ESG Standards and Frameworks: An Overview

Environmental, Social, and Corporate Governance (ESG) reporting can be a complex process involving a multitude of acronyms, surveys, rating systems, and changing criteria. Due to the ever-evolving nature of the field, it can be difficult to determine where to begin when faced with various reporting frameworks and competing ESG standards. Although ESG reporting is still in its early stages, it continues to rapidly develop, and we anticipate the establishment of more widely accepted and uniform standards in the near future. Our objective is to assist in simplifying the ESG process by providing you with a summary of important takeaways, emerging trends, and best practices to help streamline your ESG reporting.

Understanding ESG Reporting Frameworks

ESG reporting frameworks, sometimes called ESG disclosure frameworks, offer guidance on qualitative and quantitative ESG topics, including how to structure, prepare, and disclose information to regulators, investors, lenders, and other stakeholders. The intention of these frameworks is to promote consistency in reporting, allowing for cross-organization data comparisons and preventing ESG investors from comparing dissimilar information.

When aligning your ESG data with an ESG reporting framework, investors receive a trustworthy and comparable snapshot of your firm’s sustainability. This allows investors to screen your company’s financial risk related to environmental, social, and governance performance. Aligning your data with these frameworks indicates you have put in the necessary ESG effort and helps set you apart as a leader in your field.

Common Standards and Frameworks

Both the US’s SEC and EU’s CSRD are chiefly relevant to American businesses and SEC filers. Yet, several groups globally are working to enhance ESG information by delivering guidance, regulations, and benchmarks to shareholders and stakeholders in the vast ESG multiverse. To establish standardization in ESG reporting, various frameworks have emerged, often seeking to achieve similar goals.

For example, the novel International Sustainability Standards Board (ISSB) strives to create standards that suit investors. Before that, crucial organizations that set frameworks and standards like Carbon Disclosure Project, Climate Disclosure Standard Board, Global Reporting Initiative (GRI), and Value Reporting Foundation (which came into existence through the amalgamation of Sustainability Accounting Standards Board (SASB) and International Integrated Reporting Council) developed guidelines and protocols for creating an extensive corporate reporting system with both economic and sustainability disclosures.

Tips for Aligning to ESG Reporting Frameworks

Navigating the constantly evolving ESG landscape can be challenging. With multiple standards, frameworks, and agencies to align with, achieving ESG goals can seem daunting. Seeking advice from a reliable professional can ease the complexities around ESG, while these tips can help you get started.

• For private companies, it is ideal to conform to SEC regulations and the TCFD framework (now consolidated into the ISSB), with which the SEC has aligned its proposed rules within the U.S. Other frameworks may be favored by investors, partners, or vendors, but adhering to the TCFD system should establish a base for more detailed reporting.
• Ensuring high-quality data usage by a company cannot always be guaranteed through ESG reporting frameworks and audits. Although audits can verify data accuracy, they still require reliable internal data to create an audit trail. Similarly, any ESG reporting framework and standard-setting body ultimately depends on companies to accurately measure and report their data. Since many companies lack robust internal control systems, they struggle to generate ESG data of high quality. When the ESG process is properly carried out, it generates trustworthy ESG data that translates into better investment results and directly influences a company’s reputation and bottom line by mitigating risk exposure. Using reliable ESG reporting software is the best way to produce clean and transformed data that will fit into most frameworks, resulting in viable ESG reporting.
• Soon ESG will no longer be limited to being a voluntary best practice and become a mandatory regulation for both private and public companies. Currently, any business entity who has dealings with the EU or comes under SEC regulations, are liable to compliance surrounding ESG and climate risk. The future may see universal compliance and reporting requirements. Additionally, organizations may be expected to furnish data on GHG emissions, and conceivably other ESG practices, to their business partners that have to report Scope 3 GHG emissions for disclosure objectives.

Reporting Frameworks and Standards Contribute to ESG Success

The ultimate objective of ESG programs, essentially determined by various agencies, standard-setting entities, and governments, is to promote transparency. Despite organizations’ diligent attempts to streamline data for usability, it remains difficult to compare disparate data without adopting universal frameworks and standards universally. Without such standardization, comparing apples to oranges will persist.

Easy ESG Reporting

Our team can uncover the optimal ESG disclosure framework for your organization. Contact us today.