The Nitty Gritty on ESG Reporting Frameworks and Standards

Understanding ESG Reporting Standards and Frameworks

The use of third-party ESG disclosure standards and frameworks is the starting place for any voluntary ESG reporting your business wishes to conduct. In 2022, the use of ESG and sustainability reports continued to rise, with SASB and TCFD being the primary focus for institutional investors and GRI remaining the most dominant standard used globally. Corporations are responding to the expectations of many large institutional shareholders that have begun to quasi-mandate that companies report to these disclosure frameworks or risk losing their support. Not all ESG reports by different firms following the same frameworks will
look the same, as some companies do not disclose every component within the frameworks; depending on the standard, companies possess a degree of flexibility in choosing what to report on within the frameworks delineated topics based on what the firm has determined is material to them.

Understanding the differences between each schema is crucial when deciding which makes the most sense for your company.  Here is a matrix of all the sustainability frameworks, standards, and indices (with the ESG reporting ones highlighted in green):

Tips on How to Decide on an ESG Reporting Framework:

• Understand a framework vs. a standard: frameworks contextualize information, outlining a set of principles for “how” a report is structured and guidance to shape your thoughts on a variety of topics.  This allows more flexibility, whereas a standard focuses more on the “what” you are reporting on.  Standards aim to align organizations with a set of specific and replicable requirements that outline what should be included in the report, including prescriptive metrics.  They are often designed to be used together as complements.
• Know your audience:  Your relevant stakeholders could be investors, clients, prospects, or policymakers, so it is important your report meets the needs of your audience.  Some reporting schemas address a broader audience, while others are catered more to niche KPIs like financial impact data.
• Establish an overall intent of the report early on:  Reporting schemas have many different focuses, some on external impacts a company has on society, or how sustainability disclosures relate to the company’s financial performance – deciding your intent first sets you up for success when acquiring data.
• Geography and industry matter, especially when dealing with mandatory reporting requirements.

Who Cares About ESG Reporting?

As arguably one of the most important factors to keep in mind when choosing an ESG reporting framework, we’re going to dive deeper into who actually cares about this data.  The primary consumers of ESG disclosure data are investment and finance stakeholders, typically using the data to inform ESG rating platforms and ESG scores, which help with benchmark performance and comparability across companies. Consumers, employees, and prospective business partners who value sustainability will also use ESG disclosure data to better inform which organizations they wish to support or work for. Regulators and government agencies will utilize ESG data in order to incentivize socially conscious businesses with tax breaks and subsidies or to levy penalties (if ESG disclosure laws are in place). The most ESG-savvy firms will fully utilize the data collected in ESG reports operationalizing sustainability with energy, water, and waste efficiency measures, technology upgrades, and competitive differentiation in markets that favor low-carbon products/services.

The Future of ESG Reporting Frameworks

As the current landscape stands, there is an overall lack of standardized ESG reporting, causing challenges for many organizations.  However, these frameworks could begin to converge, according to these recent proposals:

• SEC Proposal:

In March 2022, the SEC issued a proposal that would significantly enhance climate-related disclosures in annual filings.  The proposal specifically focuses on how climate risk is identified, assessed, managed, and disclosed, the financial impact of climate-related natural events like severe weather, and the consistent tracking and disclosing of GHG emissions.

• International Sustainability Standards Board (ISSB) Proposal:

The formation of the ISSB was announced at COP26 in November 2021. The ISSB and the Global Reporting Initiative (GRI) are working together to drive the consistency and compatibility of investor-focused baseline sustainability information, while also striving to address stakeholder concerns.  The ISSB will issue sustainability reporting standards with the objective of delivering a global baseline of sustainability disclosures that will satisfy capital market needs, leaving localized jurisdictions with the decision of whether to require or permit the use of ISSB standards as a basis for sustainability reporting.  These standards are expected to be published in early 2023.

• EU Regulations and Disclosure Proposal:

The EU regulations are part of the Corporate Sustainability Reporting Directive (CSRD) and require entities to provide mandatory sustainability disclosure.  The scope of the CSRD’s proposal will cover EU subsidiaries of non-EU parent companies, including US companies and other global multinational companies.  This directive resulted in the creation of the European Sustainability Reporting Standards (ESRS).  The mandates of this proposal are expected to be more comprehensive than that of the SEC or the ISSB and are expected mid-2023.

WatchWire Can Help

WatchWire has the tools to handle all experience levels and sectors among our clients dealing with ESG and sustainability reporting. We are not just a data
dashboard for high-level executives, we are an end-to-end energy and sustainability data management solution that can automate data capture and generate high-level insights on all environmental metrics: water, waste, energy usage and intensity, renewables mix, GHG emissions accounting, sustainability goal tracking, and more. Integrating directly with several internationally recognized reporting standards, WatchWire can also help you report with ease and automatically keep your firm up to date with the changing data requirements from these frameworks.

To learn more about WatchWire’s ESG reporting functionality, download the WatchWire Solution Brief here.