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Many sustainability reporting standards exist today to give guidance on what to report and how. This article explores different reporting standards and frameworks as well as factors to consider when choosing one to work with.
Sustainability reporting standards or reporting frameworks are guidelines to report ESG impact on an organisational level. Standards are created by experts in various topics and industries. They provide orientation on preparing or filing disclosures in a systematic and relevant manner applicable to a wide range of industries, organisational size and scale, and reporting objectives.
Any company embarking on sustainability reporting faces the same question at some point: what to report, and how? Thankfully, reporting standards and frameworks exist to make the attempt a whole lot more manageable. They simplify the process by outlining best practices for reporting sustainability impacts, including on a granular level the metrics and indicators that best define impact.
Here is an overview of the most important ESG reporting standards that exist in the reporting space today:
The EU Sustainability Reporting Standards (ESRS) is being developed to support the Corporate Sustainability Reporting Directive (CSRD), which would make ESRS-aligned reporting mandatory for companies.
The EU taxonomy is a classification system, establishing a list of environmentally sustainable economic activities. The goal is to create more transparency around the sustainability of companies’ business activities.
Global Reporting Initiative (GRI) Standards is a modular set of universal, sectoral, and topical standards. GRI Standards guide the disclosure of an organisation's economic, environmental, and social impacts and the management of those impacts.
Comprised of 77 industry-specific reporting guidelines, the SASB Standards guides organisations to report on the risks and opportunities surrounding the most financially material ESG topics of their industry.
The Task Force on Climate-related Financial Disclosures (TCFD) recommendations is a framework to report on climate-related menace and chance faced by a business.
The Carbon Disclosure Project (CDP) is a disclosure system focused on environmental impacts, specifically water-, climate-, and forest-related topics.
The IFRS Foundation is developing a global baseline for sustainability reporting for the capital markets, with a focus on the impact of sustainability on enterprise value.
The GHG Protocol is an accounting standard to measure and report greenhouse gas emissions and is the basis for Scope 1, 2, and 3 classification.
Several factors influence the decision to use certain reporting standards over others. These factors determine which framework you should choose:
Growing concerns about climate accountability and the role of business in national low-carbon blueprints are prompting new legislation on climate disclosures, and with it, the development of climate reporting standards. Climate reporting is a new tool to assess and disclose climate-related risks and opportunities.
All general reporting standards include guidance on climate or emissions reporting, the major difference being the degree and depth of reporting.
At present, the most recognised climate reporting framework is the TCFD, which has been adopted by several OECD countries in rapid succession.
The GHG Protocol forms the foundational basis for most emissions reporting, even if not explicitly stated. Most companies use its carbon accounting principles to measure their carbon footprint. Even frameworks including the GRI Standards and TCFD build on Protocol concepts, forming a common and consistent language for emissions tracking.
Ratings agencies such as MSCI, S&P Global, Dow Jones, and FTSE use independent frameworks developed internally to assess companies on a range of sustainability dimensions. These frameworks do not offer guidelines on what ESG indicators to report and how but can provide useful insights into the aspects that investors take into consideration. Accordingly, companies can refer to these ratings frameworks to inform their reporting approach.
Hybrid models have emerged where traditional financial reporting frameworks are modified to include non-financial information. The Integrated Reporting Framework, for example, adopts a holistic value creation approach that combines both financial and sustainability-related disclosures in its guidelines.
Our first advice to reporting companies is to determine the reporting objective:
But our best advice is to maintain the best of intentions while improving as the reporting journey progresses. Perfection is an unrealistic expectation, more so when the reporting standards themselves are still being developed and refined.
Set progressive goals for the reporting journey, taking care to set up the processes for data collection. A solid foundation for data collection will enable a smoother reporting experience in the long run. As reporting matures, you may find your chosen framework diverging from your needs or objectives. This can be supplemented with additional standards or by making a transition to a new framework.