Environmental, Social, & Governance (ESG) reporting is a hot topic in the world of business right now, particularly in the wake of the pandemic and COP26 climate conference earlier this month. Consumers, investors, employees, and governments are increasingly demanding transparency and accountability from corporations about their social and environmental impact, and it’s quickly taking ESG reporting from a “nice to have” to a “non-negotiable to compete in the new normal.” The graphic below demonstrates the explosive growth in ESG reporting over the last decade, and the total number of companies disclosing on dimensions like climate change, water security, and forests:
While the promise of ESG reporting is to provide “the teeth to actually make companies sustainable,” we still have a long way to go in terms of the quality and consistency of that reporting. As Ellen Kennedy points out in this Kiplinger article, “Anyone who has dipped a toe in environmental, social, and governance (ESG) investing knows that there is an alphabet soup of reporting standards aiming to measure corporate adherence to sustainability. Because government regulators have been reluctant to establish mandatory reporting standards, a host of mostly nonprofit groups have worked for decades to build consensus among the private sector, governments, investors, and stakeholders to build out voluntary reporting systems.”
That means that it’s ultimately up to each individual company to pick and choose between reporting frameworks, making it hard if not impossible for investors, employees, and consumers (or any other stakeholders for that matter) to compare companies across platforms. This has also opened the door to greenwashing (a hot topic at COP26 as well) because companies can cherry-pick data for the particular reporting systems that spin them in the most favorable light.
The good news is that real progress is being made to reach a global convergence of ESG reporting standards. One of the biggest announcements to come out of COP26 was the establishment of the International Sustainability Standards Board (ISSB): a new effort to merge many ESG disclosure standards into one, and to encourage the uptake of these standards globally.
However, these new standards will take some time to develop. According to the International Financial Reporting Standards (IFRS) body, which manages the ISSB, “The expectation is that the ISSB will carry out a thorough public consultation on a timely basis in 2022 to give all stakeholders across the world an opportunity to provide feedback.”
So, until the new ISSB standards are released next year, we’re still left with the “alphabet soup” of voluntary reporting frameworks. In this post, we’re going to break down the 6 most popular of those frameworks, and when to use each.
Top ESG Reporting Frameworks
According to a joint statement from SASB and GRI, SASB provides “industry-specific standards identify the subset of sustainability-related risks and opportunities most likely to affect a company’s financial condition (i.e., its balance sheet), operating performance (i.e., its income statement) or risk profile (i.e., its market valuation and cost of capital).
SASB metrics cover 77 standards that are divided into five broad “sustainability dimensions”:
- Social Capital
- Human Capital
- Business Model & Innovation
- Leadership and Governance
To try SASB yourself Check out the materiality matrix here to see its guidance for companies in your industry.
Global Reporting Initiative (GRI)
The Global Reporting Initiative (GRI) is the independent international organization that helps businesses, governments, and other organizations understand and communicate their impacts. The GRI Standards are the world’s most widely used for sustainability reporting. According to GRI, “organizations can either use the GRI Standards to prepare a sustainability report in accordance with the Standards, or they can use selected Standards, or parts of their content, to report information for specific users or purposes, such as reporting their climate change impacts for their investors and consumers.”
Over 6,800 companies use CDP to verify their carbon emissions. CDP is a nonprofit that surveys respondents, verifies results, and then issues ratings for companies that do the best job reporting on greenhouse gas emissions and water usage. It does not provide specific guidance on what to report on or how to measure it, but taking their survey can help ESG leaders think about aspects of their business they can measure and improve upon.
Science Based Targets
The Science Based Targets initiative (SBTi) mobilizes companies to set science-based targets and boost their competitive advantage in the transition to the low-carbon economy. The initiative is a collaboration of CDP, WRI, WWF, and the UN Global Compact. It launched the world’s first “Net Zero Standard,” which gives companies science-based certification of their net-zero targets
UN Global Compact
You can think of the UNGC as a network for companies, and leaders within them, who are committed to helping achieve the SDGs. As part of this, UNGC does ask companies to report on progress towards the SDGs, and provides the use of its Value Driver Model to help companies show the financial benefits of helping achieve the SDGs. This is a useful tool for CSR leaders who are trying to build the business case for increasing sustainability efforts.
B Impact Assessment
B Labs has popularized the idea of the Benefit Corporation, which is a new type of legal entity that exists explicitly for and publicly reports on social and environmental impact. B Corporation status is earned upon completing, and scoring high enough, on the B Impact Assessment. However, the B Impact Assessment is NOT an ESG report or framework, but rather an overall approach to corporate social responsibility. In fact, it may be useful to think of the B Corporation structure as the only CSR framework that provides guidance, evaluation, and audit, all in one.
Using ESG Frameworks Together for Lasting Change
The graphic below offers a helpful side-by-side comparison of the majority of the frameworks listed above:
While different companies combine multiple frameworks in different ways, here is a helpful way to think about how to approach them:
- SASB tells companies what ESG factors they should measure and report on to investors
- GRI tells companies how to measure and report on those metrics
- CDP is an accompanying framework specifically for carbon, water, and forest related reporting
- Science Based Targets are an accompanying framework specifically for Net-Zero standards
- The UN Global Compact helps companies set targets to report on that are in line with the Sustainable Development Goals (SDGs),
- The B Impact Assessment helps companies identify all the ways they can improve CSR performance (not limited to ESG)
For even more detailed guidance about implementing ESG reporting at your company, check out our full ESG Reporting Guide.
With the entry of the ISSB, we’ll be keeping a close eye on how this space continues to evolve and converge in 2022. Be sure to subscribe for updates to stay on top of the latest ESG and social impact news!