As mandatory environmental, social, and governance (ESG) reporting disclosures become more common, companies need to determine the right information to report on and how to do so properly. ESG frameworks provide guidance, but with so many options available, it can be difficult to know which one to choose. This article explores ESG reporting frameworksin 2024 and helps companies decide which ones may suit their needs.
What is an ESG reporting framework?
An ESG reporting framework is a set of guidelines and standards used to create clear, structured, and actionable sustainability reports. ESG frameworks shouldn’t be confused with ESG standards. While frameworks provide the how in relation to ESG reporting, the standard provides the what.
Reporting frameworks allow companies to provide a transparent and consistent picture of how their company is performing in terms of sustainability, which includes environmentally, socially, and in their governance structure, hence ‘ESG’ framework.
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Why are reporting frameworks necessary?
Frameworks support companies with sustainability reporting, which in turn serves several key purposes for businesses, allowing them to:
- ✅ Be more transparent with stakeholders
- ✅ Gain insights into improvement opportunities
- ✅ Remain compliant with mandatory reporting requirements
To fully leverage these benefits, sustainability reports must be accessible, practical, and actionable.
ESG reporting frameworks allow organisations with different levels of expertise in sustainability to compile and disclose their initiatives in a comprehensive and approachable way that can be understood both internally and by external stakeholders.
How do reporting frameworks work?
There are three main ways an ESG framework tends to work, these are:
- Questionnaires – Disclosing companies are typically provided with a set of questions that are tailored to their industry. These questions often require numerical inputs, such as current and historic emission figures, or may ask for feedback on sustainability-related issues within the company’s value chain. Even though companies are not required to create a detailed report, the questions are designed to encourage high levels of transparency and disclosure.
- Leveraged information reports – Commonly referred to as a “reverse report”, in this method, a third-party conducts research on a company and prepares a report, which is then presented to the company for review and potential changes before it’s publicly released. While this approach is less demanding on companies, the accuracy and level of detail in the report may not be as extensive as they would be if the company conducted the research themselves.
- Reporting frameworks – Reporting frameworks are the preferred option among the three types of ESG standards. These frameworks offer detailed guidelines designed for specific industries, enabling companies to create their own reports. One of the advantages of using a reporting framework is the flexibility it provides in terms of the level of detail required for each topic. This allows for a broad range of disclosure results that can be customised to meet the needs of the company.
Example of how a reporting framework works
CDP is a non-profit organisation that collects environmental data from companies and cities. Companies report their environmental impacts through CDP’s Online Response System (ORS). The data is then scored by independent experts and used to create CDP ratings.
There are three main corporate questionnaires: climate change, water security, and forests. Companies are only scored on the questionnaires that are relevant to their business. For example, a company that operates in the oil and gas industry will only be scored on the climate change questionnaire.
In addition to the corporate questionnaires, there are also sector-specific questionnaires for companies in high-impact industries. These questionnaires ask more detailed questions about the company’s environmental impacts.
The CDP score is a letter grade that represents a company’s environmental performance. Companies with a higher score are considered to be more environmentally responsible.
The convergence of frameworks and standards
Frameworks and standards are like two sides of the same coin when it comes to ESG reporting. Frameworks provide the big picture, while standards provide the details. By using both, companies can create ESG reports that are both informative and actionable.
Framework providers like CDP are aligning their frameworks with international standards. This is good news for companies, as it means that they can use a single framework to meet the requirements of multiple standards. This can save time and money, and it can also help to ensure that companies are reporting their ESG data in a consistent and comparable way.
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Examples of ESG frameworks
Companies have plenty of ESG frameworks at their disposal. In fact, there are more than 600 reporting provisions globally, but it’s important to understand that relying on a single one may not be enough to disclose all the information required.
Larger organisations may use several frameworks to cover the entire scope of their sustainability initiatives. For example, in their latest sustainability report, cloud computing giant VMware mentioned considerations from six different reporting frameworks.
Below represents some of the most popular frameworks accessible to businesses. However, companies should conduct research to determine which one may be best suited to them.
CDP (formerly the ‘Carbon Disclosure Project’) is a non-profit founded in 2000. It operates the largest disclosure system globally for companies and cities.
Their role is to collect and analyse data on environmental performance and provide insights to improve sustainability practices. Companies submit information to CDP by filling out the CDP Questionnaire – on one or more of several topic platforms; climate, water, supply chain, and forests.
The Climate Score produced by CDP can be fed into EcoVadis, a sustainability ratings provider, to categorise companies into various levels – bronze, silver, gold, or platinum.
In collaboration with the SME Climate Hub, CDP launched a new climate disclosure framework in 2021. The framework helps businesses track and report their progress towards commitments, as well as demonstrate climate leadership in their respective industries.
Focus: The approach primarily centres around the “E” in ESG, with an emphasis on addressing the “G” aspect in relation to environmental concerns such as climate change, water, and forests.
The Global Reporting Initiative
The Global Reporting Initiative (GRI) is an independent organisation – headquartered in Amsterdam with regional offices around the world – that helps businesses, governments, and other organisations understand and communicate their sustainability impacts.
The GRI Standards are widely recognised as a global benchmark for sustainability reporting, and are used by thousands of companies, governments, and organisations worldwide.
The standards provide a comprehensive framework for reporting on an organisation’s ESG performance and cover a range of topics, including greenhouse gas emissions, water use, labour practices, human rights, anti-corruption, and community engagement. The standards provide specific guidance on how to disclose information about each topic, including what information to include, how to measure and report on performance, and how to ensure transparency and accuracy.
Data reported under the GRI feeds into Sustainalytics, which provides research, ratings, and data to institutional investors and companies.
Focus: Takes a comprehensive approach to ESG matters with equal weight on environmental, social, and governance factors. Heavy on stakeholder engagement to determine materiality.
The Sustainability Accounting Standards Board
Another non-profit, the SASB standards are designed to help companies identify and report on financially material sustainability issues that are relevant to their industry.
By using the SASB, companies can provide investors with more useful and comparable information about their sustainability performance, which can help them make better-informed investment decisions. It effectively connects businesses and investors on the financial impacts of sustainability.
Together with the Global Reporting Initiative (GRI), the SASB is one of the most widely used frameworks for sustainability reporting. In January 2021, BlackRock CEO Larry Fink recommended that companies follow SASB for industry-specific ESG disclosures.
At the end of 2020, SASB and GRI announced a collaboration, aiming to create better transparency and trust among reporting companies.
As of August 2022, the International Sustainability Standards Board (ISSB) of the IFRS Foundation assumed responsibility for the SASB Standards. The ISSB has committed to build on the industry-based SASB Standards and leverage SASB’s industry-based approach to standards development.
Focus: Aims to align organisations and investors on the financial impacts of ESG. Strong on key Environment topics relevant to each industry sector; selected Social topics; limited on Governance.
International Sustainability Standards Board (ISSB)
The International Sustainability Standards Board (ISSB) is an independent, private-sector body founded by the International Financial Reporting Standards Foundation (IFRS) that is looking to develop “high-quality, understandable, enforceable and globally accepted accounting and sustainability disclosure standards.”
The objective of the ISSB is to provide investors and other market participants with consistent information about companies’ sustainability-related risks and opportunities in order to help them make informed decisions across a range of industries.
To date, the ISSB has not released any standards, however, has confirmed that it will issue its first two finalised frameworks by the end of June, with an expectation that the first corporate reports aligned with these frameworks will be issued in 2025.
Once these standards are established, it is expected that investors and other stakeholders will demand comparable and transparent ESG data that will require companies to provide information in line with these standards.
The Science-Based Targets Initiative
The SBTi’s reporting framework provides guidelines for how organisations should report their progress, including what data they should collect and how they should measure their emissions. The framework also includes specific requirements for reporting on different types of emissions, such as Scope 1 (direct) and Scope 2 (indirect) emissions, as well as Scope 3 (indirect) emissions related to the organisation’s value chain.
The SBTi reporting framework also requires organisations to report on their progress towards achieving their science-based targets, including any challenges or barriers they have encountered along the way. This information is used by the SBTi to assess the effectiveness of its program and to identify areas where additional support or guidance may be needed.
Focus: Reporting on progress in emission reductions in line with the goals of the Paris Agreement.
UN Sustainable Development Goals
While not a reporting framework in the traditional sense, the United Nations Sustainable Development Goals (SDGs) are a set of 17 global objectives that aim to address the world’s most pressing environmental, social, and economic challenges.
The SDGs provide a common language and framework for organisations to align their strategies and activities with global sustainability goals, and to report on their contributions to achieving the goals.
Several reporting frameworks, such as the CDP, GRI, and SASB, collaborate with these goals, and organisations can disclose their progress towards them using these frameworks. Governments can leverage this data to track national progress and develop related policies.
Taskforce on Climate Related Financial Disclosures (TCFD) | [dissolved]
The Taskforce on Climate Related Financial Disclosures (TCFD) was a global initiative established by the Financial Stability Board (FSB) in 2015 to improve and increase the reporting of climate-related financial risks and opportunities by companies and financial institutions.
The TCFD developed a set of recommendations for voluntary climate-related financial disclosures, which were released in 2017.
The recommendations provided a framework for companies to disclose climate-related risks and opportunities in their financial reporting, helping investors, lenders, and other stakeholders to make better-informed decisions. The TCFD’s recommendations were widely recognised and supported by businesses, investors, and regulators worldwide as an effective means of enhancing transparency and accountability on climate-related financial risks and opportunities.
Following a series of formal declarations at COP28, the TCFD has been officially dissolved. Effective 2024, the International Sustainability Standards Board (ISSB) will assume the mantle of responsibility for climate-related financial reporting.
How to decide which frameworks to use
In today’s world, there are plenty of ESG reporting frameworks to choose from. Each comes with its own unique set of metrics and reporting requirements, making figuring out which one (or which combination) will work best for your business.
To add to the complexity, the landscape of ESG reporting is currently evolving due to the advent of the IFRS standards and new regulatory mandates such as the Corporate Sustainability Reporting Directive (CSRD). All of this can make it quite challenging to determine the most appropriate reporting framework for your company.
There are more than a dozen ESG reporting frameworks overall, each with its own metrics and reporting requirements. It can be confusing to try to sort out which one – or combination of them – will best suit your organisation, especially with the field of ESG reporting undergoing rapid change due to the development of the IFRS standards and new regulatory requirements.
One obvious factor to consider is the type of ESG information your organization is looking to report on and which framework or frameworks will best support that. Also, in a November 2022 blog post, John Niemoller, CEO of environmental, health and safety management software vendor Perillon, listed the following considerations for choosing among ESG frameworks:
- Look at your industry. Consider the frameworks that are most often used by companies that are in the same business as yours.
- Look at what your competitors are using. This narrows it down even further to direct competitors. Using the same framework they do can help in benchmarking against them.
- Consider your audience. Investors, customers, employees and other stakeholders often want to see different information about ESG initiatives. Your choice of framework can be guided by your primary audience and its information needs.
- Look at emerging regulations. Regulatory mandates on climate-related disclosures and other types of ESG reporting can also influence framework choices.
Beyond the specific regulatory requirements, there are other factors to consider in the regions in which your company operates. For example, a report on sustainability reporting standards published jointly by consulting firms EY and Oxford Analytica in 2021 said different countries and jurisdictions “have varying legal constructs governing corporate disclosure, as well as different legal liability profiles.” Those differences can also influence “the nature and acceptance of both voluntary and mandatory disclosures” on sustainability and ESG issues, the report added.
Keep in mind that because the various reporting frameworks were created for slightly different purposes, it’s common for companies – especially large businesses – to use more than one. Helpfully, the organisations in charge of some of the frameworks are working to make it easier to do so. For example, the IFRS Foundation and GRI are collaborating to coordinate their standard-setting activities and increase compatibility between their frameworks. In addition, CDP plans to incorporate the new IFRS standard on climate-related disclosures into its reporting platform.
ESG frameworks, such as CDP, GRI, and SASB offer businesses a roadmap to achieve sustainability objectives and provide stakeholders with the necessary information to make informed decisions about their business.
While fragmentation is a growing concern with ESG reporting, hindering its consistency and trustworthiness, efforts are underway to address this challenge and promote collaboration between companies, investors, consumers, and governments, to drive progress towards a more sustainable future for all.
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