Navigating ESG Frameworks and Standards: What you need to know to get started on ESG

Navigating Environmental, Social, and Governance (ESG) reporting can, at times, become a frustrating labyrinth of acronyms, surveys, standards, and ratings mixed in with hundreds of ESG criteria, which constantly change. It’s incredibly challenging to know where to start with reporting frameworks and competing ESG disclosure standards. Although ESG reporting is still in its infancy, the industry continues to evolve at an accelerated rate.

With regulators and agencies working globally to organize together, we expect the standards to solidify to a more universally accepted format in the coming years. To help simplify your ESG journey, we’ve summarized key takeaways, trends, and best practices for you to quickly get up to speed with ESG reporting frameworks. 

Understanding ESG Reporting Frameworks 

ESG reporting frameworks, or ESG disclosure frameworks, provide principles-based guidance to ESG topics and how the qualitative and quantitative information gets structured, prepared, and ultimately disclosed to regulatory agencies, investors, lenders, and other stakeholders. The goal of any framework is to have consistency in reporting to provide data that can be compared across organizations. In other words, they help prevent ESG investors from comparing apples to oranges.  

Aligning your ESG data with an ESG reporting framework provides investors with a sustainability snapshot of your company in a comparable, consistent, trusted format to screen your company’s financial risk for environmental, social, and governance performance. Aligning your data to ESG reporting frameworks also demonstrates you’ve done your ESG homework and distinguish yourself from your peers as a leader. 

ESG Frameworks and Standards You Should Know 

• TCFD – The Task Force on Climate-related Financial Disclosures (TCFD) guides companies on disclosing climate-related financial risks to investors, lenders, insurers, and other stakeholders. This guidance identifies multiple climate-related risks and opportunities to disclose. It is now part of ISSB.  
• GRESB  – The GRESB reporting standard benchmarks the ESG performance of real assets. Real estate and ESG investors, managers, and the wider industry actively participate in the development of GRESB Assessments to ensure sustainability performance metrics reflect the issues most material to the industry.  
• CDP – CDP manages a global environmental disclosure system used by more than 8,400 companies. Companies disclose by completing any or all of the three CDP questionnaires of climate change, forests, and water security.  
• UN PRI – The United Nations (UN) adopted the Principles for Responsible Investment (PRI) to encourage investors to implement six sustainable investment principles. Each signatory must report their responsible investment activities each year using the PRI Reporting Framework.  
• SASB – The Sustainability Accounting Standards Board (SASB) develops reporting standards that track and communicate sustainability actions most financially-material to your investors. In all, SASB offers 77 different industry-specific standards. While it still exists as its own entity it is now part of ISSB.  
• GRI – The Global Reporting Initiative (GRI) created the first set of sustainability standards in the world. The newest GRI Standards developed three series (economic, environmental, and social) of 34 topic-specific standards to help companies report on the most material issues to their investors and other stakeholders. They take a slightly different approach of looking only at how a company impacts the outside world.  

The CSRD in EU and the SEC in the U.S. are the primary players that U.S. companies and SEC filers should be concerned with at present. However, in the ESG multiverse there are many players striving to provide guidance, rules, and benchmarks to make ESG data more meaningful to investors and stakeholders.   

In recent years, various frameworks have been developed to create standardization in ESG data reporting, often overlapping in their purposes. For example, the newly formed International Sustainability Standards Board (ISSB), seeks to define standards for investors. Prior to that, the leading framework and standard-setting organizations — the Carbon Disclosure Project, the Climate Disclosure Standard Board, the Global Reporting Initiative (GRI), and the Value Reporting Foundation (itself formed by the integration of the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council — provided guidance and rules to develop a comprehensive corporate reporting system with both financial accounting and sustainability disclosures. 

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Tips for Aligning to ESG Reporting Frameworks  

In an ever-changing ESG landscape in which we exist today, it’s sometimes overwhelming to know which standard, framework, or agency to align your organization with to achieve your ESG goals. Hopefully, you have a trusted advisor to help you decipher the complexities around ESG standards and frameworks, but here are some tips to get started.  

Choose the most widely accepted ESG framework to align with agencies, investors, auditors and peers.  

Ideally, if you are a private company, you should align yourself with SEC regulations and The Taskforce on Climate-related Financial Disclosures (TCFD) framework, which the SEC has based its regulations on for the U.S. There may be frameworks that are preferred by your investors, partners, or vendors but aligning with the TCFD framework should provide the foundation to further specialized in your reporting.  

Reporting frameworks are designed to be building blocks for your ESG reporting. It’s common practice for companies to mix and match components of different frameworks into sustainability reports. Ultimately, when deciding which ESG reporting framework is right for your company, your C-level management must evaluate and decide which tools and frameworks best serve your communications objectives and meet the needs of your key stakeholders.

Investment flows with reliable, high quality ESG data using strong internal controls.  

ESG reporting frameworks and audits can’t always ensure that a company is using high quality data. For instance, audits can ensure the accuracy of reported information, but they still require reliable internal data to establish an audit trail. Likewise, any ESG reporting framework and standard-setting body must ultimately rely on companies to measure and report their data accurately. Since many companies lack strong internal control systems, they can’t generate high-quality ESG data. When the ESG process is done right, it drives better, trustworthy ESG data, which then equates to better investment outcomes, helps manage risk exposure, and affects a company’s bottom line and reputation directly. The best way to achieve this is to rely on an ESG reporting software that will cleanse and produce clean, transform data that will fit into most frameworks and result in viable ESG reporting.  

Be prepared for unified reporting standards set forth by regulatory bodies.  

Expect in the very near future ESG to transition from a voluntary, best business practice, to a regulated and required new normal for both private and public companies. Right now, public companies are on the hook for SEC regulations around ESG and climate risk and those doing business with the EU too face compliance around ESG, but that does not preclude future regulations and reporting requirements across the board. Further, expect to be asked to provide data around GHG emissions and possibly other ESG activities to business partners that are required to report Scope 3 GHG emissions for disclosure purposes.   

Reporting Frameworks and Standards Set the Stage for ESG Success 

Ultimately, all the maze of agencies, standard setting entities and governments all have the same goal: to give transparency to ESG programs. Organizations have tried valiantly to wrestle data into something usable but without universal frameworks and standards that are used ubiquitously, we’ll remain in a situation where we are comparing apples to oranges.  

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