ESG reporting frameworks are tools that companies use to disclose information about their business operations as well as opportunitiesand risks associated with environmental, social and governance (ESG) aspects of their business.

These frameworks are developed by a variety of organizations, including NGOs, stock exchanges, trade groups, non-profit organizations, think tanks and governments. Although there are hundreds of ESG frameworks, only about a dozen are considered mainstream.

Each framework sets out the metrics and qualitative elements that a company should disclose, as well as the format and frequency of reporting. Some frameworks are voluntary, while others are mandatory based on government mandates.

ESG metrics are becoming increasingly important due to the growing interest of investors and the general public. Many organizations today focus on improving their sustainability performance, setting ESG targets and regularly reporting on their results.

ESG has moved from a fringe topic to the mainstream, and organizations are now more than ever expected to report on their performance in this area. Ignoring ESG risks can lead to negative impacts, such as stock actions at annual general meetings or divestment of assets by asset managers.

The growing importance of ESG means that organizations are using an increasingly wide range of different frameworks to report their ESG impact.

Selection of ESG reporting frameworks

Objective 1: Potential for impact

When choosing an appropriate ESG reporting framework, organizations should consider where they can make the most difference based on materiality assessments.

Materiality in the context of ESG

Materiality leads organizations to focus on those ESG issues that are relevant to them and have a measurable impact on their business. An organization must first identify its risks and assess the consequences of these vulnerabilities. Using the risk matrix, they can determine which ESG-related risks they should prioritize.

For example, a large-cap e-commerce company might focus on packaging and waste (environmental), labor standards in the supply chain (social), and business ethics (governance), as these areas have the largest risk profiles. A company should strive for frameworks that cover all three ESG categories.

Assessment of bivariate significance

Double materiality forces organizations to evaluate materiality from two perspectives: financial and social, which allows taking into account internal financial risks as well as external impacts on people and the environment. Using this approach, organizations can identify both the financial and non-financial impacts of their activities and thus shape a holistic ESG strategy.

Lens 2: Stakeholder expectations

When examining reporting frameworks, it is important to consider the expectations of stakeholders as well as how these parties use the published information.

External stakeholders

Stakeholders such as investors, management, insurers and creditors may have preferences for particular frameworks such as TCFD or SASB. Employees and consumers may expect disclosures based on the UN's Sustainable Development Goals, while governments may prefer frameworks such as the SECR or NGER.

Internal stakeholders

Different teams in the company use ESG data for different purposes – from supporting strategic decisions to optimizing supply chains. Choosing the right framework can therefore be key to fulfilling their needs.

Objective 3: Geography

Some frameworks are only relevant in specific geographic areas. For example, the EU CSRD is specific to the European Union, while the SECR applies to the United Kingdom.

Objective 4: Sector preferences

Organizations in specific sectors often find natural synergy with certain ESG frameworks, for example GRESB for real estate. Organizations can explore framework or partner sites to see which frameworks are relevant to them.

Lens 5: Frame coverage

Each framework focuses on different key ESG metrics such as environment, social issues, governance, carbon, energy, waste and water. Understanding their focus can help select the most appropriate frameworks and report multiple frameworks using existing data.

Adoption of a dedicated ESG reporting system

With increasing pressure on the accuracy of ESG data, it is important to have a reliable and auditable reporting system. Organizations can benefit from specialized IT systems for managing ESG data that help implement the correct and up-to-date framework requirements.

When using AI for ESG assessment

Investment and sustainability teams should be cautious when evaluating their ESG data through AI and bots. It is recommended to focus on relevant agencies, align data with their needs and increase publicly available ESG information.

The future of ESG reporting

The future of ESG reporting is moving towards harmonization of frameworks based on regulatory changes, industry preferences and framework consolidation. Organizations should push for accurate, auditable data and work with relevant stakeholders to be prepared for ever-changing ESG requirements.