The engine that powers sustainable organisations
TCFD, CSRD, SFDR… the list of acronyms can be confusing, especially when getting started with the ESG topic. However, these very ESG regulations and frameworks signal a growing momentum for more transparency and management in reporting ESG issues.
In this article, we explain the different regulatory frameworks in the EU that focus on ESG reporting requirements.
Many ESG frameworks serve as reporting frameworks, evaluation standards, or regulators for the general handling of ESG issues. The regulatory frameworks provide a set of rules for managing, measuring, and reporting on the environmental, social, and governance aspects (ESG) of companies.
These are guidelines that have the force of law, so companies are legally obligated to comply with these requirements. The regulations vary depending on the country and region, but they all serve to increase the transparency of the non-financial impacts of companies.
ESG regulations hold companies responsible for, among other things:
For monitoring purposes, these frameworks also require:
While they outline the types of data that need to be reported in corporate reporting, they do not necessarily provide guidance for the entire reporting process. However, they are still useful for facilitating the selection of information for reporting.
Legally required disclosures are also not negotiable, which is why companies must know and refer to the framework that applies to them. Regulatory frameworks can be very specific to a particular topic or broadly designed to cover general sustainability issues.
Let’s take a look at some of the most common frameworks and what they’re targeted at.
Besides the regulatory requirements on reporting, many companies use a reporting framework when disclosing ESG performance. It provides structure and depth to your disclosures, outlining metrics and indicators for a range of ESG topics beyond what may be required by law.
These frameworks are all commonly used for sustainability reporting:
There is no framework that is ‘best’, only what works best for your needs. Before choosing a framework, ask your business these three questions:
By answering these questions, you will gain a deeper understanding of the goals and criteria for managing and reporting your ESG performance. This will narrow down the list of frameworks available. If your company is particularly vulnerable to certain ESG risks, you may consider using a theme-specific framework.
Industry-specific frameworks can also help achieve a sharper focus and better coverage of essential topics. Frameworks can also be combined to achieve a better impact, allowing for more than one framework to be used together.
It is very likely that you will need to use more than one framework anyway, as legal requirements are focused on specific topics.
When managing and reporting on your ESG performance, your collected data is crucial. This is why the most comprehensive frameworks always define a solid approach for information collection and content. The data is ultimately used to measure progress and support your statements, and becomes even more important as your ESG management and reporting matures.
Therefore, it is important to establish the basics early on. However, this is also where it becomes difficult: ESG data is different from financial data. Collecting, managing, and processing the huge and very diverse amounts of data is a very complex task.
Without the help of sustainability software specifically designed for processing ESG data and analysis, this endeavor can be time-consuming and expensive. Modern sustainability software, on the other hand, can take on many tasks, such as:
It is crucial that the sustainability software ensures that your statements meet all reporting criteria based on the sustainability reporting framework you have chosen.