Quick Guide to Sustainability Frameworks

September 20, 2022
4 min

Quick Guide to Sustainability Frameworks

Sustainability reporting has become a quasi-mandatory function with any company, a marked evolution since the early days of environmental reporting in the 1980s. As the popularity of sustainability reporting increased over time, frameworks came into existence to guide the structure of disclosed information. These frameworks have become pivotal within the sustainability ecosystem. Today there are a handful of organizations that set the standards of the framework for sustainability disclosure.

These leading standards setting organizations include:

  • The Sustainability Accounting Standards Board (SASB)
  • The Global Reporting Initiative (GRI)
  • The Task-force for Carbon-related Financial Disclosures (TCFD)
  • The Carbon Disclosure Project (CDP)
  • The World Economic Forum, a consortium including the big four accounting firms

The oldest member of this class, GRI, is also the broadest focus of sustainability disclosure. The emphasis on a stakeholder sustainability disclosure that GRI employs is highly valuable, with over 15,000 organizations reporting with GRI to date, but it leaves the financial investor wanting more. Because investors began demanding more transparency into financially material sustainability data, organizations began to construct additional frameworks. This need for financially relevant disclosure is what drove SASB and TCFD to come into existence.

SASB spent years developing sector-specific metrics so that industry peers can produce comparable data sets for their sustainability disclosure, a structure that did not previously exist. TCFD, which also took years to develop its standards, released broader disclosure procedures for all companies that are most closely aligned with board governance to prepare for the impact of climate change. A combination of both, CDP captures climate-related data from companies that tend to be more quantitative, but this data is not made public.

A new entrant, the framework created through the IBC at the World Economic Forum, attempts to add yet another framework to the offering of sustainability disclosures that attempts to stitch together all of the pre-existing frameworks to standardize. For now, it only adds another layer of confusion.

While each of these frameworks serves a unique purpose, they also contribute to one of the most pressing issues in sustainability reporting — the lack of data standardization. Even as the World Economic Forum seeks to simplify disclosures, firms still feel pressure to disclose against SASB, CDP, GRI, and TCFD from various stakeholders.

There are growing reasons to be optimistic, however. These sustainability standard setters have agreed to come together and align their standards while large reputable financial accounting organizations are considering applying their expertise to the challenges.

In September, many leading sustainability frameworks agreed to work on aligning their standards. In the press release, GRI, CDP, and SASB pledged to engage with each other and key international overseeing bodies. The plan is for the group to provide guidance for how their frameworks can be used together to advance the effort of a standardized sustainability reporting framework.

The International Financial Reporting Standards Foundation (IFRS), which oversees the International Accounting Standards Board, is contemplating setting up an international sustainability standards board. Trustees of the IFRS are in the process of assessing the demand for global sustainability standards, which is objectively high, to determine whether or not to move forward with developing those standards. This oversight from the IFRS is likely a logical step in the right direction in the long term. However, the short term outcome would be exacerbating the fragmentation problem among standards today.

SASB and the International Integrated Reporting Council (IIRC) have agreed to merge in 2021, and the new organization will operate under the new name of the Value Reporting Foundation. The merged organization will provide investors and corporates with a comprehensive corporate reporting framework across the full range of enterprise value drivers and standards to drive global sustainability performance, according to the joint press release.

“Sustainability disclosure is at the top of the agenda for many, creating incredible momentum towards simplifying the corporate reporting landscape. By merging two organizations focused on enterprise value creation, we hope to clarify the field,” says Janine Guillot, CEO of SASB.

It is unclear if the activity uptick we have seen in the last few months to increase the convergence in sustainability standards will lead to meaningful change within the disclosure ecosystem. One certainty is that the ever-evolving landscape of what sustainability standards will continue to change and, hopefully, there continues to be a push towards alignment in the future.

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