ESG reporting frameworks enable companies to disclose their sustainability and ethical performance. These frameworks provide a structured approach to evaluate ESG-related risks, opportunities, and impact. They promote transparency, accountability, and responsible business practices, covering factors like climate change, human rights, and diversity.
By using ESG frameworks, companies demonstrate their commitment to sustainable growth and provide stakeholders with a comprehensive view of their initiatives.
ESG reporting involves publicly disclosing progress, metrics, objectives, and milestones in environmental sustainability, social issues, and corporate governance.
ESG reporting frameworks and standards are evolving and consolidating.
Here are some prominent frameworks:
- IFRS Sustainability Disclosure Standards
Developed by International Sustainability Standards Board (ISSB), the standards aim to create a common language for disclosing the effect of climate-related risks and opportunities on a company’s prospects.
- GRI Standards
Developed by the Global Reporting Initiative (GRI), the standards report on economic, environmental, and social impacts.
- Task Force on Climate-related Financial Disclosures (TCFD)
Established by the Financial Stability Board, it provides recommendations for climate-related financial risk disclosure.
- BCBS Principles
The Basel Committee on Banking Supervision (BCBS) has published principles for managing and supervising climate-related financial risks in the banking sector.
Regulatory overview and classification of Pillar III disclosures in the European sustainable finance regulation
The EU has established four core frameworks for sustainable finance regulation.
These frameworks include:
- EU Taxonomy
This framework stands in the center of the regulation of sustainable finance and directs investments towards activities which are essential for the transition to a low-carbon economy, aligning with the objectives of the European Green Deal.
- SFDR (Sustainable Finance Disclosure Regulation)
SFDR requires financial market participants to disclose ESG information regarding their investment decisions and products, irrespective of their sustainability classification.
- NFRD/CSRD (Non-Financial Reporting Directive/Corporate Sustainability Reporting Directive)
These directives mandate companies to report on the environmental and social impacts of their activities and introduce audit requirements for reported information. NFRD will transition into CSRD from 2024.
- EBA's Implementing Technical Standards (ITS) on Pillar III Disclosure
These standards apply to large banks in the EU, ensuring disclosure of ESG risks. They provide information on climate change's impact on risks, risk mitigation strategies, and ratios related to financing activities aligned with the Paris Agreement. This is currently applicable for most large banks in the European Union since 2022 and a XBRL-submission to EBA has now to be applied with DPM 3.3. for the year-end-reporting 2023.
Explore ESG reporting in more detail: