In another article recently published here on the blog, I wrote about how important frameworks are for defining metrics in ESG (Environmental, Social and Governance) and for standardizing sustainability reporting. Using a specific ESG framework helps companies focus their reporting processes, showing them where to look, what to measure and how to disclose the results.
Today, there are plenty of ESG frameworks to choose from, which makes the lack of standardization one of the main problems in the area of sustainability. While these frameworks often complement each other, the need to satisfy the different standards for reporting has created a problem for companies and investors who need to interpret data from different sources and methodologies.
Global Reporting Initiative (GRI)
The GRI was the first framework developed and is the most used around the world. Initially, the objective was to provide companies with indicators for responsible environmental practices. Later, the metrics were expanded to include human rights, governance and social well-being.
In this same article, I reported that, according to KPMG’s 2020 Sustainability Reporting Survey, GRI standards are used by almost three-quarters (73%) of the G250 – the world’s 250 largest companies – and by two-thirds (67%) of the N100 – the top 100 companies from 52 countries totaling 5,200 organizations.
International Financial Reporting Standards (IFRS)
The IFRS Foundation is a non-profit organization created to develop a single set of accounting and sustainability disclosure standards that are understandable, easy to apply and accepted globally.
These standards, known as the IFRS standards, are developed by two regulatory boards: the International Accounting Standards Board (IASB), which determines IFRS Accounting Standards, and the newly created International Sustainability Standards Board (ISSB), which determines the IFRS Sustainability Disclosure Standards.
In September of 2020, the IFRS Foundation issued a public consultation document that discussed its possible contribution to the issuance of sustainability reporting standards aimed at ensuring greater transparency, standardization, comparability and simplicity in the data provided by companies.
Alignment between frameworks
A number of initiatives have been created to develop a framework that takes advantage the best elements of current ESG frameworks, which gives us some hope for a more standardized scenario in the future.
Collaboration between frameworks demonstrates a shared commitment to a global alignment of disclosure requirements. This consolidation of data allows for consistent reporting by companies, which improves accountability and encourages responsible business practices.
On March 24, the IFRS foundation and the GRI announced a new agreement to align their capital market and multi-sectoral sustainability disclosure standards. With this agreement, both organizations will work together to determine a new set of standards, which also includes the joining of their advisory bodies related to sustainability reporting activities.
“The agreement underscores the importance of ensuring the compatibility and interconnectivity of basic investor-focused sustainability data that meets the needs of capital markets, with data intended to satisfy the needs of a broader range of stakeholders,” according to the press release of the organizations.
This is good news for both the organizations and for stakeholders looking for a standard for reporting and comparing sustainability indices that increasingly provide transparency.
Are you interested in learning more about ESG after having read this article? If so, I would like to invite you to view some of the other content that has already been prepared on this topic here on our blog!