Sustainability Reporting (ESG Reporting) Standards and Frameworks explained

Sustainability reporting has emerged as a critical practice for organizations to communicate their environmental, social, and governance (ESG) performance to stakeholders. It involves the disclosure of an organization’s environmental impacts, its contributions to societal well-being, and its approach to ethical governance. As global awareness of sustainable development goals and responsible business practices continues to grow, stakeholders are increasingly demanding transparency and accountability from organizations regarding their sustainability efforts.

With europes “Green deal” and the global push for a more sustainable and green economy, the sustainability reporting landscape has evolved rapidly, especially recently, driven by increased regulatory pressure, investor expectations, and the need for companies to demonstrate their commitment to sustainable practices. This evolution has led to a proliferation of sustainability reporting standards, frameworks, and initiatives, each with its own unique focus and requirements, making it difficult for organizations to navigate. One of the most recent and comprehensive is the European Corporate Sustainability Reporting Directive (CSRD), which came into force on the 5th January 2023.

For companies, the existence of standardized reporting guidelines plays a critical role in enhancing the credibility, consistency, and comparability of sustainability disclosures across industries and geographies. Established standards ensure that companies provide relevant and reliable information and level the playing field to avoid greenwashing and other malpractices. The goal of these standards is to build trust, but also accountability.

What is Sustainability Reporting?

Sustainability reporting is the practice of disclosing the social, environmental, and economic impacts that are caused by the activities of an organization.

Sustainability reporting is an important tool for companies in tracking, measuring and communicating their ESG performance. By measuring and disclosing these impacts, organizations can quantify their commitment to sustainable development and corporate social responsibility. This type of reporting provides a transparent, quantifiable account of an organization’s sustainability efforts, covering a wide range of topics from carbon emissions and resource consumption to labor practices and community engagement.

One of the goals of sustainability reporting is not only to assess and disclose the company’s impact on the world, but also to outline its ongoing efforts to achieve sustainable development goals. In theory, this should help organizations set goals, measure performance, and manage change more effectively. Especially now, when environmental concerns and social responsibility are increasingly prioritized, sustainability reporting plays a crucial role in aligning business strategies with global sustainability goals, such as the widely used United Nations Sustainable Development Goals (SDGs).

On the other hand, it is also an opportunity that companies can leverage, as sustainability reporting enables organizations to identify areas for improvement, mitigate risks, and capitalize on opportunities related to sustainability and image. This proactive approach helps avoid potential public outrage or even accusations of greenwashing. Documenting policies, actions, and progress in a sustainability report not only ensures compliance with global standards and regulations, but also builds trust and credibility with stakeholders. This transparency allows stakeholders to make informed decisions about their investments, consumption, and support, fostering a culture of accountability and continuous improvement in business practices. With a strong global societal push for more sustainable business practices, making ESG a strategic issue for companies and using ESG standards as a business enabler rather than just a compliance measure can profit and even strategically use it.

Key Components of Sustainability Reporting

Sustainability reporting encompasses three core pillars: environmental, social, and governance factors. Environmental factors include an organization’s carbon footprint, energy consumption, resource or water use, waste management, and impact on biodiversity. Social factors include labor practices, human rights, product stewardship, and even community impact. Governance factors include ethics, board diversity, risk management, and regulatory compliance. While the focus is often on CO2 emissions, ESG reporting should typically look at the full picture of an organization’s footprint.

This is especially true as the concept of dual materiality becomes more relevant in sustainability reporting. This approach considers not only an organization’s impact on the environment and society (outward materiality), but also the potential impact of external sustainability factors on the organization’s business model and operations (inward materiality). By adopting this dual perspective, sustainability reporting can help companies understand both their contribution to sustainable development and the risks and opportunities that sustainability issues pose to their long-term success.

Environmental

The environmental component of sustainability reporting focuses on an organization’s impact on living and non-living natural systems, including ecosystems, land, air, and water. Key aspects typically covered include

• Energy use: Reporting on the organization’s energy use, including efforts to reduce reliance on non-renewable sources and increase energy efficiency.
• Emissions: Details on greenhouse gas emissions, as well as efforts to reduce emissions and mitigate the effects of climate change.
• Waste management: Information on waste generation and disposal, as well as recycling practices and waste reduction strategies.
• Water use: Insight into water use and conservation practices, particularly important in regions where water is scarce.
• Biodiversity: Reporting on the impact of the company’s operations on biodiversity in the regions where it operates, including actions taken to protect and restore natural habitats.

Social

The social component of sustainability reporting addresses the organization’s impact on the social systems in which it operates. This includes

• Employee relations and diversity: Information on labor practices, employee diversity and inclusion, training and education, compensation, occupational health and safety, and labor rights.
• Community Engagement: How the organization engages with the communities in which it operates, including community development projects and social investment programs.
• Human Rights: Reporting on human rights practices and policies, and ensuring that business operations do not contribute to human rights abuses.
• Consumer protection: Includes how the company manages its relationships with customers, ensures product safety and integrity, and addresses consumer privacy and data protection.
• Impact on local economies: The organization’s positive and negative impact on the local economies in which it operates, including job creation and economic development.

Governance

Governance in sustainability reporting refers to the practices and policies related to the management of the organization, particularly in the context of accountability and transparency. Key aspects of governance include

• Governance structure: Details on the company’s governance structures and practices, board diversity, executive compensation, and ethical behavior.
• Risk Management: How the company identifies and manages economic, environmental, and social risks.
• Compliance: Adherence to applicable laws, regulations, and standards, as well as measures taken to prevent corruption and bribery.
• Stakeholder engagement: Practices related to how the organization engages with its stakeholders, including how it gathers and responds to feedback.
• Ethics and Integrity: Reporting on the organization’s values, principles, standards, and norms, including the ethical behavior expected of employees at all levels of the organization.

Benefits of Sustainability Reporting

Engaging in comprehensive sustainability reporting provides companies with numerous tangible and intangible benefits, including

• Enhances reputation and stakeholder trust by demonstrating transparency, accountability, and commitment to sustainable practices.
• Facilitates risk identification and mitigation by exposing potential environmental, social, and governance risks that could impact operations and profitability.
• Uncovers opportunities for operational improvements, cost savings, and increased efficiency through better resource management and sustainable business models.
• Attracts investors and facilitates access to capital, as ESG performance is increasingly a key factor in investment decisions and a proxy for effective risk management.
• Promotes innovation by encouraging companies to explore sustainable solutions and stay ahead of regulatory and market trends.
• Enhances brand equity and customer loyalty by aligning with consumer preferences for sustainable and ethical products and services.

Sustainability reporting challenges

While the benefits of sustainability reporting are significant, organizations face several challenges in implementing effective reporting practices:

• Complexity of data collection and measurement, especially when dealing with diverse operations, supply chains, and indirect impacts.
• Evolving reporting requirements and frameworks require continuous adaptation and alignment, adding complexity and resource requirements.
• Balancing transparency with competitive considerations and navigating the disclosure of sensitive information that could jeopardize a company’s competitive advantage.
• Ensuring data quality, accuracy and completeness, which can be resource-intensive and require specialized expertise.
• Integrating sustainability reporting into existing business processes and decision-making frameworks, which may require cultural and organizational changes.
• Managing stakeholder expectations and communicating complex sustainability information in a clear and meaningful way.

Overview of Sustainability Reporting Standards

As stakeholders demand consistent, comparable and reliable information from organizations, the need for standardization in sustainability reporting has become increasingly apparent. A number of reporting standards and initiatives have been developed to provide guidance and a framework for disclosing an organization’s sustainability performance. The focus, application, and global relevance of these standards vary. Therefore, we list here the most common standards, frameworks, and methodologies.

Major Standards and Frameworks

• Global Reporting Initiative (GRI) Standards: Provides a universal set of standards for reporting a wide range of ESG topics, aimed at transparency and stakeholder engagement.
• Sustainability Accounting Standards Board (SASB) Standards: Offers industry-specific guidance on financially material sustainability issues to inform investors and other stakeholders.
• Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD): Focuses on improving the reporting of climate-related financial information to help companies align with investor needs.
• International Integrated Reporting Council (IIRC) Framework: Encourages a holistic report that integrates both financial and non-financial data to highlight sustainability’s role in overall business performance.
• Corporate Sustainability Reporting Directive (CSRD): Mandates comprehensive reporting across the EU, enhancing the quality and comparability of sustainability disclosures.
• Science Based Targets initiative (SBTi): Assists companies in setting science-based emissions reduction targets to align with global climate goals.
• United Nations Global Compact (UNGC) Communication on Progress: Requires companies to report annually on their implementation of sustainable and socially responsible policies.
• ISO 26000 Guidelines for Social Responsibility: Provides guidance for organizations to operate responsibly and ethically across various societal aspects.
• Sustainable Development Goals (SDGs): Encourages organizations to align their reporting with global goals for a sustainable future, showcasing their contributions to these targets.

Note: This is not an exhaustive list, as different regions and countries around the world have their own standards, and we only list the major frameworks used by most organizations.

Global Reporting Initiative (GRI) Standards

• History and development: The GRI Standards were launched in 2000 by the Global Reporting Initiative, an independent international organization. They have since become the most widely adopted sustainability reporting standards in the world.
• Key Features and Application: The GRI Standards provide a comprehensive set of disclosures covering a wide range of ESG topics, including economic, environmental and social impacts. They are designed to be universally applicable to organizations of all sizes and sectors.
• Benefits and limitations: The GRI Standards are recognized for their comprehensiveness and stakeholder engagement principles. However, they have been criticized for their complexity and lack of industry-specific guidance, which can make them difficult to apply in certain sectors.

Sustainability Accounting Standards Board (SASB) Standards

• History and development: SASB standards were developed by the Sustainability Accounting Standards Board, a nonprofit organization established in 2011, to help companies identify and disclose financially material sustainability information.
• Key Features and Application: The SASB Standards are industry-specific and provide tailored guidance on material ESG issues relevant to each industry. They focus on issues that are likely to have a material impact on a company’s financial performance.
• Benefits and limitations: The SASB standards are valued for their focus on financial materiality and their industry-specific approach. However, their narrow scope may not capture all relevant sustainability issues, and they are primarily used in the United States with limited global adoption.

Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD)

• History and development: The TCFD recommendations were developed by the Financial Stability Board in 2017 to improve the disclosure of climate-related financial risks and opportunities.
• Key Features and Application: The TCFD Recommendations provide a framework for organizations to disclose their governance, strategy, risk management, and metrics related to climate change impacts.
• Benefits and Limitations: The TCFD Recommendations are widely recognized for their investor relevance and focus on climate-related risks and opportunities. However, they are limited to climate-related disclosures and do not cover the broader range of ESG factors.

International Integrated Reporting Council (IIRC) Framework

• History and development: The IIRC Framework was launched in 2013 by the International Integrated Reporting Council, a global coalition of regulators, investors, companies, and standard setters.
• Key Features and Application: The IIRC Framework provides principles-based guidance for companies to prepare an integrated report that combines financial and non-financial information, including sustainability performance, into a cohesive communication.
• Benefits and Limitations: The IIRC Framework provides a holistic approach to reporting that promotes the integration of sustainability into an organization’s strategy and decision-making processes. However, its principles-based nature can lead to inconsistencies in application, and it lacks specific disclosure requirements.

Corporate Sustainability Reporting Directive (CSRD)

• An evolution of the Non-Financial Reporting Directive (NFRD): The CSRD is a European Union regulation that builds on and replaces the NFRD, which previously required large public companies to report certain non-financial information.
• Key features: The CSRD mandates comprehensive sustainability reporting for large companies and all listed companies in the EU, covering environmental, social and governance factors. It aims to standardize and improve the quality and comparability of sustainability disclosures.
• Application and impact: The CSRD will have a significant impact on companies operating within the EU, requiring them to comply with detailed reporting requirements. It may also affect companies outside the EU that have operations or subsidiaries in the region.
• Benefits and limitations: The CSRD promotes the harmonization and enforcement of sustainability reporting in the EU, thereby increasing transparency and accountability. However, its implementation may pose challenges for companies, particularly in terms of data collection and reporting processes.

Science Based Targets Initiative (SBTi)

• History and development: Launched in 2015, SBTi is a collaboration between several organizations, including the World Resources Institute and the United Nations Global Compact.
• Key Features: The SBTi focuses on helping companies set science-based targets for reducing greenhouse gas emissions, in line with the goals of the Paris Agreement on climate change.Application: Companies voluntarily commit to setting science-based targets through the SBTi, and report on their progress toward those targets.
• Benefits and limitations: The SBTi provides a robust framework for companies to align their emission reduction targets with climate science and contribute to global efforts to mitigate climate change. However, its scope is limited to GHG emissions and does not cover the broader range of ESG factors.

United Nations Global Compact (UNGC) Communication on Progress

• History and development: The UNGC was launched in 2000 as a voluntary initiative to encourage companies to adopt sustainable and socially responsible policies and practices.
• Key Features: Companies participating in the UNGC are required to report annually on their progress in implementing the ten principles, which cover human rights, labor, the environment, and anti-corruption.
• Application and Reporting Requirements: The Communication on Progress is the annual disclosure submitted by UNGC participants detailing their efforts to operationalize the Ten Principles.
• Benefits and limitations: The UNGC promotes responsible business practices and provides a framework for companies to integrate sustainability into their operations. However, the reporting requirements are relatively broad and the initiative relies on self-assessment, which can lead to inconsistencies in reporting quality.

ISO 26000 Guidelines for Social Responsibility

• History and development: ISO 26000 is an international standard published in 2010 by the International Organization for Standardization (ISO) to provide guidance on social responsibility.
• Key Features: The standard provides a comprehensive framework for organizations to operate in a socially responsible manner, addressing issues such as human rights, labor practices, the environment, fair business practices, consumer issues, and community engagement and development.
• Application and use cases: ISO 26000 is a voluntary guideline that can be used by organizations of all types and sizes, in all sectors, to integrate social responsibility into their operations and decision-making processes.
• Benefits and limitations: ISO 26000 provides a holistic approach to social responsibility, covering a wide range of issues. However, as a guidance document, it lacks specific requirements or certification mechanisms, which may limit its adoption and enforcement.

Sustainable Development Goals (SDGs)

• History and development: The Sustainable Development Goals (SDGs) are a set of 17 global goals adopted by the United Nations in 2015 as a blueprint for achieving a better, more sustainable future for all.
• Aligning Sustainability Reporting with the SDG Framework: Many organizations are aligning their sustainability reporting with the SDGs, mapping their impacts and contributions to the relevant goals and targets.
• Application: By reporting on their progress against the SDGs, organizations can demonstrate their commitment to addressing global challenges and contributing to sustainable development.
• Benefits and limitations: By aligning sustainability reporting with the SDGs, organizations can contribute to a globally recognized agenda and demonstrate their impact on issues of international importance. However, the SDGs are broad and may require organizations to prioritize and focus their efforts on specific goals and targets.

Future trends & predictions

With initiatives such as the merger of SASB and IIRC to form the Value Reporting Foundation and the broadening of the scope of the CSRD in the EU, the trend towards harmonization and consolidation of sustainability standards is evident. It is likely that this will continue, possibly leading to a more unified global standard that strikes a balance between detailed environmental reporting and financial and governance issues. Such developments will simplify the reporting process for companies and improve the comparability of reports across sectors and regions, ultimately leading to greater transparency and accountability in corporate sustainability practices.

Conclusion and final thoughts

While sustainability reporting is increasingly common, it remains a relatively new and evolving practice that few companies worldwide are required to engage in. Many existing frameworks still lack clarity and standards of accountability vary widely, leading to uncertainties about their implementation and effectiveness. Most frameworks do not yet include strong enforcement mechanisms, which may undermine their intended impact on corporate behavior.

The introduction of the EU’s Corporate Sustainability Reporting Directive (CSRD) marks a significant shift in this landscape, requiring over 50,000 companies to report, with a significantly higher number of companies required to report by 2026 and beyond. As a landmark regulation, the CSRD increases the scope and depth of reporting requirements, forcing a significant number of companies within the EU to adopt more rigorous sustainability reporting practices. This directive is expected to set a precedent that could extend beyond Europe, potentially influencing other regions and countries to adopt similar standards in the future.

Sustainability reporting is often seen – much like data privacy regulation (e.g., EU GDPR) – as a constraint that limits business freedom. However, as societal values shift toward greater environmental and social accountability, these reporting standards can serve as catalysts for trust and innovation. By embracing these frameworks, companies can unlock new strategic opportunities that not only meet regulatory requirements, but also enhance their competitive advantage.

Proactive engagement in sustainability reporting can strengthen a company’s position in the marketplace. As these practices become more standardized globally, they are likely to pave the way for greater transparency, accountability and sustainability in corporate operations. This shift to a more sustainable and responsible business paradigm is essential to meet the evolving expectations of consumers, investors, and regulators in a rapidly changing world.

Benjamin Talin

Benjamin Talin, a serial entrepreneur since the age of 13, is the founder and CEO of MoreThanDigital, a global initiative providing access to topics of the future. As an influential keynote speaker, he shares insights on innovation, leadership, and entrepreneurship, and has advised governments, EU commissions, and ministries on education, innovation, economic development, and digitalization. With over 400 publications, 200 international keynotes, and numerous awards, Benjamin is dedicated to changing the status quo through technology and innovation. #bethechange Stay tuned for MoreThanDigital Insights - Coming soon!