What’s with all the Sustainability and ESG Reporting Frameworks and Standards?

Sustainability Reporting Frameworks and Standards define standard languages for reporting on sustainability and ESG¹ metrics. This is useful because:

1. they help businesses decide what to report on
2. they makes it possible for investors and other stakeholders to compare companies’ performance on sustainability metrics

Strictly speaking Frameworks provide guidelines for a structured approach to sustainability reporting principles and best practices, while Standards are more prescriptive and specific. Regulatory reporting requirements are usually tied to Standards. In reality the terms “framework” and “standard” are often used interchangeably (as we do here), because many of the so-called “standards” also include a Framework (and vice-versa).

Analogy with Financial Reporting Standards

If you work in accounting or finance, Sustainability Reporting Frameworks are analogous to IFRS² and U.S. GAAP³ Reporting standards which dictate the rules for how financial results should be measured and reported. In fact, the gap between financial reporting and sustainability reporting continues to narrow since the IFRS Foundation established the International Sustainability Standards Board (ISSB) in 2022, to place the Sustainability Accounting Standards Board (SASB) formally under ISSB oversight.

The article “The Future of ESG is … Accounting?” (Harvard Business Review, Dec 2020) expands on this, while also pointing out that the ISSB standards are narrowly focused on the needs of the corporate and investor community, and that there are many important society-level sustainability concerns that will fall outside their remit.

A Framework for every audience

This is a great example of why there are so many different frameworks. If you consider the full breadth of possible “Environmental”, “Social” and “Governance” metrics/stakeholders/questions-to-be-answered, it’s inevitable that needs for different guidelines on how to collect and present your data would emerge.

For a simple business analogy, compare regulatory financial reports with internal management reports and operational reports. These reports can share some data sources, but they manipulate, combine and present that data in various ways, at different levels of detail, to different audiences, and for different purposes.

Need for coordination is recognized

Fortunately, all the major frameworks and their governing bodies (such as the ISSB) make an active effort to coordinate their standards to minimize reporting burdens on businesses. Similarly, government regulators such as the SEC (Security and Exchange Commission) and the EU (European Union) have placed commonly adopted frameworks at the center of their rules and (in the case of the SEC) proposed⁴ rules.

• ¹ ESG = Environmental Social and Governance
• ² IFRS = International Financial Reporting Standards
• ³ GAAP = Generally Accepted Accounting Principles
• ⁴ SEC Proposed climate disclosure rule is still pending finalization as of June 1, 2023