80% of top companies now report on sustainability. While this is great news, that number is misleading when it comes to conveying efficacy. The main problem: companies often report very different metrics in very different ways. Compared to financial reporting, in which all companies follow SEC guidance and utilize the same disclosure methods, the variety of environmental, social, and governance (ESG) reporting types complicates the comparison of different companies’ impact and creates room for businesses to only report their best metrics. And as the climate crisis worsens, reliable sustainability reporting is more important than ever.
Global Reporting Initiative (GRI)
GRI is an international independent standards organization that helps organizations convey their ESG impacts. First established in 2000, GRI is the most widely used environmental reporting framework. The GRI framework looks at the big picture of a company rather than financial minutiae, considering company-wide disclosures and even the managerial approach of a business. However, the GRI also includes what it calls “topic-specific” disclosure frameworks: economic, environmental, and social. The GRI is the most comprehensive of the mainstream frameworks, and contains much of the information that is found in other reporting standards.
Carbon Disclosure Project (CDP)
The Carbon Disclosure Project is unique in its classification as a charity rather than a nonprofit or NGO. As a result, they do more work quantifying the impact of cities and states than other framework providers. The CDP notably releases “CDP scores” in order to designate the most sustainable companies and cities. Generally, the CDP is much more focused on environmental reporting than social or governance factors, citing its main concerns as “climate change, water, and forests."
Climate Disclosure Standards Board (CDSB)
The Climate Disclosure Standards Board is a collection of businesses and environmental NGOs. Rather than creating a new framework, the CDSB helps businesses include sustainability data in their mainstream financial reports, such as the company 10-K. By doing so, the CDSB hopes to convey the long-term value of a company and improve transparency to investors. Given their flexible nature, the CDSB standards are compatible with many of the other reporting frameworks.
Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB)
The GRI and SASB similarly collaborated in April 2021 to release A Practical Guide to Sustainability Reporting Using GRI and SASB standards. The guide outlines how the two reporting methods compliment one another, and how using them together can bring sustainability and financial information closer together. While GRI outlines the big picture sustainability progress and disclosures of a company, the SASB framework includes more industry-specific data and financial metrics to create a more comprehensive ESG report. It remains to be seen how the recent Value Reporting Foundation merger will impact this SASB-GRI cooperation. Regardless, many companies are beginning to recognize the benefits of using these frameworks together.
Comprehensive Reporting Group
September 2020 arguably marked the biggest step forward in the consolidation and coordination of environmental reporting, as five leading organizations came together to sign the Statement of Intent to Work Together Towards Comprehensive Corporate Reporting. The GRI, SASB, IIRC, CDP, and CDSB all collaborated to publish this report that outlines the essential elements of comprehensive corporate reporting and what steps must be taken to achieve this goal. The report particularly emphasizes the integration of financial and sustainability data, public access to ESG information, and the assessment of long-term value creation as important characteristics of an effective reporting framework. These organizations have also expressed willingness to work with stakeholders and other actors around the world to make this vision a reality.
The Value Reporting Foundation
Given the current ESG "reporting overload," there has been a sweeping trend throughout the space towards consolidation and simplification. In June 2021, history was made as two influential organizations, the Sustainability Accounting Standards Board (SASB) and International Integrated Reporting Council (IIRC), merged to form the Value Reporting Foundation (VRF). This new organization strives to assess the long-term value creation of a business, heavily considering ESG factors. The VRF’s new framework combines the IIRC’s big picture look at how a business operates in its environmental, social, and commercial context, with the SASB’s more industry-specific financial metrics. This merger demonstrates how frameworks can often complement one another, and be combined for more comprehensive reporting.
The Big Four and World Economic Forum
Nonprofits and NGOs are not the only players in the environmental reporting landscape; recently big accounting firms have gotten in on the action. In September 2020, while the Comprehensive Reporting Group was coming together, the “Big Four” accounting firms (Deloitte, PwC, EY, and KPMG) teamed up with the World Economic Forum (WEF) and International Business Council to release their own ESG reporting framework. The metrics are organized under the pillars of government, people, planet, and prosperity and draw largely from existing standards. The WEF claims that these new standards aim to “amplify and elevate the rigorous work that has already been done.” Depending on its implementation, this could be a big step forward in “mainstreaming” ESG reporting standards.
The Road Ahead
Overall, it is an exciting time for environmental reporting. Things are changing rapidly, and tangible progress is being made towards more consistent and uniform reporting. It will be interesting to monitor the interaction between the Comprehensive Reporting Group and the Big Four/WEF, as cooperation between the two would mean nearly all relevant parties are on the same page. However, as it stands, there is still much work to be done on improving ESG reporting and investor transparency; work that will be crucial in the transition to a sustainable economy.
At Ecolytics, we are here to help your company navigate the complicated landscape of environmental reporting. Our software quantifies the environmental impact of your business using easy-to-understand metrics, and creates a custom impact page that makes reporting data and progress a breeze. Sign up for our demo today, and follow us on social media to stay up-to-date on everything Ecolytics.
