Take advantage of ESG – Know more about ESG Standards, Frameworks, Guidelines and Reporting
ESG Standards and ESG Reporting can be confusing topics. Is it about disclosure? What is the difference between ESG reporting and ESG scores? What are the standards available, and what standard will fit best? Finally, is there a universally accepted standard that works for every industry? How to take advantage of ESG?
In this blog post, we take a look at well-established ESG standards along with a short description and additional background information. The idea behind this blog post is to provide an initial overview. However, it can not replace professional advice and consultation on the topic.
Fundamentals
So what is an ESG standard, and how is it related to ESG reporting? In a nutshell, an ESG standard provides a framework. All the data and information related to ESG factors are collected and processed according to that framework. The framework will guide the process. That helps to identify gaps – e.g. where no or insufficient data is available. The result is an individual ESG report. The results are comparable as long as the same framework / ESG standard is applied. With ESG reporting performed regularly, it showcases the efforts made, the progress, and the goals achieved. It also reflects on business strategy and long-term value creation.
How is this different from an ESG Score?
What distinguishes ESG Reporting from ESG Ratings / ESG Scores since both are directly related to ESG?
ESG Reporting: Companies, businesses, and institutions are aware that ESG factors are relevant to their business strategy and their ability for long-term value creation. Information, data and also stakeholder opinion are the foundation for an ESG report. The ESG framework/standard decided upon defines the metrics for this process. The findings are relevant to the overall business strategy and disclosed in an ESG report.
ESG Rating: With asset managers and financial institutions increasingly relying on ESG, specialized rating agencies have developed rating or scoring products. Rating agencies assess companies’ ESG performance and provide an ESG rating/score based on their findings. This score is relevant for investment strategies. Each rating agency may use different frameworks and metrics to rate a companies ESG performance.
Take advantage of ESG – Standards and Reporting Frameworks
We compiled a compact overview of commonly used ESG standards. We focus on the history and the scope of each one and provide links for further reading. The following list (in alphabetical order) does not represent a ranking, nor may this list be understood as complete.
Carbon Disclosure Project – CDP
CDP celebrated its 20th anniversary in 2020. It is a not-for-profit charity offering a global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts. If climate risk and disclosure related to environmental topics are in your focus, you can find out more about CDP online at https://www.cdp.net.
Climate Disclosure Standard Board – CDSB
The CDSB is an international consortium consisting of business and environmental NGOs. CDSB aims to align the global mainstream corporate reporting model that equals natural capital with financial capital. CDSB offers a framework for reporting environmental information “with the same rigour as financial information”. Learn more about CDSB online at https://www.cdsb.net.
Global ESG Benchmark for Real Assets – GRESB
If real estate and infrastructure are your focus, GRESB could be the go-to solution. GRESB is the leading ESG disclosure framework with a strong emphasis on real estate and other infrastructure. Institutional as well as financial investors use GRESB data and benchmarks. More information about GRESB is available online at https://gresb.com.
Global Reporting Initiative – GRI
The ESG framework provided by GRI is one of the most widely adopted ones. Businesses, governments, NGOs and industry groups rely on the standard to report their impact on environmental, social and governance topics. The GRI framework covers a wide variety of areas. The framework covers environmental (e.g. water, biodiversity, emissions), social (e.g. safety, health) and governance (e.g. tax, anti-corruption) topics. You can find more information about GRI online at https://www.globalreporting.org.
International Integrated Reporting Council – IIRC
IIRC’s International Integrated Reporting Framework aims at the adoption of integrated reporting on a global scale. One aspect is to improve the quality of information available to achieve a more efficient capital allocation. Another is a cohesive approach to corporate reporting that leads to value creation. Integrated thinking will lead not only to short- or medium but also long-term value creation. More information about the IIRC and the IR Framework can is available online: https://integratedreporting.org.
Science Based Targets initiative – SBTi
The SBTi describes its mission as “Lead the way to a zero-carbon economy, boost innovation and drive sustainable growth by setting ambitious, science-based emissions reduction targets”. There is a clear emphasis on environmental factors. If this is a top priority for you, then there is more information available at https://sciencebasedtargets.org.
Sustainability Accounting Standards Board – SASB
SASB standards are industry-specific and designed to help businesses to communicate sustainability data to investors. As of March 2021, there are 77 standards available that provide industry-specific disclosure topics and related accounting metrics. There is SASB’s Materiality Map®, too. If you are looking for integrated reporting, visit SASB online at https://www.sasb.org/standards.
Task Force on Climate-related Financial Disclosures – TCFD
The Task Force on Climate-related Financial Disclosures aims at improving and increasing the reporting of climate-related financial information. By providing a framework for the disclosure of climate-related risks and opportunities, TCFD supports companies and organizations in their disclosure and reporting processes. TCFD’s recommendations on climate-related financial disclosures are available online. More information on the TCFD is available online at https://www.fsb-tcfd.org.
United Nations Global Compact
The Sustainable Development Goals (SDGs) and the Ten Principles are the foundation of the UN Global Compact Strategy 2021 – 2023. UN GCS is a framework consisting of five elements. The priority issues addressed are human rights, labour, environment and anti-corruption. Almost 13.000 companies from 160 countries participate in the process. More information about the UN Global Compact and how to make “Global Goals Local Business” can be found online at https://www.unglobalcompact.org/sdgs/action-platforms.
World Economic Forum (WEF) Stakeholder Capitalism Metrics
In September 2020, the World Economic Forum released a white paper prepared in collaboration with Deloitte, EY, KPMG and PwC titled “Measuring Stakeholder Capitalism – Towards Common Metrics and Consistent Reporting of Sustainable Value Creation”. This white paper describes a framework that aggregates aspects of various existing standards like GRI or SASB into four pillars (Principles of Governance, Planet, People, and Prosperity), aligned with the essential SDGs. The whitepaper is available for download at http://www3.weforum.org/docs/WEF_IBC_Measuring_Stakeholder_Capitalism_Report_2020.pdf.
A “unified standard”?
CDP, CDSB, GRI, IIRC, and SASB made the public announcement that they intend to work together towards comprehensive corporate reporting. The statement is available for download here. This initiative has the potential to lead the way to interoperability.
Conclusion
So how to take advantage of ESG? There is an option for each application. Businesses in the real estate domain will more likely choose a standard reflecting on infrastructure like GRESB. Others will choose a more general approach and use the frameworks provided by GRI. The framework of SASB could be interesting for those businesses looking for more financially focused standards to communicate ESG data to investors. Those with a close focus on environmental topics might have a closer look at the frameworks of CDB, CDSB or SBTi.
A good starting point in the decision-making process is a materiality assessment. Not only will it help to identify your stakeholders, but it will help to identify the topics that are of particular relevance to them. And it will aid to clarify the ESG related aspects that have a significant impact on your business.
About NordESG
NordESG is an independent consulting firm that advises on sustainability and ESG. We support companies in navigating their sustainability landscape and develop strategies and concepts individually tailored to their requirements. This also includes managing the transition to CSRD. We look forward to hearing from you via email. You can also make an appointment with us directly for a free introductory meeting.
