks of a lower-carbon economy and make informed decisions.
Companies consider many factors when deciding on an ESG reporting framework. A few of those elements include:
As the focus on climate change, social responsibility and honest corporate governance increases, stakeholders want to know how corporations address each topic. When a company uses an ESG reporting framework to share relevant data, it demonstrates transparency, helping investors manage risk in a changing world.
Today’s ESG reporting standards provide a reliable method for corporations to track and monitor performance, KPIs, and progress. The biggest challenge is a data challenge or how to standardize the internal information according to each and every framework. The data has to be collected several times, in several different formats and points of view and that becomes a major burden and an effort that takes long months.
There is a push to form unified ESG reporting standards globally, that goal is currently far from accomplished.
With a concrete set of ESG performance metrics to follow, companies can zero in on what they’re doing well and areas that need improvement. Relaying the essentials of that information to investors and stakeholders shows their strides in various sustainable development goals.
Because of its growing emphasis, companies now incorporate ESG in their business strategy instead of making fragmented efforts. Corporations reorganize, reconsider business models, and devote significant time to imprint sustainability into their fundamental approach.
Doing this not only has a positive impact on the issues of natural environment, fairness and transparency, but it also sparks investor interest and new avenues of financing.
Beyond that, good performance across ESG metrics can create a positive public perception, increase sales, and drive loyalty. All these benefits make it easy to see why ESG reporting frameworks are essential for corporations today and the world as a whole.
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