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ESG Framework

by | Apr 24, 2022 | ESG

Introduction

ESG framework helps in evaluating the impact of a company’s sustainability and ethical policies. Organizational sustainability may take many forms, ranging from developing sustainable internal processes to producing favourable long-term results for workers, stakeholders, and shareholders.

While having ESG objectives is important, tracking your progress toward them is equally important. This is where ESG frameworks may help by providing a useful yardstick.

There is no one standard, but there are many frameworks that any organization may refer to or use to develop a comprehensive environmental, social, and governance (ESG) reporting system. All of these are unique and, in some cases, industry-specific, which can be puzzling.

The decision to use an ESG framework is only half the battle. The second half is deciding on a framework and putting it into action to achieve all of your goals. An increasingly values-based economy necessitates the standardization of an ESG framework, which the market now lacks.

This new market dynamic’s potential strength is based on corporate responsibility and accountability.

The difficulties are to be sustainable and profitable, embrace a uniform ESG framework, and compel publicly listed companies to report ESG-related risks and deliver value to shareholders in greater detail. Creating a sustainable, more open, and less unstable global economy will be more of a reality with each challenge being completed and each reward being earned.

Do ESG Frameworks Set Sustainability Targets?

ESG frameworks often define the quantitative and qualitative factors that a corporation should report on, as well as the manner and frequency with which they should be reported. They make it easier to provide ESG data that is comparable, consistent, and trustworthy. Data providers and rating agencies can use this information to create capital market tools, analytics, and resources.

It’s vital to distinguish frameworks and standards at this stage. Standards are clearly stated and are expected to be strictly adhered to. Frameworks, on the other hand, are broad standards with ambiguous reporting objectives.

Here’s how standards offer sustainability or ESG reporting structure, comparability, and comprehensiveness. The foundation of most Sustainability Reporting standards, frameworks, and guidelines is the belief that in order for economic progress to begin or continue, all aspects of life, including social and environmental demands, must be protected.

Frameworks give advice on how the material is structured, produced, and what major subjects are addressed, all based on principles. Meanwhile, standards specify what can be reported for every issue, including metrics, in a way that is explicit, thorough, and repeatable. Standards make frameworks practical by guaranteeing that information is comparable, uniform, and reliable. Frameworks and standards are intended to be used in conjunction with one another. ESG refers to the methods and procedures used by businesses to collect and disclose data in a transparent manner. Companies may use ESG frameworks to monitor ethical and sustainable company growth and business continuity in a standardized and structured manner.

Importance of ESG frameworks

Many parallels are being drawn between the unanticipated hazards of a pandemic and the climate issue, both of which have a significant influence on the global economy. As a result, many investors and governments have realized the need to accelerate investments and growth in ESG-focused enterprises. After all, our society is no longer just reliant on the government but also on well-functioning enterprises to satisfy its demands, including job creation, equitable growth, natural resource protection, and consumer protection.

Many nations have adopted legislation, such as carbon taxes, and the financial and banking industries have integrated ESG principles into their financing criteria, so companies are already feeling the financial penalties of failing to act on sustainability. Only by demonstrating that they have built effective sustainability and ESG framework can stakeholders avoid unfavourable financing conditions and exclusion from capital markets.

Furthermore, the private equity market incorporates sustainability and environmental, social, and governance (ESG) principles into its portfolio strategy. Private investors have discovered that investing in firms that have a strong and credible ESG framework improves their ESG ratings and lowers financing and revenue risks.

ESG Framework

Source: https://esgnavigator.com/knowledge-hub/esg-ratings-library/esg-reporting-frameworks/

CDP

The Carbon Disclosure Project (CDP) is a non-profit organization established in the USA, UK, Germany, India, China, and Japan that assists businesses and localities in disclosing their environmental impact. CDP is a non-profit organization that manages the worldwide disclosure system used by investors, businesses, cities, governments, and areas to regulate their environmental impacts.

Its purpose is to make environmental reporting and risk management a corporate standard, resulting in greater transparency, insight, and action in the direction of a more sustainable economy. Since 2002, approximately 8,400 firms have used CDP to publicly publish environmental data.

CDP presently has three surveys available for businesses (Climate Change, Water Security, and Forests). Different approaches are used to score each of them. The surveys contain both general and sector-specific queries aimed at high-impact industries. CDP’s surveys are scored by approved scoring partners who have been trained by CDP.

The Carbon Disclosure Project Framework (CDP) includes the following features:

  • Manage the effects on the environment
  • Assistance with ESG reporting on a step-by-step basis
  • Data gathering is done automatically.
  • Responses and remediation are tracked via a dashboard.
  • Internal audit and controls criteria are met.
  • Clear and comprehensive articulation of a long-term business concept
  • Internal stakeholders report by professional.

GRI

The Global Reporting Initiative (GRI) is a non-profit multinational organization with a network-based structure. GRI publishes free and accessible Sustainability Reporting Guidelines to help all businesses and organizations report on their economic performance and ESG framework. The current version of the guidelines is the fourth (“G4”).

GRI was created in 1997 in Boston, Massachusetts, by CERES (a non-profit organization in the United States) and the United Nations Environment Program (UNEP). GRI relocated its headquarters to Amsterdam in 2002, where the Secretariat now resides. In addition to Australia, Brazil, China, India, and the United States, GRI has provincial ‘Focal Points’ in Brazil, China, India, Australia, and the United States.

The GRI framework is designed to allow third parties to examine the company’s and its supplier chain’s environmental effects.  The GRI Indicator Protocol Set contains the standardized reporting criteria for environmental indicators. Energy, biodiversity, and emissions are among the performance indicators (PI). There are 30 different environmental indicators, ranging from EN1 (materials utilized by weight) to EN30 (environmental indicators).

The Data Partners of the GRI gather and handle data on GRI reporting and sustainability reporting in general. They communicate data regarding reports and reporting organizations with GRI regularly, and they also act as on-the-ground hubs, recognizing reporting trends in particular countries and regions. Data Partners’ reports and organization-related information are contributed to GRI’s Sustainability Disclosure Database.

GRI decided to shut down its sustainability disclosure database in 2020. Hundreds of firms contributed approximately 63,000 reports to the publicly accessible database, which spanned over 20 years. However, the reports contained in this database may still be found on corporate websites.

DJSI

The Dow Jones Sustainability Index (DJSI) is a worldwide index that was launched in 1999 and is widely considered one of the world’s leading sustainability indexes. The DJSI World Index measures a company’s long-term viability based on environmental, social, and economic factors (ESG frameworks), as well as forward-looking indicators.

Since September 2005, AkzoNobel has been recognized as one of the industry leaders on the DJSI, which tracks the overall performance of the world’s leading (top 10%) sustainability-driven companies. This prestigious index reflects the company’s unwavering commitment to improving its own sustainability performance.

The DJSI was created by S&P Dow Jones Indices and SAM to identify the best sustainable firms across 61 categories, combining the knowledge of a recognized index provider with the experience of a specialist in Sustainable Investing.

The indices serve as a benchmark for investors that include sustainability concerns in their portfolios, as well as a platform for investors who want to push firms to improve their corporate sustainability policies.

Based on the firms’ Total Sustainability Scores from the yearly S&P Global Corporate Sustainability Assessment, the DJSI World uses a fair, rules-based component selection procedure. For inclusion in the Dow Jones Sustainability Index family, only the top-ranked firms in each industry are chosen. This technique does not exclude any industries.

SASB

The Sustainability Accounting Standards Board (SASB) is a non-profit organization whose aim is to create and distribute sustainability accounting standards that assist public companies in disclosing meaningful, decision-relevant information to investors. This aim is realized through a thorough approach that involves evidence-based research and input from a diverse range of stakeholders.

SASB created market-specific Key Performance Indicators (KPIs) for sustainability to supplement the ESG Framework’s rules for reporting environmental data in the mainstream corporate report. SASB offers a set of guidelines to all reporting organizations, with the CDSB Framework for sustainability reports and environmental resource capital reporting serving as additional advice for specific environmental parameters.

ISO 26000

ISO 26000 is an international standard that outlines how to conduct oneself socially responsible. This guideline applies to all organizations, regardless of size or industry, whose goal is to contribute to society’s health and well-being. ISO 26000 is a guideline standard that assists businesses in improving their operational procedures and ensuring a healthy environment.

Not every company understands the significance of corporate social responsibility. Industry, geography, and government regulation may all have an impact on a company’s desire to “do the right thing.” The International Organization for Standardization (ISO) developed the ISO 26000 standard to assist enterprises in becoming more socially responsible and governing their ESG framework.

Any organization’s short- and long-term success is growing increasingly dependent on ISO 26000 certification. As a result, by receiving our ISO 26000 accreditation, you will be able to deal with today’s problems while also being adequately prepared for tomorrow. Their global network of specialists will help you through all of the essential procedures in properly implementing the standard according to your corporate culture, having acquired global recognition for their services and honesty.

ISO 26000: https://pecb.com/en/education-and-certification-for-individuals/iso-26000/iso-26000-introduction

IIRC

The International Integrated Reporting Council (IIRC) (formerly the International Integrated Reporting Committee) was established in August 2010 with the goal of developing an internationally recognized ESG framework for a process that results in an organization’s communications regarding value creation throughout time.

Representatives from the business, investment, securities, accounting, regulatory, academic, and standard-setting sectors, as well as civil society, are all represented at the IIRC. A steering committee, a working group, and three task forces make up an organization.

The International Integrated Reporting Council (IIRC) has designated integrated reporting as “IR” as a corporate reporting concept in response to requests to enhance company performance reporting and present a more holistic view of a firm’s business strategy for long-term value development.

The integrated report would combine key aspects of traditional financial reporting with information on environmental, social, and governance (ESG) into a single report that recognizes all of the factors, resources, and relationships that affect a company’s performance in the short and long term. Financial, technical, manufactured, human, social and interpersonal, and natural capitals are the six categories of “capital” used by the IIRC to encapsulate these variables.

UNGC

The United Nations Global Compact (UNGC) is a voluntary strategic policy initiative for businesses aimed at establishing a uniform approach to corporate social responsibility based on ten globally recognized standards in the areas of labour, human rights, anti-corruption, and the environment. The Global Compact and its principles are integral to Power Corporation’s company culture and day-to-day operations. They emphasized our initiatives and strategies in their Progress Communication.

The Ten Principles have inspired the company’s culture, programs, and activities, as well as their commitments and relationships since Power Corporation has become a member of the UNGC in 2014. Furthermore, since its inception in 2015, they have backed the UN’s 17 Sustainable Development Goals (SDGs). They feel they are a constructive influence in society because their investments are mostly in financial services. Many of their portfolio companies have become supporters and signatories of other important third-party-led initiatives, including the Principles for Responsible Investment (PRI), Women’s Empowerment Principles, and the Task Force on Climate-Related Financial Disclosures (TCFD), and the Climate Action 100+ initiative.

SDGs

Sustainable Development Goals (SDGs) are a set of goals that aim to make the world a better place. These notions, which were first proposed by the United Nations, were previously the responsibility of countries. However, in a more connected world, everyone, including corporations, may play a role.

The United Nations has identified 17 Sustainable Development Goals (SDGs) that it hopes to fulfil by 2030 in order to offer a brighter future for the world’s people. For every kind of business, the United Nations Sustainable Development Goals assist as a supportive reminder of what to consider in the ESG framework and when putting policies in place. Each of the 193 governments that pledged to deliver them has its own objectives, which will have an impact on organizations when determining how they might help and what laws the countries committed to reaching these goals may implement in the future.

As the globe concentrates its emphasis more firmly on ESG, the United Nations’ Sustainable Development Goals (SDGs) are rapidly being acknowledged as a useful basis for responsible investing (Environment, Social, Governance).

Some firms are moving beyond the traditional ESG strategy, which gauges success by reducing corporate impact, and instead of looking for methods to enhance the environment around business and have a positive, measurable impact, in order to fulfil growing stakeholder demand.

As a result, the SDGs provide a realistic framework for ESG mapping at a higher level, which can aid in the adoption of sustainable investing, encouraging responsible corporate behaviour, and integrating sector and business-specific ESG factors with wider social changes and global environmental goals.

 

 

Author

  • The author has done a master's in Environmental science and is currently working as chief Environmental Advisor with New Delhi State Government.

1 Comment

  1. graliontorile

    There are some attention-grabbing cut-off dates on this article but I don’t know if I see all of them heart to heart. There’s some validity however I will take hold opinion until I look into it further. Good article , thanks and we wish more! Added to FeedBurner as well

    Reply

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