Author: Ghorban Bararnia Adabi, Date Sep 3, 2024
The main ESG standards in the world
Environmental, Social, and Governance (ESG) reporting standards are frameworks that guide organizations in disclosing their sustainability practices. These standards help in measuring and communicating the impact of a company's operations on the environment, society, and governance. Here are some of the key ESG reporting standards:
1. Global Reporting Initiative (GRI)
- Overview: The GRI Standards are the most widely used framework for sustainability reporting. They provide a comprehensive set of guidelines for organizations to report on their environmental, social, and economic impacts.
- Features:
- Universal Standards: General guidelines applicable to all organizations, covering the reporting process and material topics.
- Topic-Specific Standards: These include environmental (e.g., energy, water, emissions), social (e.g., labor practices, human rights), and economic (e.g., economic performance, market presence) topics.
- Sector Standards: Tailored guidelines for specific industries to address sector-specific impacts.
- Stakeholder Inclusiveness: Emphasizes the importance of identifying and engaging with stakeholders to determine material topics for reporting.
- Countries/Territories:
- Global: Widely used across the world, with strong adoption in Europe, the Americas, Asia, and Africa.
- Key Countries: The Netherlands (GRI's headquarters), Germany, UK, South Africa, Japan, Brazil, and Australia.
- Importance: GRI is one of the most important and widely used ESG reporting frameworks globally, especially for organizations seeking comprehensive sustainability disclosure.
2. Sustainability Accounting Standards Board (SASB)
- Overview: SASB provides industry-specific standards to guide companies in disclosing financially material sustainability information to investors.
- Features:
- Industry-Specific: 77 industry standards focusing on the most relevant ESG issues for each sector.
- Investor Focus: Emphasizes materiality from the perspective of financial performance and risk.
- Quantitative Metrics: Encourages the use of measurable data to ensure comparability and consistency in reporting.
- Countries/Territories:
- United States: Primarily used in the U.S., but gaining traction globally, especially in markets where investors are focused on financially material ESG factors.
- Key Countries: USA, Canada, UK, Australia.
- Importance: Highly regarded in the investment community, SASB is particularly important for organizations seeking to disclose ESG information that is financially material to investors.
3. Task Force on Climate-related Financial Disclosures (TCFD)
- Overview: TCFD provides recommendations for companies to disclose information on the financial impacts of climate change.
- Features:
- Four Pillars: Governance, Strategy, Risk Management, and Metrics & Targets.
- Climate Focus: Specifically addresses risks and opportunities related to climate change.
- Scenario Analysis: Encourages companies to assess and disclose the resilience of their strategies under different climate scenarios.
- Countries/Territories:
- Global: Endorsed by governments and financial regulators in many countries.
- Key Countries: UK, Japan, Canada, New Zealand, Switzerland, and the European Union.
- Importance: TCFD is considered one of the most critical frameworks for climate-related financial disclosures, especially in regions where climate risk is a priority for regulators and investors.
These standards help companies navigate the complex landscape of ESG reporting, ensuring transparency, accountability, and alignment with global sustainability goals. Depending on the organization’s focus, different standards may be used to meet the needs of various stakeholders,
4. OECD Guidelines for Multinational Enterprises
- Overview: The OECD Guidelines provide non-binding principles and standards for responsible business conduct in a global context consistent with applicable laws and internationally recognized standards.
- Features:
- Comprehensive Scope: Covers a wide range of issues, including human rights, labor rights, environmental protection, and combating bribery.
- National Contact Points (NCPs): Each adhering country establishes an NCP to promote the guidelines and handle cases of non-compliance.
- Due Diligence Guidance: Offers specific guidance on how companies can conduct due diligence to avoid and address adverse impacts.
- Countries/Territories:
- Global: The OECD Guidelines are applicable in all OECD member countries and beyond, with over 50 adhering countries.
- Key Countries: USA, France, Japan, Canada, Germany.
- Importance: These guidelines are important for multinational enterprises seeking to align their operations with international standards on responsible business conduct.
Conclusion
Understanding and applying these ESG standards is crucial for organizations aiming to improve their sustainability practices and meet the expectations of stakeholders, including investors, regulators, customers, and the broader community. These standards help companies not only manage risks but also identify opportunities to create long-term value by addressing environmental, social, and governance issues in a structured and transparent manner.
The use and implementation of ESG standards vary by country, industry, and the specific focus of the standard. Each standard also has its unique focus and features, making it essential for organizations to choose the ones that best align with their specific goals, industry requirements, and stakeholder expectations. By doing so, they can effectively measure, manage, and report on their ESG performance, contributing to a more sustainable and equitable world.
