Companies report on ESG (environmental, social, and governance) performance in order to provide transparency to their investors, employees, and customers. ESG has historically been a focus for sustainability-minded business leaders. However, in the current business climate, ESG has become an important topic for all executives looking to improve performance. ESG reports are most often used by investors — both institutional and personal — as a way to analyse and measure factors they consider important. ESG reports are also used by regulators in some industries to keep tabs on issues like carbon emissions, use of natural resources, and human rights. ESG frameworks are systems for standardising the reporting and disclosure of ESG metrics. They are often voluntary, but may be required by a certain investor or by regulations in some countries. These frameworks are put together by nonprofit organisations, NGOs, business groups, and others. As a result, they vary widely in areas of focus and the metrics they recommend. For example, one of the most commonly used ESG frameworks is the Global Reporting Initiative (GRI) framework, a set of standards for responsible environmental, social, economic, and governance conduct covering a wide range of topics. 73% of the world’s 250 largest companies report on sustainability using the GRI framework. ESG frameworks typically set the metrics and qualitative elements that a company should disclose, as well as the format and frequency of that reporting. For the most part, they don’t set targets for those metrics (e.g. targets for reducing carbon emissions or increasing diversity) — that’s generally left to the discretion of the company. However, some frameworks closely incorporate targets such as the UN’s Sustainable Development Goals (SDGs) into their reporting requirements, and some business organisations require reporting on progress toward certain targets. ESG frameworks help companies make a positive impact on the world. In addition, reporting on ESG has been shown to have other benefits for the organisation. For example: The majority of enterprise businesses participate in some form of ESG reporting, so those that don’t risk falling behind and losing business. There are more than a dozen very popular frameworks, and many more that are used by smaller numbers of organisations in certain industries and regions. Some popular ESG Frameworks include: The large number of ESG frameworks is a problem; standards don’t have the same power if they’re not standardised. An investor who’s well-versed in ESG might have a good understanding of various frameworks, but the average consumer or employee likely won’t, and therefore won’t have any frame of reference for interpreting reports. ESG standards and frameworks were developed independently by many different parties, with each framework placing emphasis on different topics and metrics. The intentions were good, but the result is a very confusing landscape with too many frameworks to choose from. Need some guidance on how to select a framework? We have released a guide where we analyse the most popular ESG frameworks and make our recommendation. Download it here. A number of organisations have undertaken efforts to develop a “universal” framework using the best elements of previously developed frameworks, which will hopefully make the ESG landscape easier to navigate. Just as credit ratings aim to measure a company’s creditworthiness based on a number of criteria, ESG ratings aim to measure a company's exposure to environmental, social, and governance risks and how effectively they manage those risks. Unlike frameworks, which provide recommendations for what to report on and how to report it, ESG ratings assign a specific score to a business based on their ESG performance. Unfortunately, ESG ratings aren’t always consistent across providers. Research conducted at the MIT Sloan School of Management found that prominent agencies’ ESG ratings were only aligned in about 6 out of 10 cases. However, ESG ratings are still an emerging product, and they are poised to become more accurate and widely used in the future. ESG reporting gives companies the opportunity to be transparent with stakeholders about their approach to environmental, social, and corporate governance topics. It’s quickly becoming a necessary part of operating an enterprise business. With dozens of ESG frameworks in use across various industries around the world, it’s no wonder that some companies don’t know where to start with ESG reporting. To help you choose the best reporting framework for your organisation, we put together a guide that breaks down some popular frameworks and highlights our favourites - download now!What is ESG?
What is an ESG framework?
Do ESG frameworks set sustainability targets?
Why are ESG frameworks important?
How many ESG frameworks are there?
What is an ESG rating?
Conclusion
FAQs
What are the frameworks of ESG? ›
ESG frameworks include a mix of platforms, standards and recommendations that guide companies through the ESG reporting process and shape the reports they produce. Various frameworks are available, each with its own set of KPIs and reporting requirements or guidelines.
What are the big three ESG reporting frameworks? ›In this blog post, we've given you a rundown of three of the most popular ESG reporting frameworks: GRI, SASB, and CDSB. Now all you need to do is decide which one is right for your business!
What is the main focus of the ESG framework? ›ESG is a framework that helps stakeholders understand how an organization is managing risks and opportunities related to environmental, social, and governance criteria (sometimes called ESG factors).
What are the big 4 ESG standards? ›The framework divides disclosures into four pillars — principles of governance, planet, people, and prosperity — that serve as the foundation for ESG reporting standards.
How to choose an ESG framework? ›- Your company's size and industry. Some ESG reporting frameworks and standards are more suited to specific industries or company sizes. ...
- Your company's ESG priorities. ...
- Your company's stakeholders.
- Environmental – this has to do with an organisation's impact on the planet.
- Social – this has to do with the impact an organisation has on people, including staff and customers and the community.
- Governance – this has to do with how an organisation is governed. Is it governed transparently?
The Ps refer to People, Planet, and Profit, also often referred to as the triple bottom line. Sustainability has the role of protecting and maximising the benefit of the 3Ps.
What are the big three frameworks? ›The video in figure 5.3 by Daniel Davis explains these three major frameworks, or sociological lenses (Conflict Theory, Structural Functionalism, and Symbolic Interaction Theory).
What is the most common ESG strategy? ›Then, each time the portfolio is reviewed (this is called “rebalancing”), the company weight in the portfolio can be adjusted upwards or downwards according to its financial performance and its ESG profile. Today, the Full Integration strategy is the most popular ESG strategy in terms of assets invested.
What is ESG in simple words? ›What is environmental, social and governance (ESG)? Environmental, social and governance (ESG) is a framework used to assess an organization's business practices and performance on various sustainability and ethical issues. It also provides a way to measure business risks and opportunities in those areas.
What are the key ESG principles? ›
Adopting ESG principles means corporate strategy focuses on environment, social, and governance. This means taking measures to lower pollution, and CO2 output, and reduce waste. It also means having a diverse and inclusive workforce, at the entry level and the board of directors.
What is the most important part of ESG? ›Governance: The G in ESG
Governance may well be the most important part of ESG, Willard says, because it “drives everything.” He explains that the act of laying out the economic, social and environmental values, aims and targets of the company can go a long way toward achieving them.
Companies have plenty of ESG frameworks at their disposal. In fact, there are more than 600 reporting provisions globally, but it's important to understand that relying on a single one may not be enough to disclose all the information required.
What is an ESG checklist? ›An ESG audit checklist is a tool that can help you assess your company's performance against environmental, social, and governance (ESG) criteria. This checklist can be used to identify areas where your company can improve its ESG performance and to demonstrate your commitment to sustainability to your stakeholders.
What are the four pillars of ESG? ›Four Pillars
Our ESG programme is focused on four topics that we believe are important to every business we invest in, no matter what it does nor where it does it. We call these topics our "Four Pillars": climate change, sustainability, people and ethics.
While the CSR theories primarily focus on the ethical management structure within a corporation, ESG places greater emphasis on developing suitable metrics to guide and assess ethical performance with more focus on the governance practice (Gupta, 2021).
What is ESG governance framework? ›What is environmental, social and governance (ESG)? Environmental, social and governance (ESG) is a framework used to assess an organization's business practices and performance on various sustainability and ethical issues.
What is the framework of ESG performance? ›Common ESG frameworks include the Global Reporting Initiative (GRI), Carbon Disclosure Project (CDP), and Task Force on Climate-Related Financial Disclosures (TCFD). Over the last decade, ESG performance has become an important metric to evaluate an organization's operational sustainability.
What are the 3 ESG criteria? ›ESG stands for Environmental, Social, and Governance. These criteria are used to assess an organization's impact in these areas, going beyond traditional financial metrics. ESG represents a comprehensive approach that companies adopt to foster sustainable business practices and create lasting value.