How To Choose An ESG Disclosure Framework
Today, there are no less than a dozen different ESG reporting frameworks in existence today — each with their own metrics, methodology, and scoring system.
Some of the most well-known examples include CDP, CDSB, GRI, IIRC, and SASB. There are also several new disclosure standards on the horizon, including those in development by the ISSB.
So which framework should your business report against? The choice may not be clear, especially if you are new to ESG reporting or your business operates in more than one region. Let’s look at some of the factors to consider when making your decision.
1. Look at your industry
One way to decide which ESG disclosure framework to use is to look at which standards are generally followed by members of your industry. For example, a report from the Columbia University Center on Global Energy Policy found that nearly all of the upstream US oil and gas companies surveyed — from large, integrated oil and gas producers to smaller, upstream-only companies — relied on the Task Force on Climate-Related Financial Disclosures (TCFD) framework. Knowing which frameworks are most commonly used in your industry can help you narrow down your decision.
Attending industry conferences and networking with your peers is a great way to learn about the different frameworks that are commonly used in your industry. You might also want to read up on the different ESG frameworks to see which ones provide guidance for your specific industry. The Sustainability Accounting Standards Board (SASB) framework, for instance, lays out sustainability topics and related metrics for 77 different industries. This makes it particularly useful for organizations that need some help determining which disclosure topics are financially material to their business and which metrics to report.
The SASB’s materiality map is a useful tool for determining which topics and metrics are relevant to your industry. Source: SASB
2. Look at what your competitors are using
Even within a single industry, there can be a lot of variation in the ESG frameworks that are used. Some frameworks are better suited for large global corporations, while others are more applicable to small- to mid-size companies that operate in a single country.
Looking at which frameworks your direct competitors are using can give you clues to what might be the best fit for your business. Using the same framework can also help you benchmark your performance against other businesses like yours to see where your sustainability efforts are doing well, and what areas could use improvement. This is especially advantageous if your business is performing well, because investors and consumers will be able to compare your performance directly with that of your competitors and see that you’re the better choice.
3. Consider your audience
Naturally, different audiences will be interested in different ESG information. A potential investor is going to have different questions than, say, a customer or employee. This is why knowing your audience — and the level of information they want or need — is so important when choosing an ESG disclosure framework.
Your audience for your ESG report could be anyone from consumers, to regulators, individual and institutional investors, community members, special-interest groups, and even current or prospective employees.
Potential investors may want to know more about your company's physical and financial risks before investing. Many investors want detailed, granular information about things like the potential for climate-related supply chain disruptions or regulatory fines. On the other hand, customers may be more interested in things like the sustainability and safety track record of your products. Meanwhile, job seekers may be looking for a company whose values align with their own, so they may want to learn more about your social and environmental efforts.
Seventh Generation’s Climate Impact Report uses bright, simple graphics to communicate its ESG goals and progress. Source: Seventh Generation
4. Look at emerging regulations
Emerging regulations can also give clues to which framework you should choose. For example, the US Securities and Exchange Commission’s (SEC) proposed climate disclosures are based on the Task Force on Climate-Related Financial Disclosures (TCFD) and the Greenhouse Gas Protocol. Likewise, the EU’s Corporate Sustainability Reporting Directive (CSRD) and the UK’s Sustainable Reporting Directive (SRD) are also aligned with TCFD.
If these regulations will soon apply to your company, you might decide to make sure that whatever ESG framework you choose is aligned with the TCFD recommendations. This will save you from having to do extra work when the new regulations come into force.
Some frameworks that align with the TCFD regulations include CDP and CDSB — making them useful tools for companies that want to comply with new ESG disclosure regulations in the US and EU.
Hopefully these tips will help you choose the right ESG disclosure framework for your company. Regardless of which framework you choose, having your data ready in a centralized ESG management tool will make it easier to report on your company’s performance. And, should you decide to change frameworks or need to comply with a new disclosure requirement, you’ll have the data you need already at your fingertips.