The term ESG (environmental, social, and governance) — determines the three broad categories, or areas to evaluate organizations on sustainability parameters. Initially starting as a socially responsible investing, ESG today has become important to organizations, their investors, and other stakeholders. 

Companies are now focusing on becoming socially conscious and embracing environmental sustainability as their central goal. The long-term view is becoming prevalent amongst the socially conscious investors who use ESG during the selection of potential investments 

Various sustainability accounting bodies are framing globally-accepted standards for ESG reporting for organizations to present data from financial and non-financial sources. These efforts aim to not only provide a structured framework to organizations for ESG disclosures to the stakeholders but also replace numerous methodologies and regulations with a single standard, thereby easing the ESG reporting process.

Following are some of the recent developments on the ESG front that every organization needs to keep a close eye on…

TCFD framework to disclose climate-related financial risks in the UK

The Task Force on Climate-Related Financial Disclosures (TCFD) was developed by the Financial Stability Board so that the organizations can disclose climate-related information and financial risks to the stakeholders in a consistent and transparent manner. With its four core elements – Governance, Strategy, Risk Management, Metrics & Targets- reliable climate-related financial disclosures aim to transition towards a sustainable and stable economy.

In the UK, mandatory disclosures in line with the TCFD will commence for approximately 1,300 of the largest registered companies on a UK-regulated market from April 2022. The new requirement will apply to all UK-registered companies and financial institutions with more than 500 employees and with a turnover of more than £500 million. Uk is the first G20 country to mandate TCFD disclosures where organizations will have to disclose their net-zero transition plan and potential risks associated with climate change in the annual reports. The report published by the FRC’s Financial Reporting Lab provides insights on the pathway to mandatory TCFD disclosures, investor expectations, and how to provide better disclosure. The UK Government has also proposed mandatory TCFD disclosures across the UK economy by 2025.

ISSB - the future of the SASB Standards

The Sustainability Accounting Standards Board (SASB) was founded in 2011 to establish industry-specific sustainability accounting standards. SASB aims to help organizations disclose decision-useful and sustainability information required by investors for financial valuations. SASB standards are used globally by organizations for sustainable disclosures. To facilitate comparable and consistent ESG disclosure, SASB adopted a separate ESG reporting standard for each industry and developed 77 industry standards, covering 26 general sustainability issues. 

In November 2021, the International Financial Reporting Standards (IFRS) trustees announced the formation of the International Sustainability Standards Board (ISSB). ISSB will be built upon the foundation of the SASB Standards, TCFD, Climate Disclosure Standards Board, and the Value Reporting Foundation’s Integrated Reporting Framework. By strengthening industry-specific, general, and thematic reporting standards, the ISSB aims to become a global standard for the disclosure of sustainability information for the financial markets.

CSRD to streamline sustainable finance disclosure across Europe

To create a consistent framework for sustainability and ESG reporting across Europe, the Global Reporting Initiative (GRI) and the European Financial Reporting Advisory Group (EFRAG) have agreed to co-construct a new EU sustainability reporting framework. The Corporate Sustainability Reporting Directive (CSRD) proposal will require companies to use the new sustainability standards while reporting. CSRD aims to bridge the gap between the European and global sustainability reporting standards and ensure transparency for all stakeholders with reliable sustainable financial disclosures.

The international convergence of GRI and EFRAG will create a reporting framework where both – sustainable and financial disclosures – will be comparable and inter-connected. The first set of sustainability reporting standards is expected by June 2022 and will be adopted by October 2022.

With investors pressing for useful and reliable sustainability disclosures, it is important for every organization to keep the dialogue going and identify risks and activities that fall under the ESG reporting umbrella. The year 2022 is crucial for organizations, regulatory bodies, and the government for sustainability-related disclosures that will pave the way towards a sustainable financial system. Using global standards for sustainability reporting will help to raise the value of sustainability for both the corporate and investment world.

The IRIS CARBON® guide on ESG reporting will help you to get started on ESG and develop insights on sustainability reporting.

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