Sustainability Standards for ESG Reporting

As a corporate ESG and sustainability reporting expert, I require in-depth knowledge of Environmental, Social and Governance (ESG) voluntary and mandatory reporting frameworks and standards.

Considering both the unique context, value chain and strategy of an organization, I write annual ESG reports for businesses that combine my skills as a copywriter and expert in sustainability framework requirements. These help me to construct a sound strategic management narrative for a company's performance each year based on their activities and documentation. I share this backdrop to emphasize the importance of ESG Standards and Frameworks to my work.

What are ESG Standards and Frameworks?

In case you're new to this topic, ESG Standards and Frameworks are designed to help businesses transparently disclose and manage ESG issues that affect not only their financial prospects, performance and profitability, but also a wide range of stakeholder groups including investors, employees, customers, suppliers, community members and nature, which is sometimes considered a silent stakeholder.

ESG standards and frameworks give guidance on how to choose the relevant ESG issues to report on and how to align with expectations of multiple stakeholders through guidance on reporting. Given the role of ESG Standards and Frameworks to apply to businesses across the entire economy, there are different types of standards and frameworks including:

  • mandatory and voluntary frameworks,

  • principles-based and rules-based,

  • applicable based on a materiality assessment or by sector,

  • focused on a broad range of ESG topics or concentrated on a single significant topic,

  • etc.

ESG standards and frameworks present details such as how, when, and to whom reports should or must be presented. The aim is to provide more information that can contribute to both internal management, communication and strategic decision-making about sustainability topics as well as external transparency about a company's plans, activities and approaches related to globally impacting systemic issues.

Below, I've compiled some basic information on the most commonly used sustainability standards and frameworks in my field. I hope this list will be helpful for anyone who hopes to gain a stronger understanding of the reporting universe.

The Global Rise of Mandatory ESG Standards

IFRS/ISSB*

Source: https://www.esgprofessionalsnetwork.com/an-infographic-of-the-esg-reporting-landscape/

*Learn about my FSA I certification here, which focuses on the IFRS/ISSB sustainability disclosure standards.

With the creation of the International Sustainability Standards Board (ISSB) at COP26 on November 3, 2021, the International Financial Reporting Standards (IFRS) announced the launch of a series of consolidation and standards setting efforts.

Timeline of changes:

  • In 2021, the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB) consolidated into the Value Reporting Foundation (VRF) in 2021.

  • In June 2022, further consolidation of the Carbon Disclosure Standards Board (CDSB) and VRF into the International Financial Reporting Standards (IFRS) finalized.

  • In July 2023, ISSB released its S1 General Disclosures Standards and its S2 Climate-related disclosures, while IFRS took over the responsibility for TCFD monitoring.

The efforts if the ISSB has led to the creation of an “international baseline of sustainability-related disclosures,” which are ready for implementation as mandatory standards at the national and regional levels.

So far, they have launched S1 “General Disclosures” and S2 “Climate-related disclosures.” While S2 is very similar to the TCFD, it has some key distinctions. For now, S1 refers companies to apply financial materiality and use SASB sector standards for reporting until further development of additional standards. Both of these standards are described below under voluntary standards.

According to the IFRS, as of June 2024, a handful of major economies have chosen to adopt or use the standards (Brazil, Costa Rica, Sri Lanka, Nigeria and Turkey), while others are consulting on the use of them (Canada, Japan, Singapore, Australia and Malaysia).

IFRS is focused on providing sustainability information that meets the needs of investors and other primary financial report users, using “financial materiality" as a basis for reporting. This differs slightly from the EU's mandatory CSRD, which applies double materiality (including environmental and social “impact materiality" for multiple-stakeholders and financial report users).

Some may view this as a rift when in fact, many sustainability "impacts" become financially material. The IFRS aims for compatibility with the EU's CSRD and recently published interoperability guidance along with EFRAG, the standard setting authority in the EU. Even if some companies are not required to report on impact materiality through IFRS, the widely adopted voluntary GRI standards still remain important for multi-stakeholder reporting on environmental and social impacts.

CSRD

The EU’s updated Corporate Sustainability Reporting Directive went into effect on January 5, 2023, requiring approximately 50,000 companies to report under the European Sustainability Reporting Standards (ESRS) for the 2024 fiscal year in 2025.

The EU standards (ESRS) are part of a broader sustainable finance ecosystem that includes the European Green Deal, the Sustainable Finance Disclosure Regulation, the EU Taxonomy, the Corporate Sustainability Due Diligence Directive, the EU Green Claims Directive and other legislation as part of a broad-reaching Sustainable Finance Roadmap.

CSRD snapshot:

  • Replaces the EU NFRD (Non-financial reporting disclosure)

  • Effective for the first time for the reporting year 2024 with the first compliant reports published in 2025

  • 50,000+ businesses to disclose under CSRD according to a phase-in schedule. Includes EU-based subsidiaries of in-scope companies headquartered outside of the EU. Includes reporting on the entire value chain of in-scope companies, including suppliers located outside of the EU.

  • Reporting period aligns with annual financial reporting period.

  • Reporting should be published in the management report section of the financial report in XBRL format.

  • Limited assurance is required for reported information.

  • CSRD aims for reporting interoperability with GRI, TCFD, IFRS/ISSB and other major reporting frameworks.

CSRD applies a “double materiality” lens to reporting. All organizations required to report under CSRD should prepare a double materiality assessment that considers outward and inward impacts on organizations.

  • Outward impact materiality: This materiality perspective includes the positive and negative, actual and potential impacts on people and the environment in the short-, medium- and long-term. These impacts are important from the perspective of affected stakeholder groups, such as employees, communities and customers.

  • Inward financial materiality: This materiality perspective include the financial risks and opportunities associated with material topics across the value chain in the short-, medium-, and long-term. These risks and opportunities are important to the primary users of financial reports such as investors and lenders.

General disclosures: ESRS 2 contains the general disclosures all in-scope companies must report, including "cross-cutting standards” which are standard reporting requirements for each material topic including governance (GOV), strategy (SBM), impacts, risks and opportunities (IRO), policies and actions (PA), and metrics and targets (MT).

Topic disclosures: In addition to these disclosures, companies should report on specific metrics and recommendations for reporting outlined within the relevant material topic standards. Material topic disclosures are either covered by one of the ESRSs for the E, S, and G categories or other company-defined metrics, where the ESRS topic standards don't cover an issue.

Sector standards: The EU's EFRAG (the standard setting authority) is in the process of developing sector standards in addition to its topic standards.

E1 Climate Change: All companies should report on ESRS E1 Climate Change, unless they can explain a strong reason for excluding this disclosure. ESRS E1 includes Scope 3 emissions and generally follows the GHG Protocol, though it requires reporting with an operational boundary, without the option to choose a financial or equity share boundary.

For more details, a thorough and helpful overview is GRI's CSRD Essentials guide.

Other mandatory rules

In the US, the SEC's Climate Disclosure Rules were significantly watered down from their initial form, which was similar to TCFD and included Scope 3 emissions disclosures. Now, the current form requires reporting only if material and does not require Scope 3 emissions disclosures. This puts it in contrast to both the IFRS/ISSB S2 and the EU's ESRS E1.

In addition, the Rules are now being challenged in court and the SEC has "stayed" or paused their implementation until the court case outcome is clear, even though the rules weren't set to go into effect until 2026. This has a consequence for US investors, who cannot easily access the level of information needed to create high quality sustainability funds, such as the EU's Article 9 classification.

UK, New Zealand and other jurisdictions have adopted similar recommendations to TCFD under different requirements. As in the US, these requirements are limited to climate-related disclosures.

Voluntary Standards and Frameworks

While the global adoption of mandatory ESG reporting requirements are on the rise, many of these mandatory frameworks and standards relied heavily on the use of definitions, processes and details previously established in voluntary standards. Moreover, many large companies may continue to rely on voluntary standards and frameworks for additional guidance beyond that of the mandatory standards, where they fall short.

GHG Protocol

The GHG Protocol Corporate (Scope 1 and 2) Standard and Value Chain (Scope 3) Standard is a framework referenced in most other standards and frameworks for reporting on greenhouse gas (GHG) emissions. It provide recommendations for creating a GHG inventory and mapping emissions across organizational structures.

Under the GHG Protocol, companies can determine whether they apply operational, financial or equity share boundaries, measure location-based or market-based Scope 2 emissions, and other issues that aid flexibility.

GHG Protocol snapshot:

  • Originally established in 1998 with subsequent initial publications of its Corporate Standard (2004) and Value Chain Standard (2009), which are regularly updated.

  • GHG Protocol is referenced within TCFD (metrics and targets), GRI (material topic on GHG emissions), CDP and other major standards and frameworks.

  • Recommends reporting all major GHG emissions by type and converting these into their CO2 equivalents

  • Organizations define and report their GHG emissions as Scope 1, 2 and 3 emissions:

    • Scope 1 emissions: Direct operational emissions from fuel burning in vehicle fleets, furnaces or other equipment, emissions from industrial processes and fugitive emissions (such as refrigerants.

    • Scope 2 emissions: Indirect operational emissions from purchased electricity, heating or other energy or water resources, usually from utilities.

    • Scope 3 emissions: Indirect value chain emissions from business relationships across the upstream, downstream, transportation, product, investment, leased asset, and employee emissions (across a total of 15 common categories). These emissions require data collection from parties external to an organization and generally use estimates using emissions factors. For most organizations, the majority of their emissions are reflected in their Scope 3 emissions.

GRI*

*Learn about my GRI Sustainability Professional certification here.

The Global Reporting Initiative (GRI) is a set of cross-sector sustainability standards for environmental, social and governance issues developed by multi-stakeholder input through the Global Sustainability Standards Board. GRI is one of the longest standing and most widely adopted set of ESG reporting standards.

GRI snapshot:

  • Founded in 1997. GRI has provided global sustainability reporting standards since 2016.

  • 10,000+ companies report using GRI standards in over 100 countries.

  • 73% of the world’s 250 largest companies report using GRI standards. 

  • There is no reporting deadline set by GRI. Companies report according to their own stated reporting period.

  • Where there are reasons for omission, it is helpful to report plans to develop a specific process or management system for a given disclosure.

  • GRI provides advice on alignment with SDGs, SASB and TCFD among other standards.

  • GRI emphasizes the Rio precautionary principle suggesting lack of scientific certainty should not prevent mitigation of serious or irreversible environmental impacts.

  • GRI also emphasizes human rights practices in alignment with the Universal Declaration of Human Rights.

The GRI standards are outward facing, meaning they focus on the impacts businesses have on society. Other frameworks that require reporting on the risks posed by climate or other ESG issues on businesses.

GRI regularly updates its standards with the most recent 2021 update effective as of January 1, 2023. The 2021 updated standards emphasize four key areas: impact, materiality, due diligence and stakeholder engagement.

Companies may either report as members of GRI by reporting “in accordance” with the standards, and providing responses or reasons for omission to all required disclosures, or they may report “with reference” to the standards, a more flexible option for businesses gearing up to report under GRI. All disclosures are generally contained in a GRI content index in the appendix of an ESG report.

The structure of the standards is as follows:

  • GRI 1, 2 and 3 are the universal standards which all companies reporting under GRI should disclose. These standards replace GRI 101, 102 and 103 from the 2016 standards.

  • GRI 1 includes the nine foundational principles of reporting and best practices. It is basically the instruction manual for effective reporting under GRI. It contains the 8 principles organizations are expected to apply across their reporting: accuracy, balance, clarity, timeliness, verifiability, completeness, sustainability context, and comparability

  • GRI 2 contains general disclosures that all businesses must report on. It includes general information about the organization and its reporting practices and ESG data relevant to all sectors. The main sections within GRI 2 are organization and reporting practices; activities and workers; governance; strategy, policies and practices; and stakeholder engagement.

  • GRI 3 contains 3 disclosures on the development of the material topics considered by an organization. Organizations are expected to disclose their process to consider their actual and potential positive and negative impacts for environmental, social and governance issues. They should also disclose their list of material topics and how they manage their impacts.

  • GRI Sector Standards are currently in development. GRI expects to release a total of 40 sector standards, starting with the highest priority sectors. So far just 3 have been made public: Oil and Gas (GRI 11), Coal (GRI 12) and Agriculture, Aquaculture and Fishing (GRI 13). Organizations are required to report using the sector standards for their industry, if sector standards are available.

  • GRI Material Topic Standards are not new for 2021. They are a list of disclosures for material topics organizations have selected in their process of determining what issues are material to their organization. Organizations are required to report on the material topic standards that they have chosen in their list of material topics.

IIRC

The Integrated Reporting Framework integrates financial and non-financial reporting into the same strategic review and planning cycle, while drawing connections across financial and sustainability performance. 

In 2021, SASB and the International Integrated Reporting Council (IIRC) merged to form the Value Reporting Foundation, to combine approaches. 

SASB

Even though the Sustainability Accounting Standards Board (SASB) has been consolidated with IIRC into VRF and IFRS, it helps to understand how the standards developed. The standards were established in 2011 to improve the cross-comparability of sustainability metrics, especially for investors interested in simplifying ESG comparisons with clear KPIs.

SASB Snapshot:

  • Created in 2011.

  • Recently consolidated into VRF and IFRS.

  • Uses a sector-based standards approach with clear, simple KPIs.

The SASB Framework covers 5 main areas and 26 key issues:

  • Social Capital - Human rights and community relations, customer privacy, data security, access and affordability, product quality and safety, customer welfare, selling practice and product labelling 

  • Human Capital - Labor practices, employee health and safety, employee engagement, diversity and inclusion

  • Governance - Business ethics, competitive behavior, management of the legal and regulatory environment, critical incident risk management, systemic risk management

  • Business Model - Product design and lifecycle management, business model resilience, supply chain management, materials sourcing and efficiency, physical impacts of climate change

  • Environment - GHG emissions, air quality, energy management, water and wastewater management, waste and hazardous materials management, ecological impacts

SASB standards provide details on key material sustainability issues across 77 industries. 

TCFD*

*Learn about my Global Association of Risk Professionals Sustainability and Climate Risk certification here, which prepares professionals with appropriate knowledge for a TCFD-aligned climate risk assessment.

The Task Force on Climate Related Financial Disclosures (TCFD) is a set of recommended disclosures created by the Financial Stability Board (FSB) in 2015. The aim of TCFD is to provide governments, investors and financial institutions with data on climate-related financial risks and opportunities and the management of these risks.

Many current reporting regulations are based at least in part on the TCFD’s framework, as it is considered the most effective means for identifying potential systemic risks within financial systems.

TCFD snapshot:

  • Created in 2015.

  • 4,000+ reporting organizations and financial institutions.

  • Report due within four months after the entity’s financial year-end.

  • Annual reporting recommended.

  • Many other standards and frameworks aim to align with TCFD: CDP, GRI, etc.

  • TCFD is a set of forward-looking recommendations. Effective reporting often requires the support of data analytics and machine learning software that draws on climate science, geographic location and socio-economic data sets.

These financial risks fall into two categories: physical risks (and/or opportunities) from direct acute or chronic climate hazards and transition risks (and/or opportunities) from climate-related changes to policy and regulations, litigation trends, technology, consumer demand and reputation.

TCFD recommends disclosures on four key areas:

  • Governance 

    • Ensuring board oversight of climate risks. 

    • Describe management’s role and process for conducting climate risk assessments. 

  • Strategy 

    • Assessing climate related physical and transition risks and opportunities for assets and portfolios and reporting on the impacts of these risks and opportunities on strategy and financial planning. 

    • Conducting scenario analysis to explore and quantify the financial impacts (risks and opportunities) of climate change to assess business resilience per a range of scenarios including 2C warming. 

  • Risk Management 

    • Describe the risk management processes for assessing and reporting climate risks and opportunities. 

    • Describe how climate risk assessment is integrated into broader risk management processes. 

  • Metrics and targets 

    • Reporting GHG emissions for Scope 1, 2, and 3 (recommended). 

    • Describe the metrics used for reporting climate risk. 

    • Describe the targets in place for managing climate risk and report performance against targets.

TCFD has a unique emphasis on comparing forward-looking short-, medium- and long-term climate risks. This acknowledges an important fact about climate risks: business activities today can significantly impact future climate hazards, by either growing or diminishing the risk curve.

TCFD also recommends scenario analysis of at least two pathways, given that climate risks vary significantly between a lower warming scenario versus a higher warming scenario. Businesses are expected to disclose their strategy for climate risks and opportunities in consideration of these varying scenarios.

TCFD reporting captures the “inward facing” risks of climate change on business. For example, physical risks are determined using the hazard, vulnerability and risk (HVR) framework that combines external hazards with vulnerabilities based on asset structures, insurance coverage, or other metrics to quantify the resulting financial risk from issues like flooding, temperature increase, wildfires, the increasing probability of damage from storms, etc.

For individual businesses, asset materials and location data can be used to assess physical risk, while carbon pricing can generally be used as a proxy to quantify transition risk. For larger financial institutions and banks, other means of arriving at estimates across investment portfolios are used to simplify the risk quantification process.

UN SDGs

The United Nation Sustainable Development Goals are a set of 17 goals with a total of 169 associated targets to achieve by the year 2030. They are part of the UN’s 2030 Agenda for Sustainable Development, which was launched in 2015.

SDGs snapshot:

  • Created in 2015.

  • 83% of global companies have showed support for the UN SDGs

  • While the SDGs do not directly align with other standards, companies often disclose when their activities align with SDGs in their ESG reports.

  • SDGs are broad-reaching goals intended to drive action with specific targets.

Sustainable development, by definition, is balancing the needs of future generations with those of today. This means society must avoid depleting resources beyond their ability to regenerate, or harming groups of people to the extent that they may struggle to access basic needs or enjoy human rights.

Sustainability has been implemented in multi-national frameworks through goals and target-setting, rather than strict rules and policies. The UN SDGs are an example of this.

The SDGs engage the private sector to contribute to making improvements on globally impacting issues ranging environmental, social and economic (ESG) topics. SDGs are also used by the public sector and non-profits to drive action towards societal improvements.

Businesses reporting their ESG activities often disclose the alignment of these activities with the UN SDGs, which may also influence organizations’ policies and initiatives.

UN Global Compact (UNGC)

More information coming soon.

Key facts:

  • Launched in 2000, it is a UN pact encouraging businesses to adopt sustainable practices and report on their activities. 

  • It has 13,000 participants and representatives from 170 countries. 

  • The cross-sector framework covers 10 principles on  4 key areas:

    • Human rights

    • Labor

    • Environment

    • Anti-corruption 

CDP

Originally the “Carbon Disclosure Project,” CDP boasts the world’s largest database of environmental data on the private sector with information businesses voluntarily report. The database is used by stakeholders interested in business activities such as banks, investors and customers.

CDP snapshot:

  • Founded in 2000.

  • 13,000+ businesses disclose through CDP.

  • Questionnaire responses are due on July 26 each year.

  • Answering questions inadequately is better than leaving them blank in the eyes of CDP.

  • CDP’s questionnaire aligns with TCFD.

  • CDP includes climate, forest risks and water security questionnaires.

Businesses responding to the questionnaire often do so at the request of their investors or partners, but they may also do so voluntarily without receiving a request. By reporting data to CDP, they may improve their reputation and better assess environmental risks and track and benchmark their progress.

Its questionnaires cover three main areas: climate, forests and water security. The questionnaire includes sector specific questions and respondents are only scored on their primary sector. CDP scores each member who submits a questionnaire a letter rating and publishes an annual A-List of top-performing entities. It regularly reviews and updates the requirements for receiving a high score. 

Finance Sector ESG Frameworks

Principles for Responsible Investing (PRI)

Key facts:

  • Established in 2006 by the by the UN Environment Programme’s Finance Initiative (UNEP FI), PRI aims to enhance responsible investing by asset owners and managers. 

  • PRI works with more than 4,000 signatories in over 60 countries.

  • PRI has helped promote later issue-specific coalitions such as: 

    • Alliance to End Plastic Waste

    • Roundtable for Sustainable Palm Oil (RSPO)

    • Climate Action 100+

  • It has six main principles that its signatories agree to adhere to:

    • 1: Incorporate ESG into investment analysis - “We will incorporate ESG issues into investment analysis and decision-making processes.”

    • 2. Incorporate ESG into ownership - “We will be active owners and incorporate ESG issues into our ownership policies and practices.”

    • 3. Seeking ESG disclosures from investee companies - “We will seek appropriate disclosure on ESG issues by the entities in which we invest”

    • 4. Support for PRI among investors - “We will promote acceptance and implementation of the Principles within the investment industry.”

    • 5. Collectively improve PRI effectiveness  - “We will work together to enhance our effectiveness in implementing the Principles.”

    • 6. Self-reporting - “We will each report on our activities and progress towards implementing the Principles.”

Principles of Sustainable Insurance (PSI)

Key facts:

  • Launched in 2012 by UNEP FI, the PSI are intended to support the insurance industry in integrating ESG reporting and risk evaluation into underwriting practices. 

  • According to the Sustainable Infrastructure Tool Navigator website, “Signatories account for more than 25 % of the world premium volume and USD 14 trillion in assets under management.”

  • “The signatories agree to the following sustainability measures:

    • Decision-making along ESG criteria

    • Awareness-raising on ESG criteria with clients & partners

    • Collaboration with governments & regulators to promote action on ESG criteria

    • Accountability & transparency of progress in ESG implementation”

Principles of Responsible Banking (PRB)

Key facts:

  • Launched in 2019 by UNEP FI, the Principles of Responsible Banking helps banks integrate ESG considerations into their operations. 

  • The six principles of the PRB include: 

    • “Alignment - We will align our business strategy to be consistent with and contribute to individuals’ needs and society’s goals, as expressed in the Sustainable Development Goals, the Paris Climate Agreement and relevant national and regional frameworks.

    • Impact and target setting - We will continuously increase our positive impacts while reducing the negative impacts on, and managing the risks to, people and environment resulting from our activities, products and services. To this end, we will set and publish targets where we can have the most significant impacts.

    • Clients and customers - We will work responsibly with our clients and our customers to encourage sustainable practices and enable economic activities that create shared prosperity for current and future generations.

    • Stakeholders - We will proactively and responsibly consult, engage and partner with relevant stakeholders to achieve society’s goals.

    • Governance and culture - We will implement our commitment to these Principles through effective governance and a culture of responsible banking.

    • Transparency and accountability - We will periodically review our individual and collective implementation of these Principles and be transparent about and accountable for our positive and negative impacts and our contribution to society’s goals.” 

Others to be added soon:

GRESB, ILPA, ILS/ILO, ISO, SBTi, TNFD and UNGP