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This article is the second in a series on ESG and SustainX solutions. Our first article explored the business impact and benefits of investing in sustainability.
Approaches to Effective Reporting
Leading companies across all sectors are adopting sustainability reporting at a rapid pace. Over the past ten years, the number of N100 companies adopting sustainability reporting has jumped by 15%. Currently, over 96% of G250 companies publish sustainability reports.
This increased adoption is driven by a combination of factors, including rising regulatory pressure amidst climate change concerns, and investor interest in sustainability metrics.
Environmental, Social, and Governance (ESG) reporting is supported by ESG frameworks, which offer comprehensive guidelines to assess and evaluate sustainability initiatives. Let's look at the key ESG frameworks in use today, and how each differs in their approach to ESG reporting.
Key ESG Reporting Frameworks
Several ESG regulations are driving reporting today, with their popularity varying by region and industry. Here are the six most important ESG frameworks.
1. Global Reporting Initiative (GRI)
- Geographies of relevance: Global
- Applicable Industries: Sector-agnostic
The GRI interweaves three standards to create a standard, transparent, and open approach to sustainability reporting. These components include the Sustainability Reporting Guidelines, which offer guidance on ESG performance reporting, followed by Supplement Guidelines for climate change, and guidelines for report users, which provide information on interpreting the reports. The GRI is currently the most prominent standard, used by 78% of the G250 companies.
2. Sustainable Accounting Standards Board (SASB)
- Geographies of relevance: Global, 170 countries represented
- Applicable Industries: Finance, Consumer Goods, Infrastructure, Healthcare, Technology, Services, Renewable Energy, F&B, Transport, and Extraction and Minerals
The SASB contains industry-specific standards, which identify issues affecting financial performance and company value for 77 sectors. The SASB Standards are globally applicable and take an evidence-based approach to determining the financial materiality of sustainability issues. These factors contribute to increased adoption – currently, over 50% of companies in the Americas and 35% of Europe’s N100 are reporting against SASB Standards.
3. European Sustainability Reporting Standards (ESRS)
- Geographies of relevance: European Union
- Applicable Industries: Sector-agnostic
The ESRS is currently in the draft stage and will go into effect over 2024-26. It will mandate both large companies and SMEs to align their sustainability reporting to the 12 standards contained in the ESRS. While it is based on existing standards like the GRI and the Sustainable Finance Disclosures Regulation (SFDR), companies that still need standardized ESG reporting must invest significant efforts to align with the ESRS.
4. Streamlined Energy and Carbon Reporting (SECR) Policy
- Geographies of relevance: UK
- Applicable Industries: Sector-agnostic
The objective of the SECR is to extend the adoption of energy-efficient and sustainable practices across large organizations beyond the FTSE100 businesses in the UK. It classifies companies into ‘Quoted’ and Large ‘Unquoted’ companies and LLPs, and obliges them to report on GHG emissions, energy usage, emissions intensity, and disclosure of methodologies used for reporting.
5. Task Force on Climate-related Financial Disclosures (TCFD)
- Geographies of relevance: EU, Canada, Japan, Singapore, and South Africa
- Applicable Industries: Identifies priority sectors, which include Transport, Agriculture, Energy, Materials, Food and Forest, and Insurers and Asset Managers/Owners
The TCFD aims to evaluate the impact of an organization on global climate and incorporate sustainability into its risk management strategies. It contains eleven disclosure recommendations, which include requirements for disclosing processes for assessing and managing climate risks, and metrics for measuring sustainability performance against set targets. Sustainability regulations for the EU, Japan, Canada, and South Africa are now incorporating TCFD.
6. Partnership for Carbon Accounting Financials (PCAF)
- Geographies of relevance: Global
- Applicable Industries: Banking and Financial Services, Asset Owners, and Asset Managers
PCAF guides financial institutions and other businesses with investment portfolios to measure and disclose GHG emissions associated with the six key asset classes. These include corporate bonds, unlisted equity, commercial real estate, business loans, mortgages, project finance, and motor loans. The end goal is to measure financed emissions, aligning with TCFD guidelines for assessing climate risks.
7. Business Responsibility and Sustainability Reporting (BRSR)
- Geographies of relevance: India
- Applicable Industries: Sector-agnostic
The BRSR extends the Business Responsibility Reporting (BRR) to incorporate sustainability reporting and widens the scope and depth of disclosures required under it. The BRSR streamlines reporting to three key sections, adds quantitative indicators for ESG reporting and mandates disclosure on the MCA21 portal. BRSR reporting is expected to become a mandatory compliance exercise in India moving forward.
The Way Forward
While there are regional differences in ESG reporting requirements, the growing number of legislations is mandating more detailed, evidence-based sustainability reporting from businesses considering rising climate concerns. Companies yet to align sustainability reporting to ESG standards should strongly consider adopting practices prescribed in ESG frameworks to avoid non-compliance when sustainability regulations are enforced in their geographies of operation.
SustainX, with reporting features powered by CRM Analytics and sustainability audit dashboards, assists in reliable reporting. In our next article, we will talk about the sectors with the highest greenhouse gas emissions and explore ways to control the impact.
For more information on how your business can comply with the concerned sustainability regulations, reach out to us at connect@xebia.com.