How to choose an ESG reporting framework

Most sustainability disclosures are focused on three pillars: Environmental (E), Social (S), and Governance (G), collectively known as ESG. They represent three central dimensions in measuring the sustainability and societal impact of a company or business.?

Although there are only three pillars, dozens of standards and frameworks exist to help companies measure how sustainable they are. Whilst they may help prepare reports on them, the long list and changing methodology can make selecting the right one complex and daunting.??

This article will guide you through the various options, helping you to find the approach that best suits your organisation’s needs and goals.

Determine the target audience

When determining how to communicate your ESG efforts, you may want to consider who the target audience for your report will be.?

• For investors, ESG reports highlight long-term risks and opportunities associated with environmental stewardship, social responsibility, and corporate governance, enabling more informed investment decisions.
• For customers increasingly seeking to purchase from companies that align with their values, it is important to see if the business is environmentally and socially responsible. Therefore, reports must describe the company’s efforts to reduce carbon emissions, manage waste, use resources sustainably, and protect natural ecosystems. It also should explain how a company treats its employees, supports local communities, and upholds human rights.
• Employees may look at ESG reports to assess several key aspects of a company’s operations and values, such as workplace environment, diversity and inclusion, governance and transparency.
• Regulators use ESG reports to ensure compliance with environmental and social laws and to encourage better corporate practices.?

The more detailed the disclosure is, the more audiences it serves. If you focus on investors only, Task Force on Climate-related Financial Disclosures (TCFD) might be enough, as they highlight climate-related risks and opportunities that could have a material financial impact. For the broader audience, including regulators and customers, we recommend the Global Reporting Initiative (GRI). It is the most comprehensive disclosure emphasising companies' impact on the environment and social issues.?

Identify your resources

Unfortunately, no ESG reporting is done in a week. The more comprehensive and complex it is, the more resources it requires from the company. It’s also important to remember reporting is just the outcome, what is detailed in the report requires formal approaches to managing topics and accountability for delivering on targets.

Before delving into GRI and other demanding standards, assess your ESG team’s resources. Do you have enough people and time to conduct a proper materiality assessment and collect and document data on the hundreds of indicators required? If you doubt it, we recommend starting with less demanding standards – for example, The Sustainability Accounting Standards Board standards (SASB). They don’t need a materiality assessment, as material topics are preselected, and have clear step-by-step disclosure guidance for companies from 77 industries.??

Understand the difference between standards and frameworks

Understanding the difference between standards and frameworks might also be a help. While the distinction isn't substantial, standards are considered more strict. They set specific criteria or requirements that organisations must meet, ensuring consistency and comparability across disclosures. Frameworks, on the other hand, provide a broader conceptual structure for addressing environmental, social, and governance issues.

Mind geography

Selecting the proper framework may also depend on where your company is located and operates. For companies running business in Europe,?Corporate Sustainability Reporting Directive (CSRD) requirements will be the first thing they need to check. Depending on the size of your company, you might be required by law to disclose using ESRS standards, either from 2024 or later.

TCFD is effectively required by law in the UK for certain companies, including premium listed companies, large private companies, and LLPs with over 500 employees and a turnover of more than ￡500 million.

The table below lists the most popular standards and frameworks and provides information on whether they are mandatory and what their main features are. It may help you during the decision-making process.

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