Reporting on Environmental, Social, and Corporate Governance (ESG) can often seem overwhelming due to the multitude of acronyms, surveys, standards, and ratings, coupled with changing ESG criteria. The area of ESG reporting is rapidly developing, and many standards and regulations are yet to be established. There is, however, a global collaboration taking place to help solidify the standards that will be adopted in the future. To facilitate your journey toward effective ESG reporting, we have provided you with a succinct summary of the main takeaways, trends, and best practices concerning ESG reporting frameworks.
Understanding ESG Reporting Frameworks
ESG disclosure frameworks offer principles-based guidance on ESG topics and the presentation of qualitative and quantitative information to regulatory agencies, investors, lenders, and stakeholders alike. Frameworks aim to bring consistency to reporting to enable comparisons of data across organizations. By aligning your ESG data with a reporting framework, you can present investors with a sustainability snapshot of your company presented in a trusted and comparable format. Further, it demonstrates that you’ve done thorough ESG research, which distinguishes your company as a leader in your industry.
Common Standards and Frameworks
Currently, the CSRD in EU and the SEC in the U.S. are the primary regulatory agencies that SEC filers and U.S. companies ought to pay attention to. However, within the expanding ESG space, numerous players are laboring to furnish investors and stakeholders with guidance, rules, and benchmarks that increase the relevance of ESG data. Over the past few years, many frameworks have been established to standardize ESG data reporting, oftentimes with overlapping objectives.
For instance, the newly created International Sustainability Standards Board (ISSB) tries to establish standards useful to investors. Previously, the Carbon Disclosure Project, the Climate Disclosure Standard Board, the Global Reporting Initiative (GRI), and the Value Reporting Foundation (created by integrating the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council) supplied guidelines and regulations to develop a comprehensive corporate reporting system with financial accounting and sustainability disclosures.
Tips for Aligning to ESG Reporting Frameworks
Navigating the ever-changing ESG landscape presents a challenge when determining which standard, framework, or agency to align with for achieving ESG goals. Trusted advisors can help decipher the complexities around ESG standards and frameworks, but here are some tips to get started.
- Private companies should ideally align with SEC regulations and The Taskforce on Climate-related Financial Disclosures (TCFD) framework, which the SEC has based its regulations on for the U.S. While there may be other frameworks preferred by investors, partners, or vendors, aligning with the TCFD framework establishes a foundation for further specialization in reporting.
- ESG reporting frameworks and audits can't guarantee company use of high-quality data. Reliable internal data is required to establish an audit trail, and any ESG reporting framework and standard-setting body ultimately relies on companies to report their data accurately. Weak internal control systems at many companies prevent them from producing high-quality ESG data. But done right, the ESG process leads to better, trustworthy ESG data that promotes better investment outcomes, helps manage risk exposure, and directly affects a company's bottom line and reputation. And the best way to achieve this is by utilizing ESG reporting software that renders clean, transformable data compatible with most frameworks and results in viable ESG reporting.
- In the near future, ESG is slated to move from a voluntary, best business practice to a regulated, required new normal for both private and public companies. Although presently, public companies are accountable to SEC regulations around ESG and climate risk, those doing business with the EU also endure ESG compliance. This does not preclude future regulations and reporting requirements for all businesses. Additionally, anticipate requests from business partners to provide data around GHG emissions and possibly other ESG activities for disclosing Scope 3 GHG emissions.
Reporting Frameworks and Standards Contribute to ESG Success
In essence, all agencies, standard-setting entities, and governments share a common objective: enhancing transparency in ESG programs. Several organizations have endeavored to streamline data for efficiency. However, in the absence of universally accepted frameworks and standards, we cannot make valid comparisons, leaving us with the ongoing dilemma of comparing apples to oranges.