Decoding ESG Frameworks: Choosing the Right Path for Sustainable Growth

Environmental, Social, and Governance?considerations have become essential for sustainable growth and resilience in today's fast-evolving corporate landscape. However, the sheer number of ESG frameworks can often feel overwhelming. As business leaders, understanding these frameworks and their relevance is critical to driving value for stakeholders while ensuring compliance and transparency.

This article delves into the six most prominent ESG frameworks: GRI, SASB, TCFD, CDP, BRSR, and UN PRI to simplify their unique features and help you decide which aligns best with your organization’s goals.

1. Global Reporting Initiative (GRI): Comprehensive Impact Reporting

Purpose: To provide a complete view of an organisation’s sustainability impacts on society and the environment.

Objective: The GRI framework is designed to provide a comprehensive view of an organization’s sustainability impacts, both positive and negative.

Key Features:

• Focuses on materiality from a stakeholder’s perspective, emphasizing topics that matter most to external stakeholders such as communities, customers, and regulators.
• Covers broad sustainability topics including climate change, biodiversity, human rights, labour practices, and anti-corruption measures.
• Encourages the use of standardized metrics while allowing flexibility for organizations to address specific industry concerns.

Relevance: GRI is ideal for companies aiming to communicate their sustainability impacts to a wide range of stakeholders, including investors, customers, employees, and NGOs. It’s particularly useful for organizations looking to improve transparency and build trust.

Example: Unilever’s sustainability reporting is aligned with GRI standards, enabling the company to detail its initiatives on reducing plastic waste, sourcing sustainable raw materials, and achieving carbon neutrality by 2039. The GRI framework allows Unilever to highlight its role as a leader in the fight against environmental degradation while addressing stakeholder concerns.

2. Sustainability Accounting Standards Board (SASB): Industry-Specific ESG Metrics

Objective: SASB provides a lens to assess sustainability factors that impact financial performance, tailored for 77 different industries.

Key Features:

• Focuses on material issues that influence financial outcomes, helping organizations identify ESG factors that could significantly affect their profitability and operational risks.
• Complements traditional financial filings and enables seamless integration of ESG data with financial disclosures.
• Offers a decision-useful approach for investors seeking comparability across industries.

Relevance: For businesses looking to integrate ESG into their core financial strategy, SASB offers an industry-specific approach that aligns sustainability with value creation.

Example: Nike uses SASB standards to disclose critical ESG factors such as water usage in manufacturing, waste management in supply chains, and labour practices in overseas operations. These disclosures directly tie into Nike’s operational efficiencies and brand reputation, demonstrating a commitment to both profitability and sustainability.

3. Task Force on Climate-Related Financial Disclosures (TCFD): Climate Risk Readiness

Objective: TCFD emphasizes climate-related risks and opportunities and their financial implications, enabling organizations to align with global climate goals.

Key Features:

• Structured around four core areas: governance, strategy, risk management, and metrics and targets.
• Encourages businesses to disclose how they identify, assess, and manage climate-related risks, including transition risks (e.g., regulatory changes) and physical risks (e.g., extreme weather events).
• Supports scenario analysis to evaluate the resilience of an organization’s strategy under different climate conditions.

Relevance: TCFD is crucial for companies seeking investor confidence in their climate-related strategies and ensuring readiness for a low-carbon economy.

Example: HSBC’s TCFD-aligned disclosures provide a comprehensive view of how the bank is managing risks from rising sea levels and regulatory shifts in key markets. By aligning with TCFD, HSBC demonstrates its commitment to mitigating climate-related risks while capturing opportunities in green finance.

4. Carbon Disclosure Project (CDP): Action-Driven Environmental Reporting

Objective: CDP encourages organizations to disclose and act on their environmental impacts, focusing on climate change, water security, and deforestation.

Key Features:

• Provides a scoring system to benchmark performance, motivating organizations to improve their environmental stewardship.
• Emphasizes data transparency and actionable insights, enabling stakeholders to evaluate a company’s environmental impact.
• Encourages collaborative action across supply chains to tackle global challenges like carbon emissions and water scarcity.

Relevance: For companies aiming to reduce carbon footprints and enhance sustainability scores, CDP serves as a practical tool to drive meaningful environmental change.

Example: Walmart’s CDP reporting revealed its ambitious plan to reduce supply chain emissions by one billion metric tons by 2030. By earning an "A" rating, Walmart showcases its leadership in tackling climate challenges while driving operational efficiencies.

5. Business Responsibility and Sustainability Report (BRSR): India’s ESG Standard

Objective: The BRSR framework, mandated by SEBI for top-listed Indian companies, is a step towards harmonizing ESG reporting in India, with a strong emphasis on social and governance aspects.

Key Features:

• Comprehensive disclosure on nine ESG principles, including gender equality, community development, and environmental management.
• Focuses on social metrics like inclusivity, equitable development, and corporate responsibility toward disadvantaged sections of society.
• Encourages Indian businesses to align with global sustainability standards while addressing local socio-economic challenges.

Relevance: BRSR is pivotal for Indian companies addressing sustainability challenges unique to India while aligning with global best practices.

Example: Tata Steel’s BRSR compliance showcases its initiatives in circular economy practices, such as recycling waste materials, and community development programs like education and healthcare support in underprivileged regions. This aligns with India’s sustainable development goals.

6. UN Principles for Responsible Investment (UN PRI): Guiding Sustainable Investments

Objective: UN PRI encourages investors to integrate ESG considerations into their investment decisions, fostering long-term value creation.

Key Features:

• Based on voluntary principles for responsible investment, includes the incorporation of ESG issues into investment analysis and decision-making processes.
• Promotes collaboration among investors to enhance ESG integration across portfolios.
• Encourages transparency and accountability in responsible investment practices.

Relevance: Asset managers and institutional investors leverage UN PRI to align portfolios with long-term sustainability goals and attract ESG-conscious investors.

Example: BlackRock’s adherence to UN PRI underscores its commitment to climate-conscious investments, influencing billions of dollars in assets under management and driving global sustainability.

How Do These Frameworks Differ?

While there is overlap, each framework serves a unique purpose:

• GRI: Broad stakeholder focus with comprehensive sustainability impact reporting.
• SASB: Financial materiality tailored to specific industries.
• TCFD: Emphasis on climate-related risks and opportunities with financial relevance.
• CDP: Action-driven framework focusing on environmental performance metrics.
• BRSR: Indian-centric approach addressing local socio-economic and environmental challenges.
• UN PRI: Investment-centric, promoting responsible and sustainable asset management.

Selecting the Right Framework

Selecting the right ESG framework depends on your organizational goals:

• Global operations? GRI and CDP offer a broad, internationally recognized approach to sustainability.
• Investor-focused? SASB and TCFD provide insights into financial relevance and risk resilience.
• India-centric? BRSR aligns with local regulations and socio-economic priorities.
• Asset management? UN PRI ensures sustainable investment strategies and stakeholder alignment.

Final Thoughts

Understanding and leveraging these frameworks is not just about compliance; it’s about building trust, resilience, and long-term value. By adopting the right framework, businesses can effectively address stakeholder concerns, enhance decision-making, and secure a competitive edge.