ESG Frameworks and Standards

What is the difference between ESG frameworks and standards?

Well for starters, ESG guidelines and standards are guiding principles for ESG reporting. ESG reporting is the heart of this movement because it’s how organizations communicate their progress in environmental, social or governance issues to stakeholders, particularly investors.

They’re necessary because companies can’t just report on ESG in any way they choose. They need to do so in a way that makes sense and has context. Standards and frameworks address this need.

The persistent problem is that we don’t yet have a universal ESG reporting standard or framework that’s used worldwide.

Because of that, industries have fallen back towards several widely-used standards as a substitute.

Specificity.

ESG reporting frameworks are more about general principles. They focus on the bigger questions, such as how information is structured, what information is collected, etc.

ESG reporting standards are more technical and rigid. They give specific requirements, like precise metrics for reporting each topic.

Remember that standards and frameworks should be used together. The former gives context and quantifiable objectives to the latter.

ESG Reporting Frameworks

Task Force for Climate-related Financial Disclosures (TCFD). As the name suggests, it focuses on climate – or the “E” component of ESG. Although it has been taken over by the IFRS as of 2024, it can be a good entry point for companies as they move to use the ISSB Standards. Read full recommendations here (you can quickly jump to chapter C and E):

TCFD Report 2017.pdf

2. The Global Reporting Initiative (GRI) framework - is a “catch-all” framework that tries to broadly capture multiple corners of ESG to help organizations understand their impacts on the economy, environment, and society - including those on human rights. The Standards are a modular system comprised of three series of Standards to be used together: Universal Standards, Sector Standards, and Topic Standards.

4. Voluntary Sustainability Standards (VSS) - developed by non-governmental organizations (NGOs) and industry associations, these standards outline criteria and guidelines aimed at improving social, environmental, and economic performance throughout supply chains. Read more

Most common VSS include;

Forest Stewardship Council (FSC). FSC certification ensures that forest products come from responsibly managed forests that provide environmental, social, and economic benefits.

Rainforest Alliance. The Rainforest Alliance certification focuses on promoting sustainable agriculture, forestry, and tourism practices that conserve biodiversity and improve livelihoods.

Fairtrade International. Fairtrade certification ensures that producers in developing countries receive fair prices and premiums for their products, along with support for sustainable farming practices and community development.

Organic Certification. Various organic certification bodies, such as the United States Department of Agriculture (USDA) Organic and the European Union Organic Regulation, certify products produced using organic farming methods that avoid synthetic pesticides, fertilizers, and genetically modified organisms (GMOs).

Marine Stewardship Council (MSC). MSC certification ensures that seafood products come from sustainable and well-managed fisheries, helping to protect marine ecosystems and support responsible fishing practices.

Carbon Trust Standard. The Carbon Trust Standard certifies organizations for measuring, managing, and reducing their carbon emissions, demonstrating their commitment to addressing climate change.

Roundtable on Sustainable Palm Oil (RSPO). RSPO certification ensures that palm oil is produced sustainably, without causing deforestation, habitat destruction, or human rights abuses.

ESG Reporting Standards

IFRS Sustainability Disclosure Standards - Led by the International Sustainability Standards Board (ISSB), these standards aim to streamline accounting reporting globally, increasing transparency in financial markets. These include the IFRS S1- General Requirements for Disclosure of Sustainability-related financial Information, and IFRS S2- Climate related disclosures. The standards focus on financially material sustainability topics—such as climate change risks, resource use, and social impacts—and are built on standards like the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures (TCFD). This alignment with established standards helps create a unified global approach, reducing the reporting burden on companies that previously faced a range of differing standards.

Sustainability Accounting Standards Board (SASB) - It is investor-oriented and enables organizations to provide industry-based disclosures about sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, access to finance or cost of capital over the short, medium or long term. In 2021, SASB merged with the International Integrated Reporting Council (IIRC) to form the Value Reporting Foundation, later becoming part of the International Financial Reporting Standards (IFRS) Foundation’s ISSB (International Sustainability Standards Board) to advance global sustainability reporting standards.

GHG Protocol’s Corporate Accounting and Reporting Standard - This is widely used for measuring and managing greenhouse gas (GHG) emissions from corporate activities. Developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), it provides companies with a standardized approach to identify, calculate, and report their emissions.

The framework is structured around three "scopes" of emissions:

Scope 1 - Direct emissions from sources owned or controlled by the company, like fuel combustion in company vehicles.

Scope 2 - Indirect emissions from the generation of purchased electricity, steam, heating, and cooling consumed by the company.

Scope 3 - All other indirect emissions that occur in the company’s value chain, such as those from suppliers or waste disposal.

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