How to choose the best ESG reporting framework?

By Lucy Hamnett

With numerous complex issues such as climate change, modern slavery and diversity competing for space on boardroom agendas, businesses are under more pressure than ever to outwardly demonstrate the positive global impact of their actions. For many going well beyond traditional financial reporting is a huge undertaking and with the wide range of reporting frameworks out there, it can be hard to know where to start.

There is no single way to report and the best solution will differ from one business to the next, depending on the drivers, pressures, audiences and data availability of each organisation. Here we seek to demystify ESG reporting by outlining the different frameworks available and give you our top tips on where you should look to start on your reporting journey.

Acronym Overload

With so many different acronyms it can be hard to figure what purpose each framework serves and which is the most applicable. We have broken down some of the basic need-to-knows for each framework here:

FRAMEWORK NAMETopic-specific disclosures or multi-topic?Industry-specific or Industry-agnostic?Standard or framework/ guidelines?Primary Audience
Global Reporting Initiative (GRI)Multiple standards across Economic, Environment and SocialIndustry-agnosticStandardMultiple stakeholder groups
Integrated Reporting Framework which covers all financial and non-financial issuesIndustry-agnosticFrameworkInvestors and multiple stakeholder groups
Sustainability Standards Board (SASB)Multiple disclosures across Economic, Environment and SocialSelected industriesStandardRegulators
International Standards Organisation (ISO)Topic-specific standards such as GHG, Energy management or Social ProcurementIndustry-agnosticStandardMultiple stakeholder groups
Sustainable Development Goals (SDGs)The global goals cover all issuesIndustry-agnosticGuidelinesMultiple stakeholder groups
Principles of Responsible Investment (UNPRI)Topic-specific questions within the questionnaire relating to investment impacts such as climate-related impactsFinancial sectorFrameworkInvestors
GRESBMultiple indicators across Economic, Environment and SocialReal estate sectorStandard (indices)Investors
FTSE4GoodMultiple indicators across Economic, Environment and SocialIndustry-agnosticStandard (indices)Investors
Dow Jones Sustainability Index (DJSI)Multiple indicators across Economic, Environment and SocialIndustry-agnosticStandard (indices)Investors
CDPSpecific coverage of climate change, supply chain, water and forests Selected industriesFrameworkInvestors and customers
Task Force on Climate-related Financial Disclosures (TCFD)Climate change specificSelected industriesFrameworkInvestors, lenders and insurers

Our Top Tips to choosing your framework

1) Understand what drives your organisation’s need to report.

This can be one sole reason or a mixture of different pressures. One of the underlying reasons for reporting is to meet compliance. Regulations in the UK are constantly changing to be more prescriptive on disclosure requirements from businesses. For example, all UK companies are expected to disclose against TCFD by 2022 and the EU Reporting Directive outline rules on disclosure of non-financial information for all large EU companies.

Similarly, disclosures are increasingly demanded by investors, lenders and insurers due to the increasing awareness of the impact that non-financial risks can impose on the financial stability and viability of investments. Especially targeting this, UNPRI is a framework to disclose how capital flows are incorporating non-financial elements into the investment decision process such as climate change and ESG screening.

Reporting can also be a key method for an organisation to tell their value creation story and disclose forward-looking statements on how non-financial risks and opportunities are being managed. Also, , derived from the King Code in South Africa, is a holistic framework for reporting which guides organisations to reflect on their business model and value creation strategy to embed non-financial issues into business-as-usual. Similarly, to GRI, these forms of reporting are also beneficial as effective storytelling to multiple stakeholder groups as well as reputation and brand building in a pragmatic, transparent method.

2) Identify who is requesting disclosures from you

Understanding who is requesting non-financial disclosures, the specific disclosures they require and what they are using them for is a great place to start. Disclosures and reporting can be time-consuming and resource-intensive therefore making sure you report the most relevant content in an effective way for your identified stakeholders is key.

3) Know what your stakeholders want and choose a framework accordingly.

Different frameworks target different stakeholder groups – some focus in on certain topics whilst others remain broad. Should your investors and customers want to know more about the risks and impacts of climate change on your organisation and your mitigation strategy then CDP is the framework for you. If multiple stakeholders are requiring disclosures from a broad suite of material ESG issues then GRI, for example, could be more appropriate.

The future of ESG reporting?

We are beginning to see convergence of ESG frameworks, facilitated by initiatives such as the Corporate Reporting Dialogue, which have emerged as a result of the recognition that there is too much choice and that frameworks could be much better aligned. Whilst each framework will continue to serve its own purpose and audience, the alignment makes it easier for all users of the information. As an example, the frameworks, together, have a released a Statement of Common Principles of Materiality.

Lastly, there is a move towards reporting alignment with the financial reporting world. Some of the frameworks are developing into ‘standards’ to mirror those used in financial reporting such as International Financial Reporting Standards (IFRS); a key driver being the ease of verification and assurance by third parties. There is an increasing demand for verification to ensure disclosures are true and correct, as well as reliable in order to build stakeholder trust. These frameworks include SASB, GRI and ISO.

Overall, in the words of Matthew Welch, President of SASB, “it’s not about which one you choose, but rather getting this information embedded in corporate decision-making, and made available to investors to understand how companies are managing these risks and opportunities for long-term value.”

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