A quick guide to leading ESG Reporting requirements and frameworks

CSRD, SASB, SEC — H.E.L.P! With so many ESG frameworks in various stages of development and requirement, it can be hard to keep them all straight. Which ones are mandatory? Which ones are voluntary? How do they all relate?

We’ve untangled the complex web of ESG frameworks so you can understand the aim of each framework, its requirements, and who’s impacted by it.

In this article, we breakdown:

• The 3 Founding ESG Frameworks
  • Task Force of Climate-Related Disclosures (TCFD)
  • Global Reporting Initiative (GRI)
  • Sustainability Accounting Standards Board (SASB)

   

• The Big 4 ESG Requirements
  • Corporate Sustainability Reporting Directive (CSRD)
  • The ISSB’s IFRS S1 and S2
  • The EU Taxonomy for Sustainable Activities
  • SEC Climate Disclosure Rule

3 Founding ESG Frameworks

Until recently, ESG reporting has largely been voluntary. But as investors, consumers, and regulators call for greater transparency into ESG performance and goals, so have the calls for a reporting standard. ESG reporting had to start somewhere. Today’s ESG requirements have evolved based on three foundational frameworks: TCFD, GRI, and the SASB. 

Task Force of Climate-Related Disclosures (TCFD)

What it does

The Task Force on Climate-Related Disclosures — or TCFD— was created in 2015. Its goal was to set a standard for climate-related disclosures that would foster comparability and transparency. The reporting framework the TCFD developed enabled companies to report on climate-related risk exposures to investors, lenders, and insurance underwriters. TCFD requirements are incorporated into IFRS. If a company reports on IFRS, they automatically meet TCFD requirements as well.

Differentiator

TCFD has arguably been the most influential framework on recent ESG requirements. Today, the TCFD has served as a foundation for CSRD, IFRS S1 and S2, and the SEC’s Climate Related Disclosure Rule.

Summary of reporting requirements

The TCFD proposed 11 disclosure recommendations that cover governance, strategy, risk management, and metrics and targets.

Who’s impacted

Since its launch, nearly 5,000 organizations publicly declared their support for the TCFD's recommendations. As of 2022, 58% of listed companies disclosed in line with at least five of the 11 recommended disclosures. On October 12th, 2023, the TCFD published its final status report . It is now disbanded. The ISSB will take over the TCFD in 2024. 

Global Reporting Initiative (GRI)

What it does 

The Global Reporting Initiative — or GRI — was created to help businesses, investors, policymakers communicate and report their sustainability work. Since its inception in 1997, GRI’s goal was to provide a universal language for sustainability reporting. 

Differentiator

GRI is the most widely used set of standards. According to an October 2022 survey by KPMG, GRI Standards are used by 78% of the world’s top 250 companies and an average of 68% of the top 100 companies in 58 countries

Summary of reporting requirements

GRI's reporting process is facilitated by three sets of standards. 1. The GRI Universal Standards, which are applicable to all organizations. 2. The GRI Topic Standards, which are designed for specific topics with relevant disclosures. And 3. The GRI Sector Standards, which are tailored to specific sectors.

Who’s impacted

Adoption of GRI is voluntary. Companies can use the whole sets of standards, or just parts, to report their ESG performance depending on their focus, relevance, or priorities. Businesses that use GRI are required to include a statement about their GRI use in the report or material they published.

Sustainability Accounting Standards Board (SASB)

What it does

The Sustainability Accounting Standards Board — or SASB — is a non-profit organization that was built in 2011 to create a framework for industry-specific standards that are relevant to investors because they have a material impact on the business. Materiality is a large focus of these standards. It’s important to note that, after a series of mergers, the SASB’s legacy is now continued under the IFRS Foundation’s International Sustainability Standards Board.

Differentiator

SASB is sector-based.

Summary of reporting requirements

The original SASB standards cover 77 industries, giving companies a framework for identifying the sustainability factors most critical to their business activities. The SASB’s requirements are divided into five overarching categories: environment, social capital, leadership & governance, business model & innovation, and human capital.

Who’s impacted

As of summer 2023, over 2800+ unique companies have reported using SASB standards since 2020.

The Big 4 ESG Requirements

A 2022 research report by the Governance & Accountability Institute Inc found that 96% of companies in the S&P 500 and 81% of businesses in the broader Russell 1000 Index published sustainability reports in 2021. The growing call and application of reporting frameworks has led to the evolution of four ESG requirements, which will be central to the future of ESG reporting.

Corporate Sustainability Reporting Directive (CSRD)

What it does

The Corporate Sustainability Reporting Directive, or CSRD, is EU legislation that mandates companies to disclose information about the environmental and social effects of their business operations, together with the business implications of their environmental, social, and governance (ESG) actions. This disclosure aims to support the stakeholders, especially investors, to more effectively assess the sustainability performance of EU companies and their associated business impacts.

Differentiator

CSRD focuses on the  concept of double materiality. It requirements an assessment, where companies must identify the topics that are material to their specific business both in terms of impact (how the company influences people and the planet) and financial materiality (how sustainability goals affect the company's financial stability).

Summary of reporting requirements

In scope companies must identify which sustainability matters are most material to the organization and its stakeholders by running a double materiality assessment. 

Following this, companies should report on these material sustainability matters in compliance with the relevant European Sustainability Reporting Standards (ESRS).

The results of this assessment should be disclosed in either the annual or management report, where they should provide a comprehensive perspective on the company’s overall performance, including both financial and non-financial aspects.

In alignment with ESEF regulations, sustainability information must be presented in HTML format to promote standardization and simplify the verification process. It will also be subjected to an obligatory audit.

Who’s impacted

In 2024, all organizations within the Non-financial Reporting Directive’s (NFRD) scope will be impacted. In 2025, CSRD will expand to organizations that have two out of three of the following criteria:

1. A net turnover of over €40 million
2. €20 million+ in assets
3. 250+ employees.

Beyond 2025, CSRD will expand to all listed companies

The ISSB’s IFRS S1 and S2

What it does

The international financial standards board released IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures in June 2023. These standards strive to create a global baseline for disclosing ESG and sustainability-related risks and opportunities.

Differentiator

IFRS S1 and S2 require companies to provide sustainability-related information alongside financial statements in the same reporting package with the goal of aiding transparency in the materiality of ESG and sustainability. S1 and S2 build on the IFRS’ existing standards.

Summary of reporting requirements

IFRS S1 sets out requirements for sustainability-related financial disclosures that could affect an entity’s “prospects” — including cash flows, access to finance, and costs of capital over the short, medium, and long term. IFRS S2 sets out requirements for disclosures related to climate-specific risks and opportunities. Both standards include disclosure requirements for governance, strategy, risk management, and metrics and targets.

Who’s impacted

Any company can voluntarily apply IFRS S1 and S2. Jurisdictional authorities can decide on whether or not to require them.

EU Taxonomy for Sustainable Activities

What it does 

Is a company environmentally sustainable? This is the question the EU Taxonomy for Sustainable Activities sets out to answer. The EU Taxonomy was created to help the EU meet its goal to reduce emissions by 55% by 2030 and become a climate neutral continent by 2050. The EU Taxonomy creates a minimum standard for sustainability disclosure requirements. Essentially, it creates a set of criteria that must be checked for an investment to be considered sustainable to prevent greenwashing.

Starting in January 2023, the EU Taxonomy will be a mandatory tool for CSRD, impacting roughly 50,000 companies within the EU and international companies operating in the EU. The EU taxonomy went into effect in January 2023 and is used in conjunction with CSRD.

The EU Taxonomy has six objectives:

1. Climate change mitigation
2. Climate change adaptation
3. Sustainable use and protection of water and marine resources
4. Transition to a circular economy
5. Pollution prevention and control
6. Protection and restoration of biodiversity and ecosystems.

Differentiator

The taxonomy is mainly a classification tool. But it does have disclosure requirements within the EU’s Non-Financial Reporting Directive (NFRD) and the Sustainable Finance Disclosure Regulation (SFDR).

Summary of reporting requirements

Under NFRD, scoped entities must disclose how, and to what extent, its activities are considered environmentally sustainable. Companies need to disclose how turnover, capital, and operating expenditures are associated with EU Taxonomy activities. Under SFRD, scoped entities need to disclose information on how their products align with the EU Taxonomy and if they are environmentally sustainable.

Who’s impacted

50K companies operating within the EU, including international companies. The EU taxonomy came into effect in July 2020.

SEC Climate Disclosure Rule

What it does

In March of 2022, the SEC proposed a series of rules to enhance and standardize climate-related disclosures for investors.  These requirements draw on the TCFD framework. SEC-registered domestic or foreign companies would have to include climate-related disclosures in registration statements and periodic reports like the 10-K annual report.

Differentiator

This rule is climate focused. Under the SEC Climate Disclosure rule, “companies must provide an accounting of their greenhouse gas (GHG) emissions, the environmental risks they face, and the measures they’re taking in response.”

Summary of reporting requirements

The new disclosure rules would require publicly listed companies to disclose:

• Risks that are likely to materially impact the business, results of operations or financial condition
• Information about direct greenhouse gas (GHG) emissions and indirect emissions from purchased electricity or other forms of energy
• Information about certain types of GHG emissions from upstream and downstream activities in its value chain
• Governance practices regarding climate-related risks and risk management processes
• A note to the audited financial statements about climate-related financial statement metrics and related disclosures
• Climate-related targets and the company’s transition plan, if applicable

Who’s impacted

SEC-registered domestic or foreign companies will have to disclose according to the SEC climate disclosure rule. 

ESG is the future of reporting — the time to prepare is now

ESG reporting isn’t going anywhere. If anything, reporting requirements will only become more rigorous, more in-depth, and require more information from more corners of your business. The best way to handle the ESG challenge? A corporate performance management approach.

Learn how CCH Tagetik ESG & Sustainability Performance Management equips you with the tools to report on evolving ESG requirements, improve decisions, drive growth, and limit risk.