Unscrambling the alphabet soup of ESG reporting

TCFD, GRI, CDSB, CDP, SASB

When it comes to sustainability reporting, you may have the sensation of drowning in an alphabet soup of frameworks and standards. You’re not alone. These acronyms are just some of the different organisations and initiatives trying to shape how companies measure and report their sustainability performance to investors and other stakeholders.

To date, the majority of environmental, social and governance (ESG) reporting by companies has been voluntary, centred around companies’ annual sustainability or “corporate social responsibility” (CSR) reports. Companies’ annual financial reports are another vehicle for ESG reporting, and companies are under increasing pressure to integrate their sustainability and financial reporting, thereby treating ESG issues as a core part of business strategy.

There are several main reporting frameworks, including GRI, SASB, CDP and TCFD, that aim to guide companies on how to measure, assess and report on their ESG initiatives, risks and opportunities. See the full rundown below.

There are efforts underway to try to harmonise these different frameworks and standards. The Corporate Reporting Dialogue, for example, has launched the Better Alignment Project, a two-year collaboration between CDP, CDSB, GRI, the International Integrated Reporting Council (IIRC) and SASB, to help synchronise the different reporting frameworks.

As part of the project, the participants have mapped their frameworks against the TCFD recommendations to identify areas of overlap and potential for improved alignment. Reporting its findings in September, the Corporate Reporting Dialogue said the mapping showed a “strong alignment” between the participants’ frameworks and the TCFD.

“Rather than being confused and thinking, ‘Which one do I have to do?’, you don’t have to make that choice,” says Gemma Clemments of the CDSB, adding:

“In some cases, organisations use multiple frameworks for different reasons. We complement each other in a lot of ways.”

Overview of the main reporting frameworks and standards for ESG reporting:

GRI: The Global Reporting Initiative, formed in 1997, developed the first and most widely adopted global standards for sustainability reporting. The GRI Standards are broader in scope than some of the other frameworks.

SASB: The Sustainability Accounting Standards Board in 2018 published a set of standards for 77 different industries, which identify the minimal set of financially material sustainability topics and their associated metrics for a typical company in a given industry. Focusing on financially material issues for specific industries, SASB is more granular in scope than some of the other frameworks. The standards aim to help companies and investors analyse the material ESG issues likely to affect a company’s financial performance.

TCFD: The Task Force on Climate-related Financial Disclosures, chaired by former New York City mayor Michael Bloomberg, was set up in 2015 by the Financial Stability Board (FSB) of the G20 to develop voluntary guidelines for companies, banks and investors to use when disclosing climate-related financial risks and opportunities to their stakeholders. The recommendations, issued in 2017, aim to help financial markets, including lenders, insurers and investors, better assess and price those risks and opportunities. While voluntary until now, TCFD-based reporting becomes mandatory in 2020 for all asset owners and managers signed on to the UN Principles for Responsible Investment.

CDSB: The Climate Disclosure Standards Board (CDSB) is an international consortium of business and environmental NGOs that has set forth a framework for companies to report environmental and climate change-related information in their corporate financial reporting, such as the annual report. The organisation aims to enable companies to report environmental information with the same rigour as financial information in order to provide investors with decision-useful information to ensure resilient capital markets.

CDP: CDP (formerly the Carbon Disclosure Project) is a UK-based non-profit that runs a global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts. Over 8,400 companies, 800 cities and 120 states and regions have reported through CDP on climate change, water security and deforestation. Each year, CDP takes the information obtained through its annual reporting process and scores companies and cities on their environmental performance.

UN SDGs: The United Nations Sustainable Development Goals is a collection of 17 goals adopted by the UN member states in 2015 to achieve the 2030 Agenda for Sustainable Development. The SDGs provide a blueprint for countries to achieve a more sustainable future, including ending poverty and hunger, improving health and education, combating climate change and protecting oceans and forests. While the SDGs were created for UN member states, the UN Global Compact and GRI have joined forces to help businesses report on the SDGs.

UN PRI: The United Nations in 2006 launched the Principles for Responsible Investment, to help investors incorporate ESG factors into their investment and ownership decisions. The international network of investor signatories has grown from 100 to over 2,300, representing over $80 trillion in assets under management. The six principles are a set of voluntary investment principles, supported by 35 possible actions, that investors can use to integrate ESG into investment practice. The PRI has specifically aligned its work with the UN SDGs and has also made TCFD-based reporting mandatory for its signatories in 2020.

EU Guidelines on reporting climate-related information: In June 2019, the European Commission published guidelines on reporting climate-related information. The guidelines aim to give practical recommendations to around 6,000 EU-listed companies, banks and insurance companies that must disclose non-financial information under the Non-Financial Reporting Directive (NFRD). They incorporate the TCFD recommendations as well as the “EU taxonomy”, a classification system to identify the parts of a business that have a significant positive impact on climate. The goal of the guidelines is to help companies better report the impact their activities are having on the climate as well as the impact of climate change on their business.

EU Taxonomy: The European Commission’s Technical Expert Group on sustainable finance (TEG) has developed a classification system, or taxonomy, for environmentally-sustainable economic activities. The group screened activities across a wide range of sectors, including energy, transport, agriculture, manufacturing and real estate and identified low-carbon activities such as zero-emissions transport but also transition activities like iron and steel manufacturing to compile a framework to identify the parts of a business that have a significant positive impact on climate. The taxonomy also provides guidance on the boundaries of negative impact with do-no-harm criteria. The political agreement EU co-legislators reached on the taxonomy regulation in December bolsters transparency. Companies that are obliged to report under NFRD will be required to disclose the share of their business/capex/assets that is taxonomy aligned.