Where to start with ESG reporting? There is no question that the ESG landscape is becoming more and more complex. In our previous article we touched upon the ESG framework and its pillars, however we didn’t really consider the complete landscape of global goals, regulations and stakeholder expectations that ESG reporting is a part of and is affected by.
Your ESG reporting efforts are a part of the broader landscape of sustainability issues. The goal of ESG reporting is to demonstrate how your company aligns with the various aspects of global sustainability issues. One way of conceiving of this landscape is layers stacked on top of each other. The top-level of sustainability issues are UN Sustainable Development Goals (SDGs) and the Paris Climate Agreement. These overarching goals in turn inform EU and local sustainability regulation, including reporting, which would be the layer beneath the previous one. It is important to note that the CSRD1 is already under development and will be the EU's ESG reporting framework and is likely to be effective from 2023. Then beneath the layer of regulation we can consider the broad stakeholder expectations. In other words, what do investors and stakeholders expect of your company in terms of sustainability? An ESG report should ideally show how your company is aligned with their concerns as well. Finally, we can conceive of the various reporting frameworks as the bottom layer of the ESG reporting landscape. Of course, the layers described are not a strict hierarchy and each influence each other. It may well be argued that it is stakeholder expectations that drove acceptance of the Paris Agreement or that ESG reporting frameworks have shaped legislation because large parts of them are currently being adopted as part of the CSRD.
There are a myriad of ESG issues to report on and it is difficult to decide how to prioritise what to report on. The breadth and depth of ESG issues are significant. Narrowing down this breadth and depth to a manageable level is the purpose of selecting a framework and then conducting a materiality assessment in accordance with that framework. Remember from our previous article that there are 2 types of materiality: financial materiality and double materiality. Investor focused frameworks like SASB2 use financial materiality (sustainability risks that affect company value) whereas frameworks like GRI3 that target a more broad audience tend to favour double materiality (where in addition to the financially materially issues, socially material issues are also considered). The economic sector level filtering of what issues to report on will be given either directly by your framework (SASB and soon in GRI as well) or by the materiality assessment. Whichever framework you choose, remember that there is no theoretical limit to the number of frameworks you can use and as your reporting process improves additional frameworks can be added to increase the breadth of your ESG reporting. The depth of your ESG reporting will depend on having a robust reporting process and good data quality on the one hand and having a comprehensive sustainability strategy (with targets and policies) on the other. Sustainability strategies are needed for depth because it is these strategies that set the context in which you move beyond simply reporting on the data and begin to report how you manage sustainability outcomes. We will explore the question of sustainability strategies at later date.
Check which frameworks your peers and industry leaders use for reporting but make your final decision based on your own reporting needs. A study by the Alliance for Corporate Transparency in 20204 showed that based on their NFR5 disclosures most (70%) Central and Southern-Eastern European companies reference GRI as the framework they use to structure their report. The second most popular framework is reporting on the SDGs (34%). Strictly speaking, the SDGs are not a reporting framework in the same way that GRI or SASB is but they are referenced as such and do fulfil a similar function. Overall, when choosing your first framework, choose one that covers all ESG issues and helps you structure reporting according to your target audience’s needs.
Your reporting requirements are in large part set by your target audience’s expectations, by the stakeholders you are looking to communicate with. As alluded to previously there are two typical cases for this. Focused reports that target investors and more general reports that aim to address the broader stakeholder groups. If this is your first report, unless you have a specific use case for an investor specific report, it is recommended that you choose a more flexible framework that is aimed at addressing a broader audience. Focused frameworks are tailored to the needs of particular audiences and require more strict adherence in order to be meaningful. Flexible frameworks give you leeway in choosing how and how many ESG issues you report on. Also, note that focused frameworks are data-driven and their successful completion hinges on good data collection processes already being in place.
It is a safe, future proof choice that can serve as a basis for building out your ESG reporting over time. When starting out your company will face a number of data collection challenges that you will have to overcome gradually. For this reason, it is most advisable to start with the GRI framework. As it offers the most flexibility it is common practice for companies just starting their ESG journey to start reporting with reference to GRI before developing their reports to where they are able to report in accordance with the standards.
GRI is also modular, so you don’t have to worry about revisions to the entire reporting framework. If the standards board decides to update a single module in the reporting framework then your company just has to update their approach to that one module.
GRI incorporates the following international standards:
It is also compatible with the other standards:
*linkage document is available on the GRI website.
Not to mention GRI is also likely to be compatible with the upcoming CSRD because:
The goal is to demonstrate that your company is a good steward of all forms of capital. Not just financial but environmental and social as well. Don’t treat ESG reporting as just a compliance exercise, your task is not just about reporting on ESG issues. By collecting data, you are also taking the first steps towards managing ESG issues in the same manner as you would manage financial issues.
1:Proposal for a Directive of the European Parliament and the Council amending Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) No 537/2014, as regards corporate sustainability reporting
2: Sustainable Accounting Standards Board: https://www.sasb.org/
3: Global Reporting Initiative: https://www.globalreporting.org/
4: Alliance for Corporate Transparency – Research Report 2020
5: Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups
Réka joined Deloitte's Sustainability & Climate Services team in 2017 and took over in 2022. In addition to her degree in Environmental Engineering, she holds an LLM, Master of Laws in International Law and Sustainable Development. She has cross-industry experience in numerous environmental and sustainability consultancy areas, such as environmental permitting, due diligence projects, and sustainable finance. Her specialization includes preparation, validation of sustainability, ESG, and integrated reporting based on general or various standards (GRI, SASB, TCFD), the support of related strategic objectives, the design and management of related materiality assessment, and supply-chain data collection procedures. Réka holds multiple certifications in sustainability reporting standards, SAP EHS, and financial risk management related to climate change. She is involved in several industry knowledge-sharing initiatives such as LCA, regulatory change preparedness, and reporting.