Reporting sustainability data has become increasingly essential for investors but navigating the details can be complex and overwhelming. In order to help clarify these issues, we’ve created an overview of some common environmental, social and governance (ESG) reporting standards and frameworks, as well as a guide to help simplify the process of reporting.
To create effective ESG reporting, companies need to tailor their approach based on their organization type, industry and operating regions. This helps determine which reporting standards or frameworks to use. For instance, a computer hardware manufacturer will have drastically different reporting needs than a chain of restaurants.
While some sustainability standards and frameworks segment their reporting by industry, others assess specific ESG topics, e.g., carbon emissions. As a result, determining which reporting standards to use can be difficult for sustainability-driven executives and managers.
To help you understand the process, we have outlined a few differences between three leading ESG reporting standards and frameworks: SASB, GRI and CDP.
Sustainability Accounting Standards Board (SASB)
SASB standards provide financially material non-financial data to investors. Providing this data gives investors information which will impact their decision to invest in a company. SASB makes the reporting process easy for firms with their Sustainable Industry Classification System® (SICS®), which classifies businesses based on their industry and sustainability themes. This classification system then links to specific disclosures relevant to the ESG topics in that SICS® industry. Reporting is broken down into the following ESG categories:
- Environment – This includes various ecological measurements, such as greenhouse gas emissions (GHGs), energy use and water management.
- Leadership and governance – This factor accounts for risk management, business ethics and industry performance.
- Social capital – This measures the effect on consumers with regards to cost, privacy and other human rights considerations.
- Business model and innovation – This corresponds to the longevity of the product and supply chain sustainability.
- Human capital – This applies to employee well-being, including considerations like equity and inclusion.
With SASB reporting, investors can obtain a holistic understanding of a company’s sustainability performance, business model and its impact on the world.
Global Reporting Initiative (GRI)
The GRI standards help organizations assess their global sustainability impact across all stakeholder groups by providing ESG metrics across relevant sustainability topics. This sets GRI apart from SASB, which focuses solely on investor needs.
The standards start with GRI 1: Foundation 2021. This is a baseline guidance that helps your organization determine which metrics need to be assessed. To determine the content of the report, organizations must consider stakeholder expectations, ESG impact, the company’s mission and its impact on the world. After determining which metrics need to be calculated and how to ensure their accuracy, GRI organizes reporting into environmental, economic and social categories. GRI therefore investigates positive or negative impacts both within and outside an organization on a variety of topics, from human rights to energy use.
Formerly known as the Carbon Disclosure Project, CDP assesses environmental impacts for investors, organizations and communities. In 2021, CDP reported that more than 13,000 companies disclosed their ESG metrics, which is a 37% increase since 2020.
Companies receive a score from D- to A, with the A List defined as the sustainability leaders within climate change, water and forests categories. Although CDP publishes the A List annually, companies that report can choose to keep their scores private in the first year of submission. CDP focuses questionnaires and scoring the global impacts on “climate change, forests and water security.” Question responses are scored across four areas: disclosure, awareness, management and leadership.
While each question answered is considered a disclosure scoring, attaining awareness-level scoring requires a thorough understanding of the organization’s sustainability needs. Management level suggests that actions are being taken towards sustainability initiatives. Leadership level means that the organization has obtained high scores in all categories and stands out in comparison to other organizations.
Investing in an ESG reporting framework
An organization that decides to report ESG metrics simultaneously invests in environment, social and governance performance improvement and in the organization’s longevity. At the same time, disclosing ESG metrics can attract investors, especially if they perceive that the way a company manages its sustainability impact can increase financial performance. For instance, ESG reporting can highlight the sustainability of new products, reduce risk or help avoid environmental fines. In fact, 92% of S&P 500 companies publish a sustainability report, according to the Governance & Accountability Institute, Inc. — up from 90% in 2019.
Simplifying the ESG process
Although companies who report ESG metrics typically benefit from an increase in investor interest, the process of reporting calls for close attention to detail. Along with determining which standards to report to, ESG reporting requires collecting and analyzing data. It requires companies to decide the best ways to communicate the information as part of their other company disclosures, such as their annual financial reporting. Collecting and analyzing data requires ongoing management and attention to detail. To simplify the process, we’ve broken it down into four steps with questions to consider at each point:
Standard and framework choice
- What is the mission of your organization? What are its goals? Are they related to your organization’s economic, environmental or social impacts?
- Who are you publishing your ESG report for? Will you be communicating results to investors, employees, neighboring communities, managers or some other entity?
- How do peer companies report their ESG data? Are there any industry-specific standards?
- Which ESG benchmarks (CDP, etc.) are you trying to excel in?
By considering these organizational needs in tandem with the details of each reporting standard or framework, you can choose how to best report your ESG data.
- What key performance indicators (KPIs) are you measuring?
- How frequently do you need to collect data?
- What data and data collection process are required?
- How are you collecting data? Are you collecting metered information, information based on calculations or information from inventories?
- How much data do you need to collect? Are you collecting data from multiple locations? What quantity constitutes a significant measurement for your organization’s operations? Where does data come from, including ERP systems?
- What are your ESG metric targets, and how close are you to meeting them?
- How has your data changed over time?
- Are there any trends in your data? What might explain these trends?
- How does your data tell a story about your organization? Does it reflect organizational changes, goals, or something else?
- Do your results meet your goals? If not, what do you need to do to meet them in the future?
- Who do you need to communicate your results to? What information does this communication require?
- What are your stakeholders’ interests? How could you explain these results to align with their interests?
- What do you want to communicate to your organization’s members or employees about these results?
- What initiatives might you launch to meet and maintain your ESG goals? How will these initiatives be managed or monitored?
Use a digital ESG reporting system
You can more effectively sift through the complexity of ESG reporting standards and frameworks when you consider your organization’s needs, makeup, impact on the planet and goals. Reporting will become significantly easier if you use a digital third-party tracking and reporting platform to help you through the process.
Digital reporting systems are more accurate than manual data collection methods and they consolidate all your metrics into one place, creating ease of access. Furthermore, sustainability software helps you save time through automated data chasing, status reports and templated reports while reducing mistakes by automated quality checks and calculations. A software solution can also flag missing and inconsistent data and analyze performance versus targets, so you do not need to spend time scrutinizing data. Some sustainability software even helps you to automate complex calculations, such as carbon footprint, and report directly to standards such as CDP, SASB and GRI with built-in templates. With software that does the work for you, communicating results to a range of stakeholders becomes seamless.
UL’s 360 Sustainability Essentials software can help you do just that. Learn more about this investment-grade sustainability data management system.