Sustainability Reporting: Frameworks, Standards, Instruments, and Regulations

International organizations, such as the UN, regional organizations (e.g., the EU), stock exchanges, and independent organizations (e.g., the Global Reporting Initiative (“GRI”) have all been involved in the development and implementation of international initiatives on sustainability reporting.? Many of these initiatives take the form of national policies and instruments that incorporate elements of international or sustainability reporting frameworks.? For example, the GRI Standards are referenced in government or market instruments in dozens of countries around the world and are frequently one of several normative standards referred to in reporting instruments.[1]

All this work resulted in a variety of frameworks and tools that organizations could leverage to develop their sustainability strategies and reporting processes.? Many of these take a comprehensive approach and some, like the GRI Standards, have achieved international recognition and provide a robust collection of disclosure items and metrics.? In addition, companies can turn to standards that are focused on single issues such as greenhouse gas (“GHG”) emissions, climate change, or the impacts of business activity on forests.[2] ?Adding to the complexity is the emergence of sector-specific performance measurement and reporting frameworks based on recommendations provided by sectoral trade associations.[3]

In 2016, UNCTAD noted that “there is no universal agreement on what a sustainability report is or what such a report might include in order to be defined as one” and cited research that while 99 of the Forbes world 100 largest listed companies at that time produced some sort of ESG reporting, 51 referred to the Global Compact, 62 to the Carbon Disclosure Protocol, 10 to ISO 26000, 48 to other ISO certificates, and 72 to one of two versions of the GRI Standards.[4]? That same year, a comprehensive report issued by KPMG and others identified almost 400 sustainability reporting initiatives across 64 countries.[5]? UNCTAD warned that “the wide range of indicators, frameworks and guidelines issued by multiple organizations creates not only a significant duplication of effort but also a lack of clarity and a wide variety in the quality of information” and leads to wide variations in the comprehensiveness, quality, usability, and comparability of corporate reports.[6]? In addition, while the focus of sustainability reporting requirements and initiatives on listed and large private companies is understandable given their significant sustainability impact, reporting must also be attainable, at appropriate scale given their resources, for small and medium-sized enterprises.

For organizations to understand the emerging expectations and requirements relating to sustainability reporting, they should be aware of the following key components of the reporting ecosystem[7]:

• Frameworks: Sustainability reporting frameworks are high-level guidelines or approaches that provide organizations with a structure to identify, assess, and report on sustainability issues relevant to their operations; allow them to benchmark their performance against industry peers and global best practices; and offer them a methodology to communicate their progress to stakeholders, including investors, regulators, customers, and employees.? Well-known sustainability frameworks include the Global Reporting Initiative (“GRI”), CDP (formerly the Carbon Disclosure Project), the Sustainability Accounting Standards Board (“SASB”), and the Task Force on Climate-related Financial Disclosures (“TCFD”) (disbanded October 2023).? Notably, several of the frameworks (e.g., GRI and SASB) are also widely recognized standards setters.? The UN Sustainable Development Goals (“SDGs”), while not intended to be a sustainability reporting framework, are often used by organizations to create sustainability targets and progress toward achieving those targets will be described in their reports.? The?Equator Principles (EPs)?serve as a?sustainability risk management framework?adopted by financial institutions. ?
• Standards: Standards are the more detailed and specific guidelines that build upon the principles set forth by frameworks and include the precise requirements, metrics, and indicators organizations should use to report on specific sustainability topics.? In other words, while frameworks tell organizations how they should report on sustainability, standards are used to identify what needs to be reported. ?Standards enable comparability across organizations and sectors by providing a common language and set of metrics to measure and disclose sustainability performance.? Standards vary depending on the framework and the industry sector. For example, the GRI offers a set of universal standards applicable to all organizations, as well as topic-specific standards that address industry-specific issues. The SASB, on the other hand, focuses on industry-specific standards designed to capture the financially material ESG issues for companies within a particular sector and has been recommended by leading money managers.? Standards can, and often do, incorporate metrics that track organizational level contributions toward achievement of the SDGs.
• Protocols:? Protocols are the specific tools, methodologies, or instructions that help organizations to measure, monitor, and report their sustainability performance in line with the chosen framework and standards.? Protocols offer detailed guidance on how to collect, calculate, and disclose data consistently and accurately, and address various aspects of sustainability reporting (e.g., greenhouse gas (“GHG”) emissions accounting, water usage, waste management, energy usage, and plastic waste generated).? One of the most well-known protocols, the GHG Protocol, is used across different frameworks and standards (e.g., the CDP, GRI, and SASB) because it provides universally accepted measurement and reporting methodologies for GHG emissions. Other protocols may be more specific to a particular framework (e.g., GRI has its own protocols embedded within its standards and the CDP deploys CDP Questionnaires and protocols on water and forests) or industry. ?
• Ratings and Rankings:? Ratings evaluate and score the sustainability performance of organizations based on specific criteria, and rankings compare and list organizations’ sustainability performance relative to peers or industry benchmarks.? Ratings are generally based on analysis of the information that organizations provide in their publicly available reports, but some ratings bodies also make assessments based on interviews and other data collection methods.? Ratings and rankings have been criticized for their complexity, poor data collection, and lack of consistency; however, CDP scores companies and other types of reporting organizations (e.g., cities, government agencies, NGOs, and supply chains) based on the environmental data they report and has been consistently recognized as being among the world’s most credible sustainability rating protocols.? Other organizations collect and analyze data reported under the GRI feeds and use the output to provide research, ratings, and data to institutional investors.
• Regulations:? Regulations are established by governmental or regulatory bodies (national, regional, provincial, and local) to establish and enforce mandatory sustainability reporting requirements (e.g., SEC Climate-Disclosure Rule, EU Corporate Sustainability Reporting Directive (“CSRD”), and the EU Sustainable Finance Disclosures Regulation), which often may be satisfied using the standards and protocols described above.? For example, climate disclosures are required to varying degrees under both US and EU regulations and companies can fulfill their obligations by applying the IFRS S1 and IFRS S2 Protocols which are based in part on the recommendations of the TCFD and part of the International Sustainability Standards Board (“ISSB”) Standards.? Regulators often look to frameworks for guidance when drafting their requirements (e.g., the CSRD was drafted to align with the broad range of reporting requirements in the CDP and the GRI’s comprehensive approach to reporting).
• Sustainability Goals and Targets:? When organizations develop their sustainability strategies, reference can be made to global goals, such the UN Sustainable Development Goals (“SDGs”), as a set of universal targets and objectives to guide their sustainability efforts.? The Science Based Targets Initiative (“SBTi”) is not a protocol or standard in a traditional sense but is available to organizations that adhere to the GHG Protocol and are looking for technical assistance in setting science-based targets and implementing best practices in emissions reductions.
• Principles and Management Systems:? Principles, such as the UN Global Compact and the UN Guiding Principles on Business and Human Rights, define foundational commitments and values that organizations can adopt and embed as their own to guide them along the path of implementing their sustainability strategies.? Management systems, notably ISO 26000 Guidance on Social Responsibility, can be used by organizations to integrate their sustainability strategies and goals into their internal operations and external value chains.

A suggested order of integration for each of the components described above begins with selecting the most suitable framework that aligns with the organization’s strategic goals, stakeholder expectations, and industry context.? For guidance, organizations should identify the frameworks most used in their industries, the approaches that competitors are taking, and the needs of the most important audiences for the organization’s reporting.? This is also the point where the organization should be establishing its sustainability goals and targets, referencing universal targets and objectives such as the SDGs.? The next step is to identify all the regulatory regimes applicable to the organization and its operations to understand the breadth and content of mandatory reporting requirements.? This is a relatively new priority since sustainability reporting was largely voluntary for a long time, but the tide is turning.? Existing regulations obviously must be considered; however, organizations should project forward to the future regulatory environment so that they can begin to have the necessary data collection processes in place before new regulations come into effect.?

The next steps involve identifying the standards, both universal and industry-specific, that are relevant to the organization’s reporting obligations, and applying the appropriate protocols to measure, monitor, and report on sustainability performance.? Sequential ordering is necessarily simplistic since there is a substantial amount of iteration and interconnectivity among the components; however, the process is being eased by the movement toward convergence of frameworks and standards (i.e., framework providers such as CDP are aligning their frameworks with international standards).? Another important element is stakeholder engagement to ensure that the collection, use, and reporting of data conforms to what stakeholders are looking for from the organization’s reporting and overall sustainability strategy.?

The process must be continuously monitored as frameworks, standards and regulations change, protocols are updated (and new protocols emerge), universal sustainability goals and targets are debated and modified to consider new information and changing priorities, and stakeholder priorities and expectations evolve.? Presumably, a full slate of sustainability-related topics in each of the ESG categories has already emerged and the task now is to develop efficient ways for organizations to consistently report on those topics to the satisfaction of stakeholders, which means that efforts (e.g., coordination between frameworks and standards setters) will need to continue to make it easier for organizations needing to use elements of different frameworks and standards simultaneously to paint a sustainability picture that is appropriate for their specific circumstances.

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Notes

[1] Carrots & Sticks: Global Trends in Sustainability Reporting Regulation and Policy (KPMG International, the Global Research Initiative (“GRI”), the United Nations Environment Programme (“UNEP”) and the Centre for Corporate Governance in Africa, 2016), 23.

[2] Id. at 25.

[3] See, e.g., Finnish Textile & Fashion Corporate Responsibility Manual (Helsinki: Finnish Textile & Fashion, 2016), 55.

[4] Target 12.6: Sustainable practices in companies (UNCTAD).

[5] Carrots & Sticks: Global Trends in Sustainability Reporting Regulation and Policy (KPMG International, the Global Research Initiative (“GRI”), the United Nations Environment Programme (“UNEP”) and the Centre for Corporate Governance in Africa, 2016).

[6] Target 12.6: Sustainable practices in companies (UNCTAD).

[7] Portions of the description below are adapted from Sustainability Reporting Frameworks, Standards, and Protocols: A Complete Guide, CarbonBetter (May 4, 2023) and ESG Reporting Frameworks in 2024: Everything You Need to Know, Sustainability News (December 19, 2023).? For discussion of SDG-related reporting, see A. Gutterman, SDG-Related Reporting (Oakland CA: Sustainable Entrepreneurship Project, 2024).