With nations, organizations and individuals experiencing the effects of unsustainable operations first-hand, awareness of causes and issues of global economic, social, governance and environmental problems, every entity is expected to act responsibly.
At this point it is important to note the difference between standards and frameworks. Standards are well defined and are expected to be followed closely.
Frameworks on the other hand are broad guidelines and imprecise expectations of reporting.
This is where standards come in giving structure, comparability, and comprehensiveness to sustainability or ESG reporting. The premise of most of the standards, frameworks and guidelines surrounding Sustainability Reporting is based on the understanding that for economic development to continue or in some cases to start, all aspects of existence such as human social elements and the environment needs to be preserved too.
- Global Reporting Initiative Standards (GRI Standards)
General Intro & Goal: This is currently the most comprehensive and widely accepted of sustainability reporting standards. It has a set of 10 reporting principles that should be adhered to, with respect to report content and report quality. Stakeholder engagement and Materiality assessment are pivotal to the reporting process in this set of standards.
Structure:The disclosures are divided into 2 main sections which are future divided across two more rungs –
Universal Standards Topic Specific Standards
Foundation (101) Economic (200 series)
General Disclosures (102) Environmental (300 series)
Management Approach (103) Social (400 series)
There are topics under each category and each category has specified disclosures under them.
Pros:Almost Comprehensive, Clear and Specific with explanations for every disclosure, it has two options for reporting, one slightly limited, the other comprehensive. One set of standards for all industry sectors and entities makes it versatile and adaptable to different stages of reporting, needs of the company or stakeholders and the industry.
Cons:It is so extensive that it tends to intimidate new reporters, many disclosures tend to require referring to detailed explanations to understand the requirement, a few topics such as noise aren’t covered.
- Sustainable Development Goals (SDGs or UN SDGs)General Intro & Goal: These are 17 goals were adopted by the United Nations in 2015 as a universal call to action to end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity. It lays out goals on most of the ESG issues plaguing the world today while presenting how the issues are interconnected and ameliorating one issue can also tackle another or more.
Structure:The 17 goals are broken down into targets under each goal that are specific and actionable and make sure the higher goal is achieved completely.
Pros:Rather than the disclosure route, which is the reverse way of making organisations act, the SDG Standards set out clear goals and expect reporting on them. They too are comprehensive in addressing almost all the issues troubling the world today, especially the developing nations.
Cons: The targets and goals are qualitative and are not assertive about quantitative reporting of SDG actions which would make progress measurable. This might affect credibility of the reporting.
Cost: Free
- Sustainability Accounting Standards Board (SASB)
General Intro & Goal: The SASB standards are now part of the Value Reporting Foundation along with the IR Framework that primarily address the needs of investors to assess their investment potential and risks.
SASB Standards enable companies around the world to identify, measure, and manage the subset of ESG topics that most directly impact long-term enterprise value creation.
Structure:SASB has separate set of standards with corresponding documents for specific industries focusing on the most pertinent industry-specific sustainability concerns.
Like GRI, SASB too has a three-rung structure:
- 77 industry standards for 77 industries divided under each of 11 Industry categories and.
- Each of the 77 industries mentioned has a separate standard with documentation on the Standards, Basis for Conclusions which explains any revision, and a recommended Application Guidance.
- Each set of Standards for every industry includes essential brief introduction to the SASB Standard, Use of the Standard, and an Industry Description. A snapshot of the disclosures and accounting metrics by top are also provided before the topics are explained in detail.
Pros: The industry focused topic coverage makes it easier for the reporting organisation to focus on topics that are crucial to it without needing to distribute its reporting resources on topics unimportant or inconsequential to it.
Cons: The flip side of being focused on the topics it covers by industry can also make its scope limited something like having blinders on while making the organisation sustainable and reporting on it. This aspect stops the standard from being wholesome in its approach.
Cost: Free
- Integrated Reporting (IR) Framework
General Intro & Goal: This framework has been developed by the International Integrated Reporting Council (IIRC). The Integrated Reporting framework is now jointly part of the Value Reporting Foundation long with the SASB.
Integrated reporting combines material information about an organization’s strategy, governance, performance, and prospects such that it reflects the commercial, social, and environmental context within which it operates.
Among other important purposes, IR intends to improve the quality of information available to providers of financial capital to enable a more efficient and productive allocation of capital.
Structure:The IR framework provides 8 content elements as it calls them along with Guiding Principles and explains certain Fundamental concepts in its framework document. The 8 elements include aspects such as business model, strategy and resource allocation, outlook and the basis of preparation and presentation of the report.
Pros: Provides a structure for “broad-stroke reporting” mostly useful to investors giving them a very financial value-based narrative of their organisation. It provides value-seeker stakeholders a “digested” form of report unlike other reporting standards/frameworks that allow the audience or stakeholder to make their own conclusions about the sustainability of an organisation.
Cons: It doesn’t lay enough emphasis or give adequate attention to details
Special/Unique Features: The concept of double materiality which acknowledges that non-financial information is important to multiple constituencies. The SASB materiality map identifies sustainability issues that are likely to affect the financial condition or operating performance of companies within an industry.
Cost: Free
- Carbon Disclosure Project (CDP) GuidanceGeneral Intro & Goal: It helps investors, companies and cities focus on taking urgent action to build a truly sustainable economy by measuring and understanding their environmental impact. Through CDP companies throughout the world are persuaded to measure, manage, disclose, and ultimately reduce their greenhouse gas emissions.
Structure:The guidance is meant primarily for cities, companies, investors, states, and regions to report on any or all of three areas of focus which are Climate, Water and Forests. The guidance is in the form of a questionnaire for each area of focus to be filled online on the CDP website. CDP has now introduced a scoring mechanism based on analysis of the responses of its respondents.
Pros:CDP encourages a system of sustainability disclosure and transparency among companies and cities, thereby enabling organizations to benchmark, measure and manage their environmental risks, while at the same time improving their brand reputation, increasing operational efficiency, and lowering their costs.
Cons:Encourages market driven targets rather than by science which would actually be effective in tackling climate change. The targets therefore aren’t ambitious enough to cut back on carbon emissions as much as is required to control climate change.
Special/Unique Features: It is the only guidance gathering its type of corporate climate change data and providing it to the marketplace.
Cost:Free
- Dow Jones Sustainability Index (DJSI)General Intro & Goal: Dow Jones Sustainability Indices (DJSI) are float-adjusted market capitalization weighted indices that measure the performance of companies selected with ESG (Environmental, Social, Governance) criteria using a best-in-class approach. In other words, it tracks the stock performance of the world’s leading companies in terms of economic, environmental, and social criteria.
DJSI indices are designed for investors seeking to track equity markets while applying a sustainability superior selection process. Rather than a standard, framework, or guidance they are an index to rate companies on their economic, environmental and social criteria.
Structure:To enter the index, the participating company needs to answer 100 questions and ranking is done in comparison with peers in the industry sector as well as geographic region.
The DJSI involves a 4-levelstructure, and it calls each level a universe. The levels are called the Starting Universe, Invited Universe, Assessed Universe and DJSI World.
From these questionnaires, each company can be awarded one or a combination of the following status based on its score –
Sector Leader
Sector Mover
SAM Gold Class
SAM Silver Class
Sam Bronze Class
Pros:Being included in the DJSI improves the profile of a company for a wide range of stakeholders – both internal (employees) and external (customers, the media, the public). Investors looking for high performing
Cons:The DJSI’s use of self-reported data as proxies for the social or environmental effects it intends to reflect exposes the index to corporate biases and additional credibility risks.
On similar lines, it is a scoring system based on companies’ market performance and investment attractiveness less so its real environmental and social impacts.
Cost: Free
- Task Force on Climate-related Financial Disclosures (TCFD)General Intro & Goal: The TCFD were developed to provide recommendations for more effective climate-related disclosures that could promote more informed investment, credit, and insurance underwriting decisions. This would enable stakeholders to better understand the concentrations of carbon-related assets in the financial sector and the financial system’s exposures to climate-related risks.
As this understanding of the financial implications associated with climate change grows, it would empower the markets to channel investment to sustainable and resilient solutions, opportunities, and business models.
Structure:The TCFD’s framework is presented in the form of recommendations. The 11 disclosure recommendations it provides span four different areas: governance, strategy, risk management, and metrics and targets.
Pros: Markets will be better equipped to evaluate, price, and manage those risks as companies complete consistent, reliable disclosures related to climate-based risks and opportunities.
The recommendations are important because of the growing pressure on companies from governments, consumers and investors to respond to climate change.
Cons:N/A
Cost: Free
- International Finance Corporation (IFC) Performance StandardsGeneral Intro & Goal: IFC’s Environmental and Social Performance Standards serve as an international benchmark for identifying and managing environmental and social risk. The framework applies to all investment and advisory clients whose projects go through IFC’s initial credit review process. However, it is not restricted for adoption to such organisations only.
IFC advises that where the potential environmental and social impacts associated with a financial institution’s client/investees are significant, the financial institution should apply the IFC’s Performance Standards as a benchmark for identifying and managing these risks. Its scope stretches to high profile, complex, international, or potentially high impact projects.
Structure:IFC’s Sustainability Framework comprises IFC’s Policy and Performance Standards on Environmental and Social Sustainability, and IFC’s Access to Information Policy. It consists of 8 performance standards covering various topics ranging from Assessment and Management of Environmental and Social Risks and Impacts, Land Acquisition and Involuntary Settlements, Resource Efficiency and Pollution Prevention to Cultural Heritage among 4 others. The standards are accompanied by an extensive guidance document to explain the standards and concepts under them.
Pros:Provide guidance on how to identify risks and impacts, and are designed to help avoid, mitigate, and manage risks and impacts.
Cons: N/A
Cost: Free
- UN Principles for Responsible Investment (PRI)General Intro & Goal: The UNPRI intends to support its international network of investor signatories in incorporating environmental, social and governance (ESG) factors into their investment and ownership decisions. It was developed for investors by investor.
It is founded on the belief that an economically efficient, sustainable global financial system is a necessity for long-term value creation. Such a system will reward long-term, responsible investment and benefit the environment and society as a whole.
The UNPRI although supported by the UN is not part of the UN. It engages with global policymakers but is not associated with any government. As an entity itis not-for-profit and encourages investors to use responsible investment to enhance returns and better manage risks.
Structure:The PRI consists of 6 principles with focus on 3 areas of impact.
Pros:N/A
Cons: Provides a loose framework in the form of high-level principles for reporting on ESG factors which does not have any defined parameters to measure them. This can lead to vague goals and ineffective ESG action therefore reporting.
Special/Unique Features:An organisation needs to become a signatory first to be able to employ or purchase PRI’s literary material following which it needs to enter into an agreement with a writer.
Cost: Paid
- Streamlined Energy and Carbon Reporting (SECR)General Intro & Goal: UK government wants to reduce duplication in carbon reporting, to ease the burden on business. It aims for SECR to give organisations a clearer picture of their energy use, incentivising carbon reduction. It is intended to drive companies’ reputations too – reports will be publicly available, allowing increased transparency for investors and other stakeholders.
Structure:This framework is guided by 7 principles of accounting and reporting
Pros:Lower energy and resource costs, gain a better understanding of exposure to the risks of climate change and demonstrate leadership, which will help strengthen your green credentials in the marketplace. The environmental KPIs would be helpful in capturing the link between environmental and financial performance.
Cons:Geographically limited to UK focus
Special/Unique Features:Mandatory reporting framework for large companies in the UK. Designed to help companies inform the UK government’s plan for meeting its carbon targets and achieving net zero emissions by 2050.
Cost:Free
(The author, Shuchi Nijhawan is Chief HR Officer & Chief Sustainability Officer at Eka Software Solutions and the views expressed are her own)
