Navigating ESG Frameworks and Reporting Requirements

The landscape of Environmental, Social, and Governance (ESG) reporting is vast and complex, with a number of frameworks and requirements in place. Understanding them is crucial for organizations intending to navigate ESG reporting effectively, according to an article by Wolters Kluwer.

ESG reporting has, until recently, been voluntary. However, investors, consumers, and regulators called for greater transparency as well as a reporting standard. Three key frameworks form the foundation of ESG reporting: 

• The Task Force on Climate-Related Disclosures (TCFD) standardized climate-related disclosures, influencing subsequent frameworks. It is now disbanded and will be taken over by the International Sustainability Standards Board (ISSB).
• The Global Reporting Initiative (GRI) provides universal standards for sustainability reporting, with widespread adoption globally.
• The Sustainability Accounting Standards Board (SASB) focused on industry-specific standards, emphasizing materiality in reporting. After a series of mergers, it is now continued under ISSB.

The emergence of four major ESG requirements further shapes the reporting landscape and is central to the future of ESG reporting:

• Corporate Sustainability Reporting Directive (CSRD): Introduced by the European Union (EU), CSRD mandates companies to disclose their environmental and social impacts, as well as the financial implications of their ESG actions. It emphasizes the concept of double materiality, requiring companies to assess both the impact on stakeholders and financial stability. 
• IFRS S1 and S2: Issued by the International Financial Standards Board, these standards integrate sustainability information with financial statements to enhance transparency and aid in decision-making. 
• EU Taxonomy for Sustainable Activities: The EU Taxonomy sets criteria for investments to prevent greenwashing and aligns with CSRD requirements. It categorizes activities based on six objectives and mandates disclosure on environmental sustainability.
• SEC Climate Disclosure Rule: Proposed by the U.S. Securities and Exchange Commission (SEC), this rule focuses on enhancing climate-related disclosures for SEC-registered companies. Drawing on the TCFD framework, it requires disclosures on greenhouse gas emissions, environmental risks, and climate-related governance practices.