In the following years, we expect ESG reporting standards and frameworks to collaborate even more intensively to facilitate the process and remove barriers to compare ESG performance and reports. For example, investors, boards, insurers and creditors may prefer the organization report to the Task Force on Climate-related Financial Disclosures (TCFD) or Sustainability Accounting Standards Board (SASB). In the U.S., 93% of companies use SASB, 82% use TCFD, 76% use Global Reporting Initiative standards and 91% use multiple frameworks, the IFAC and AICPA said. . To improve your ESG/sustainability scores while saving time and money in the process, it is crucial to establish a firm understanding of the most widely adopted ESG/sustainability frameworks and standards and of the ESG ranking agencies that score your organization relative to its peers. Double materiality recognizes that an organization is responsible for managing its own financial risks by looking inward. Employing the guidance of a voluntary ESG framework can help determine which issues to disclose, the form that the disclosure takes, and may facilitate the verification of information contained in a company or clients report. "Best practice in this area is evolving," he added. For this reason, many companies opt to report with both SASB and GRI. This website uses cookies to improve your experience. Check out our services to help clients begin this process or enhance their sustainability and ESG reporting globally, and check out the latest global ESG trends in 2022 published from our global Spring Associate meeting. This can make it difficult for companies to compare their reporting against different frameworks. In February, the International Financial Reporting Standards (IFRS) Foundation convened a diverse group of stakeholders at its inaugural Sustainability Symposium. An international independent standards organization that helps businesses, governments and other organizations understand and communicate their impacts on issues such as climate change, human rights, and corruption. IBM Envizi ESG Suite removes the challenges and complexity of ESG data collection, analysis and reporting so you can harness the power of data to be successful on your journey to improving sustainability. This data can then be published on your organizations website, social media or other platforms. Understanding which framework focuses on which indicator (PDF, 575 KB) can help with framework selection and provide insights into where organizations may be able to report to multiple frameworks using existing data. The Norwegian Sovereign Wealth Fund was a pioneer in showing that responsible investments are also more likely to outperform market averages. Organizations who wish their ESG score to appear in the public domain may benefit from their ranking system. Project data across departments stay consistent for impact measurement. The CDSB Framework does not specify its own metrics and KPIs for reporting. Investors have increasingly coalesced around a combination of the TCFD recommendations and SASB Standards as foundational tools to provide capital markets with effective climate- and sustainability-related financial disclosure. Launched in 1997, the Global Reporting Initiative (GRI) was the first global standard for sustainability reporting. NABERS ratings are available for commercial office buildings, tenancies, hotels, shopping centers and data centers. Track conversations online to determine what has been published about your organization and attempt to rectify any inaccurate statements. Considering the weight ESG factors have over financial and social sustainability, rushing into the process is counter-productive. Asset management companies such as BlackRock, Goldman Sachs and Morgan Stanley; manufacturing giants such as GM and Nike; and even specialized industries with companies such as Merck and JetBlue use SASB Standards to disclose ESG metrics. To improve your ESG/sustainability scores while saving time and money in the process, it is crucial to establish a firm understanding of the most widely adopted ESG/sustainability frameworks and standards and of the ESG ranking agencies that score your organization relative to its peers. These reporting frameworks become the basis for how companies set KPIs, what they measure, and what information goes in the sustainability reports they create. To learn more, please review ourprivacy policy. Of the ESG frameworks designed more specifically to inform investment decisions, the one created by financial services company Morgan Stanley is the most aggressive, as it measures long-term resilience and ESG risks through a scoring system. Build an actionable plan that makes the most of your data. What we expect to see more of in 2023 is a continued move towards digitisation of ESG reporting and machine-readable reporting. Can a company use more than one reporting framework? Governments are required to lease space in buildings with ratings of 4.5 or higher. These cookies will be stored in your browser only with your consent. However, CDSB differs in a few key ways. Similarly, the EUs sustainable finance packagethe EU Taxonomy and the Sustainable Finance Disclosure Regulation (SFDR), which includes CSRDwill further require ESG-related disclosures from companies. The SASB standards also complement theGlobal Reporting Initiative (GRI) standards, and many companies use a combination of SASB, GRI and TCFD to meet the information needs of multiple stakeholders and audiences. The DJSI applies a transparent, rules-based component selection process based on the companys Total Sustainability Scores resulting from the annual CSA. Users can compare up to four industries to understand differences and similarities in their disclosure topics. In our research we also found that there was no market consensus for terms that describe the overall genre of investing that incorporates ESG factors into the investment process. The modular, interrelated GRI Standards are designed primarily to be used as a set to prepare a sustainability report focused on material topics. VRFs framework is built to support companies in sharing their outward ESG impacts through the language of investors, debt holders and internal financial stakeholders. WHAT IS ESG REPORTING? Increase publicly available ESG information. Thirty years later, GRI remains the most widely used ESG reporting framework. Largely in response to rising investor and community interest, growing numbers of organizations are targeting sustainability performance improvements, setting ESG goals and reporting on their performance. Those who wish to essentially outsource the calculation of ESG data have the option to here. Within 24 hours, a consultant will reach out to schedule a 20-minute phone call to explore your goals and needs. The Global Compact consists of ten principles intended for incorporation into companies value systems and business operations. Agendas that help drive corporate action on sustainable development and Corporate Social Responsibility (CSR); Alliances and networks that help companies build capacities (knowledge) and share best practices in the field of sustainability and CSR; Raters and rankers that send out surveys or questionnaires to obtain ESG information from companies in order to structure that information and allow for comparability; Certification schemes that help companies get recognition for ESG performance; ESG or Sustainability Reporting Standards that provide a set of guidelines for assembling a stand-alone report or integrated report; The variety of options and overload of information makes it complex for companies to determine which ESG framework or standard is right for them. Step 2: Understand what data the target rating agencies use and how they go about uncovering it. BoardClic is the leading digital governance platform for board and CEO evaluations. For more information on GHG Protocol, head to their website. This generates the risk that the discussion will become stale. These performance insights are aligned with international reporting frameworks such as the GRI and Principles for Responsible Investment (PRI). Regulatory changes: Various progress has been made across national and supranational jurisdictions. The growing importance of ESG means that organizations are reporting their ESG impact using an ever-increasing range of different frameworks. Companies receive scores ranging from 0 to 100 and percentile rankings for approximately 20 financially relevant sustainability criteria across economic, environmental and social dimensions. For example, a large-cap e-commerce company may choose to focus on packaging materials and waste (environmental), supply chain labor standards (social) and business ethics (governance) in its materiality assessment because it determined these to have the largest risk profiles when it comes to environmental impact, overall shareholder and consumer confidence, and regulatory requirements. Then, once new more cohesive standards are introduced, consider switching.The important thing to consider is that whatever standard is introduced may change, and that the software you use to help calculate will have to accommodate this. Net zero is the point at which greenhouse gases going into the atmosphere are balanced by an equivalent amount removed from the atmosphere. For most, however, challenges exist both in scope and deployment. As McKinsey states in its article Five Ways ESG Creates Value: A strong ESG proposition correlates with higher equity returns, from both a tilt and momentum perspective. - Click to Tweet. Using an action priority or impact effort prioritization matrix, organizations can quickly identify where to focus their initial efforts and then use these insights to determine which ESG framework can help with realizing goals that are within reach. The Sustainability Accounting Standards Board (SASB) develops and provides non-financial, sector-specific sustainability reporting standards that track and communicate ESG performance areas and metrics that are most financially-material to investors. SFDRs PAI statement requires financial bodies to report different types of quantitative indicators, including weighted averages across various ESG metrics for their investments as well as emissions from their own activities. Of the other ESG reporting frameworks, the GRI is most like SASB but supplies more broadly material information for reporting to stakeholders who are not just from financial portfolios. The SASB Standards were framed using a transparent standard-setting process that included evidence-based research, open participation from companies, investors and subject-matter experts; and oversight and approval from the SASB Standards Board. All GRI standard-setting activities are governed by the Global Sustainability Standards Board. Today, over 80% of the worlds 250 largest corporations use GRI. To find out more, please visit our privacy. An ESG framework provides broad principles that guide the reporting process. It contains detailed criteria, or ESG metrics, of "what" should be reported on a specific topic. SFDR will act in concert with the EU taxonomy and the proposed EU Corporate Sustainability Reporting Directive (CSRD) to form the basis for the EU sustainable finance agenda. These approaches are not an efficient means of managing ESG data in the face of stakeholder and regulatory pressureespecially for complex global organizations reporting to multiple frameworks. Rather than substitutes, you may argue that the reporting standards are complementary to each other. Each questionnaire includes general questions alongside sector-specific questions aimed at high-impact sectors. Step 1: Identify which rating agencies you need to target. Having an accurate and auditable data foundation today means avoiding historical errors and changing processes when ESG reporting changes come into effect. SASB Standards are now under the oversight of the ISSB. 4. Companies that wish to report on social and governance factors will need to use a secondary reporting framework. Over the recent years, weve seen multiple ESG and sustainability frameworks, reporting standards, and other initiatives evolve, aimed at collecting and structuring ESG information for both internal and external use. Examples includeENERGY STAR (link resides outside ibm.com) (North America and select other countries), SECR (UK) and NGER(link resides outside ibm.com) (Australia). Some frameworks are voluntary, while others are government mandated. Organizations may also consider what their stakeholders are looking for and which ESG frameworks these stakeholders expect to be used. So how to choose? ESG or Sustainability Reporting Standards that provide a set of guidelines for assembling a stand-alone report or integrated report; The variety of options and overload of information makes it complex for companies to determine which ESG framework or standard is right for them. SASB is one of the most popular frameworks for reporting on ESG factors. Metrics and targets: What are the measurements used to assess material climate-related risks and opportunities? This is where standards come in. The 1100 scale is set so that 1 represents the worst-performing buildings and 100 represents the best-performing buildings, with 50 representing the average. The Global Reporting Index sets standards for impact reporting. Organizations assessing their ESG reporting approach may also find it beneficial to consider the environmental and social factors that they can influence most directly and rapidly. ESG stands for environmental, social and governance. To find out more, book a call with one of our team. Decarbonization is a method of climate change mitigation that reduces greenhouse gas (GHG) emissions, as well as removes them from the atmosphere. Scoring is typically not included in these frameworks. Using a six-star scale, NABERS helps Australian building owners understand how their asset impacts the environment and helps prospective tenants understand how energy-efficient their leased space is. CDP offers three questionnaires on the topics of climate change, water and forestseach of which is scored using different methodologies. SASB standards also provide a way to implement frameworks that are relevant to the company.Cons. The Carbon Disclosure Project differs to the other ESG Frameworks in the sense that it provides a central platform by which all participants report to. The ESG reporting ecosystem is rapidly evolving and is made up of an ever-increasing number of frameworks, standards and providers of ESG research and ratings. Undertake an analysis of the terminology used and adjust for clarity. Only time will tell how this will go, but one thing is for sure: ESG disclosure is here to stay. The challenge is that no standard ESG reporting framework exists. Your ESG reporting software solution should help achieve this with an auditable data record and accurate emissions calculations. Truth be told, the diversity of ESG frameworks is confusing, and setting up a reporting system that covers the metrics most relevant to your industry can be overwhelming. Certain ESG reporting frameworks are only relevant in particular geographies. Is it however necessary to choose one ESG Reporting Framework or Standard over another? Using ESG Frameworks Together for Lasting Change The graphic below offers a helpful side-by-side comparison of the majority of the frameworks listed above: While different companies combine multiple frameworks in different ways, here is a helpful way to think about how to approach them: And you may also be familiar with established ESG reporting frameworks like CDP and GRI. Only the top-ranked companies within each industry are selected for inclusion in the DJSI family. Within this maze, we distinguish: The variety of options and overload of information makes it complex for companies to determine which ESG framework or standard is right for them. 2023 Bloomberg Industry Group, Inc. All Rights Reserved. To help you with this, weve broken down some of the main ESG reporting standards. Industry-specificity: The SASB Standards are focused on improving the disclosure of industry-specific ESG issues because not all sustainability issues matter equally to each industry, and sometimes the same sustainability issue can manifest differently across industries. Financial materiality: The SASB Standards strive to identify the ESG issues most relevant to the financial performance of companies in 77 industries. Based on the call, well build out a custom demo with the Source Intelligence programs and services most relevant to you. 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