What is the leading ESG framework?

ESG frameworks are structured approaches that companies use to manage, measure, and report on their ESG performance. There is a myriad of ESG frameworks available, each with its unique focus and scope. However, the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) are currently considered two of the most prominent and influential frameworks.

The GRI, established in 1997, is often seen as the pioneer of ESG reporting. It provides a comprehensive set of standards suitable for any organisation, regardless of its size, sector, or location. The GRI Standards focus on the impacts a company has on the environment, society, and the economy. They promote transparency and facilitate communication about these impacts to a wide range of stakeholders, not just investors. The GRI is globally recognised and is used by a majority of the Global 250 corporations.

On the other hand, the SASB, established in 2011, provides industry-specific standards for businesses in 77 industries. Unlike the GRI, SASB’s approach is more investor-focused. It centres on financial materiality, identifying ESG issues that are likely to affect a company’s financial condition or operating performance. SASB standards help companies disclose financially material, decision-useful information to investors in a cost-effective way.

While both GRI and SASB are globally acknowledged, the selection between them often depends on the company’s stakeholders and materiality considerations. GRI’s broad approach might be more suitable for companies with a diverse stakeholder base, whereas SASB’s focus on financial materiality could be more appropriate for companies primarily communicating with investors.

However, there is a growing consensus in the industry that the Task Force on Climate-related Financial Disclosures (TCFD) is quickly becoming the leading ESG framework. Established in 2015 by the Financial Stability Board, the TCFD provides a framework for companies to disclose their climate-related financial risks and opportunities. Its four thematic areas – governance, strategy, risk management, and metrics & targets – allow businesses to consider how climate change might affect their operations and what they are doing to mitigate these risks.

The TCFD’s increasing prominence is largely due to the rising awareness of climate change risks and their potential impacts on businesses. This awareness is coupled with mounting regulatory pressure, as more and more jurisdictions worldwide are considering making TCFD-aligned disclosures mandatory. For example, the UK government announced in 2020 its intention to fully mandate TCFD-aligned disclosures across the economy by 2025.

A key advantage of the TCFD is its emphasis on scenario analysis, allowing companies to evaluate and disclose how their business models might fare under different climate-related scenarios. This forward-looking approach is particularly useful for investors, as it provides insights into a company’s resilience in the face of climate change.

In conclusion, while GRI and SASB continue to play a significant role in ESG reporting, the TCFD is rapidly emerging as the leading ESG framework due to its specific focus on climate-related risks and opportunities. Its growing influence signifies a shift in the ESG landscape, reflecting the increasing importance of climate change considerations in business operations. As companies continue to navigate the ESG landscape, choosing the right framework will be paramount in their journey towards a sustainable future.