Sustainability legislation and ESG regulations are constantly evolving, making it hard for organisations to keep track of them. This means that companies are struggling to maintain compliance, and know which disclosures apply to their organisation.
The increase in global supply chains and the expanding global market means that now a companies’ ESG responsibilities extend beyond them, and many organisations are under multiple international frameworks.
That’s why it’s important now more than ever for organisations to be able to align with multiple frameworks, in order to maintain compliance on a global scale.
So what is multi-framework reporting, and why is it crucial for global compliance?
What Is Multi-Framework ESG Reporting?
Multi-framework ESG reporting means utilising multiple frameworks to disclose environmental, social, and governance (ESG) data. This strategy enables organisations to customise their reporting to align with the distinct requirements of different stakeholders and regulatory authorities globally.
With the growing number of ESG frameworks, many businesses are opting to prepare sustainability reports according to more than just one. Proxy adviser ISS looked at 71 corporates to find that 90% say they are using, or plan to use, more than one system for making non-financial disclosures on issues such as carbon emissions.
The survey, which examined 52 US companies and 17 in the EU, found that the SASB (Sustainability Accounting Standards Board) and TCFD (Task Force for Climate-related Financial Disclosures) were the two most popular frameworks, with the CDP (Carbon Disclosure Project) coming in third.
What are the benefits of multi-framework ESG reporting?
Comprehensive coverage: Using multiple frameworks can ensure that all relevant ESG factors are addressed in reporting, including climate-related disclosures, environmental impact, social impact, and governance practices.
Tailored communication: Companies can use different frameworks to tailor their ESG communication to resonate with each stakeholder group.
Benchmarking and comparison: Some frameworks, like the CDP, offer platforms for companies to disclose and compare their ESG performance, allowing for benchmarking against industry peers.
Compliance and legal requirements: Some frameworks are mandatory or legally required, and using them ensures compliance with regulations.
Enhanced stakeholder engagement: By reporting to multiple frameworks, companies can demonstrate their commitment to sustainability and transparency, leading to greater stakeholder engagement and trust.
Organisations are choosing to refer to different frameworks in tandem with one another, when preparing disclosures. But it’s important to understand which frameworks are right for your organisation.
Here are three factors to consider when you starting to choose what frameworks to report under:
Audience: Who is the audience of your disclosures and what do you want them to understand about your ESG efforts?
Drivers: What is motivating you to think about sustainability disclosures and what are the risks if you do not comply?
Resources: What resources do you have that can be dedicated to this and what capacity do you have to produce quality ESG reports?
The next step in understanding multi-framework reporting, is to understand what frameworks organisations around the globe need to comply with.
What Are The Frameworks’ Organisations Need To Comply With?
There are many different standards organisations should know about in order to ensure global compliance, and to understand which frameworks can align for multi-framework reporting.
Global and international standards include:
International Sustainability Standards Board (ISSB): Establishes a global baseline, now incorporating TCFD and SASB guidance.
Sustainability Accounting Standards Board (SASB): Focuses on industry-specific materiality, providing investors with comparable and reliable data on financially material sustainability factors.
Task Force on Climate-related Financial Disclosures (TCFD): Provides recommendations for disclosing climate-related risks and opportunities in financial reports.
Global Reporting Initiative (GRI): Widely used for broad ESG disclosures.
Carbon Disclosure Project (CDP): Focuses on climate and environmental data, including supply chain emissions.
Global Real Estate Sustainability Benchmark (GRESB): Created to provide a consistent framework for global assessment of real estate assets’ sustainability performance.
Standards within the European Union include:
Corporate Sustainability Reporting Directive (CSRD): Expands ESG reporting to over 50,000 companies, with detailed requirements.
Sustainable Finance Disclosure Regulation (SFDR): Applies to asset managers and financial products.
Notable standards within the United States include:
SEC Climate Rules: Requires climate-related risk disclosures, governance transparency, and Scope 1 and 2 emissions data.
UK-specific standards include:
Sustainability Reporting Standard for Social Housing (SRS): Helps provide lenders and investors a clear look at the ESG performance of Housing Associations and the housing sector.
UK Sustainable Disclosure Requirements (UK SDR): A UK-specific regulation largely influenced by the SFDR and TCFD.
Given the vast number of ESG frameworks available, it may be challenging to identify which ones align so you can effectively simplify your disclosure process.
By examining the wider array of frameworks, you can see clear instances of alignment, especially when there are several shared requirements. For instance, CDP, a framework specific to climate-related issues, is similarly aligned with TCFD, and choosing to submit to CDP will satisfy the TCFD requirements also. Since this alignment is already integrated into the disclosure process, your organisation has every reason to pursue both frameworks simultaneously.
Overlap among ESG reporting frameworks is common; here are some more examples:
- SASB Standards, CDP reporting, & GRI Standards are intentionally aligned to make disclosure easier and more appealing for organisations.
- GRESB provides a broader range of guidance for its sector, but it shares about half of the disclosure requirements with SASB.
Why Is Compliance Important?
Global compliance is important because it ensures that organisations operating on a global scale adhere to local laws and regulations, minimising risks and maximising opportunities. It helps avoid legal penalties and financial losses, protects reputation, and builds trust with stakeholders.
Legal and Financial Protection: By adhering to global rules and regulations, businesses can avoid fines, legal action, and other penalties that can arise from non-compliance.
Reputation Management: Compliance demonstrates a commitment to ethical and responsible business practices, enhancing a company’s reputation and fostering trust with customers, investors, and partners.
Risk Mitigation: Global compliance helps identify and manage various risks, including regulatory, reputational, and operational risks, which can lead to significant financial and business consequences.
Operational Efficiency: Standardised compliance processes can streamline business operations, improve efficiency, ensure informed decisions are made and reduce costs associated with non-compliance.
Market Access: Many countries have regulatory requirements for international businesses to operate within their borders. Compliance is often a prerequisite for gaining market access and expanding into new regions.
Competitive Advantage: Businesses that prioritise global compliance are often viewed as more trustworthy and reliable, which can lead to increased market access, stronger partnerships, and a more positive brand image.
Sustainability: Compliance with international regulations and standards can contribute to a company’s long-term sustainability by promoting ethical practices, environmental responsibility, and fair labour standards.
What Are The Potential Challenges When Reporting?
Many organisations face obstacles when navigating ESG compliance on a global scale, and managing multi-framework reporting. Let’s examine what these challenges can be and how you can address them.
Changing Regulations
ESG regulations differ by region and are subject to frequent updates, complicating compliance for businesses. To address this issue, companies should adopt ESG compliance software that offers real-time updates on regulations and automates reporting processes.
Complex Data Management
Gathering, examining, and presenting ESG information can be intimidating and labour-intensive. Handling this data can also lead to potential costly mistakes, emphasising the necessity for strong ESG data management that integrates essential metrics and guarantees precision.
Lack of Standardisation
Various ESG frameworks lead to discrepancies in reporting practices. To address this issue, companies should embrace internationally recognised ESG reporting standards such as GRI, SASB, or ISSB. Utilising compliance software can help organisations maintain consistent and standardised reporting that aligns with global regulatory demands.
Limited ESG Capabilities
Many organisations lack internal ESG experts capable of advancing ESG initiatives, overseeing ESG risks, and ensuring compliance with ESG standards. Organisations should emphasise ESG training and partner with external specialists to meet their sustainability objectives effectively.
How Convene ESG Can Help
With mandatory ESG reporting soon becoming a necessary measure, companies need to familiarise themselves with the latest ESG criteria and obligations. The simplest solution is to dedicate staff and resources to checking ESG requirements and recommended frameworks in any country where a company wishes to conduct business. However, this can be a complicated, costly, and error-ridden process.
A more effective approach can be to use ESG reporting software to ensure global compliance and avoid costly mistakes. Combining a full suite of convenient, easy-to-use digital reporting software, Convene ESG empowers companies to comply with all mandatory ESG reporting frameworks so users can focus on their sustainable goals.
If you want to learn more about multi-framework ESG reporting and global compliance, you can join our webinar on the 2nd July.
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