The pressure is on for organisations to take responsibility, be accountable and be transparent in terms of their reporting
The pressure is on for organisations to take responsibility, be accountable and be transparent in terms of their reporting. Their environmental, social, and governance (ESG) criteria are of interest to all, whether we’re talking customers, staff, vendors, shareholders. A company’s stakeholders is its public.
Analysis of ESG, furnish a company and its stakeholders with beneficial details that in turn might affect financial standing and future investor decisions. Aligning your non-financial reporting process with an international ESG framework often makes the process easier.
There are a number of international ESG frameworks available, some of the more prominent ones are summarised below:
The United Nations Sustainable Development Goals (SDGs) focuses on global challenges detailed by 17 goals. These goals are intended to create a better future for the people and the planet. Considered an international ESG framework that brings reporting to a more comprehensive level, the SDGs make it difficult to measure industry-specific indicators because they are broad in nature. Here the focus is more on the business’ financial condition, operating performance and risk profile.
The Global Reporting Initiative (GRI) was the first international ESG framework. The mission: to outline accountability standards so industry could prove their environmental practices and whether these were responsible or not. This has expanded to include social well-being, human rights, and governance. The GRI currently continues to include stakeholders in its approach to determine how a company impacts the world.
The Sustainability Accounting Standards Board (SASB) is a set of international ESG frameworks, that provide a complete set of globally applicable industry-specific standards. Specific to 77 industries these standards identify the minimal set of financially material sustainability topics and their associated metrics for a typical company in an industry. This international ESG framework is focused on companies and investors needing to analyse the impact of ESG issues on their financial performance.
The Task Force on Climate-related Financial Disclosures (TCFD) highlights the risks and opportunities for a company brought on by climate change and the resulting financial implications. This is ideal for public companies hoping to disclose financial risk related to climate change.
The methodology behind each of these different international ESG frameworks is different and therefore can result in contrasting data interpretations and scoring systems. It is imperative to note that scores may vary completely between frameworks. Therefore, it is essential to choose a framework that fits the business strategy and reports issues that are of importance to the intended audience.
Challenges with international ESG frameworks
Selecting an international ESG framework may not cover all your bases and will depend largely on the size and objectives of your company. Publicly traded companies are bound by disclosure requirements but for many companies, scope and deployment are the real test. Rushing into the process is unwise, especially considering the financial and social implications. ESG reporting should be considered carefully. The aim is after all to improve business with ESG, not hinder it.
The quality of your data
Data is generally considered high quality if it is fit for its intended uses in operations, decision making and planning. It’s no different where international ESG frameworks are concerned. Implementing a solid process to extract then collect then collate, benefits, not only company alignment, but also demonstrates transparency for risk management. Data must therefore be first and foremost valid and it must be material. It must also be measurable. Good quality data can allow an organisation the opportunity to measure improvements against performance indicators. It can also give investors the opportunity to draw inferences and apply benchmarking to enable evidence-based decision making.