In my conversations with several senior partners and ESG officers, there is a certain fatigue or confusion for the number of ESG frameworks and standards that exist today. Having navigated these complexities myself, I’ve created a concise guide, together with useful links, to help demystify these concepts specifically for private markets. Just to note these may differ slightly for public markets.
Step 1: Distinguishing frameworks from standards
- “Standards” are the specific granularity, reliability, and comparability of topics in ESG reporting. They are technically oriented and supported by the world’s leading standards bodies.
- Frameworks provide guidance based on a set of principles. It defines the direction of information but not the methodology, collection nor reporting itself. It is more focused on the bigger picture of how information should be structured.
Step 2: Standards deep-dive
For this post, I’ll focus on standards, saving a detailed discussion on frameworks and regulations for future posts.
GRI offers a robust suite of metrics applicable across all industries. These standards help organisations report on a wide range of sustainability issues—from environmental impact to social and economic performance. Notably, about 75 per cent of the world’s largest 250 companies use GRI for their annual sustainability reports, which speaks volumes about its applicability and credibility.
GRI has three components:
- Universal standards
- Sector standards
- Topic standards
(You select them based on what is material to your business) GRI is widely recognised for its detailed and extensive criteria which can be adapted by organisations worldwide.
SASB industry-specific standards
(Pronounced as SASS-BEE) Tailored to address the unique needs of different industries, SASB standards guide businesses in reporting financial material sustainability information. This specificity helps companies communicate effectively with investors about sustainability factors likely to impact financial conditions.
Also Read: The climate change and gender equality connection: How to support underfunded women-owned business
The key aspect of SASB is its emphasis on standards that are relevant, consistent, and comparable within industries.
IFRS sustainability disclosure standards (S1+S2)
These standards facilitate the disclosure of sustainability-related risks and opportunities for investor use. Supported by international bodies like the G7 and G20, IFRS standards are gearing up for broader mandatory adoption, reflecting their growing importance in the global financial landscape. You would have heard of IFRS standards through the ISSB standards. The ISSB, under the umbrella of the IFRS Foundation, is working on creating a global baseline of high-quality sustainability disclosure standards that focus on investor needs. The goal is to produce standards that provide critical information on sustainability-related risks and opportunities.
GHG emissions – Greenhouse gas protocol
Comprising seven standards and 11 guidance documents, the GHG Protocol supports the detailed measurement and management of GHG emissions across industries, ensuring transparent and credible reporting.
European Sustainability Reporting Standards (ESRS)
European Sustainability Reporting Standards (ESRS) are a set of guidelines and frameworks established by the European Union to standardise the reporting of sustainability-related information by organisations. This is used by companies subjected to the regulation, CSRD (see below).
Frameworks and regulations: A list for quick reference
- Task Force on Climate-related Financial Disclosures (TCFD): Focuses on the financial impacts of climate risk.**
- ESG Data Convergence Initiative (EDCI): Aims to standardise key ESG metrics to enhance comparability across investments, crucial for private equity firms.
- Invest Europe Framework: The Invest Europe Framework provides comprehensive guidelines for ESG reporting and due diligence in the private equity sector, aiming to standardise practices and improve data quality across Europe. These guidelines facilitate transparency and accountability in ESG practices, ensuring that private equity firms align with international standards and reduce the reporting burden.
- Integrated Disclosure Project (IDP): The Integrated Disclosure Project (IDP) is an industry initiative aimed at improving transparency and accountability in private credit and syndicated loan markets. It promotes the harmonisation and consistency of key ESG indicator disclosures by borrowers through a standardised reporting tool, the ESG IDP Template. This template is designed to provide a global baseline of information, making it easier for lenders to assess and compare ESG performance across companies.
- Impact Reporting and Investment Standards (IRIS+): Provides a common language for describing, assessing, and comparing impact.
- ESG VC Framework: Tailored for venture capitals to integrate ESG considerations.
Also Read: The future of finance: ESG integration in tokenised funding
Regulations
- Corporate Sustainability Reporting Directive (CSRD): Expands the Non-Financial Reporting Directive (NFRD’s) scope, aiming to create more comprehensive sustainability reporting.
- Sustainable Finance Disclosure Regulation (SFDR): European regulation focusing on transparency in the sustainability of investment products.
- U.S. SEC Proposed ESG Disclosures for Investors: Indicates upcoming standardised reporting requirements for public companies.
- California Regulations: Includes specific state-level disclosures and requirements around sustainability.
Incorporating Principles for Responsible Investment (PRI)
It’s also essential to consider the Principles for Responsible Investment (PRI), a pivotal framework promoting responsible investment practices globally. PRI doesn’t dictate reporting standards but encourages investors to consider ESG factors comprehensively, enhancing overall sustainability impacts.
**Please be aware that by October 2023, the Task Force on Climate-related Financial Disclosures (TCFD) was officially disbanded after achieving its goal of developing a comprehensive climate reporting framework that has been widely adopted. The oversight of corporate TCFD disclosures has now been assumed by the International Financial Reporting Standards (IFRS) Foundation.
Hope this cheatsheet was helpful and of course, everything is accurate at time of writing. This may change as things continue to evolve and I aim to update them whenever possible. I will continue to discuss more on frameworks, and regulations in subsequent posts.
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