There are many laws and regulations that are mandatory to report on in relation to ESG and sustainability topics. Alongside these, there are also voluntary standards and frameworks. Below, we outline and discuss those that are the most reliable, credible, and widely recognised.
With the introduction of mandatory disclosure frameworks such as CSRD, these voluntary standards show that an organisation goes above and beyond what is necessary to showcase their commitment to various ESG topics.
The UNGC is a call to action for companies to align their ESG strategies and business operations with universally recognised principles on human rights, labour, environment, and anti-corruption. Businesses of all sizes can join and align themselves with the Global Compact and the Sustainable Development Goals (SDGs). The commitment requires the submission of an annual questionnaire that is used to communicate your progress towards the UNGC 10 Principles. A commitment to the UNGC can add credibility to your data collection and reporting through alignment with clear and tangible goals. The idea of the UNGC is that businesses and governmental organisations work together in order to achieve real and positive change for the planet and for society. It is effective in encouraging collaboration and collective action to work towards shared goals.
The SDGs cover a wide range of ESG topics including no poverty, gender quality, climate action, and partnerships for the goals. Each SDG has numerous targets within it which consist of actions and deadlines we must meet in order to reach that goal. Not every SDG will be relevant to every business, but it is important to align yourselves with the ones that resonate most with your stakeholders and business operations. The SDGs are some of the most widely recognised icons relating to ESG and can be used to easily and clearly communicate your strategy to different stakeholder groups.
GRI is an independent organisation that helps businesses take responsibility for their impacts, and is the most widely used sustainability reporting standard globally according to KPMG (2022). Voluntary reporting on ESG topics signals that you understand the impact your business has on the environment, the economy, and the people around you. It helps identify risks and opportunities, as well as how to plan future actions. There are three different types of GRI standard that you can use: Universal, Sector, and Topic. The standards can be used to help your business prepare for sustainability reporting, develop and implement a strong strategy, as well as how to disclose on data points effectively.
Reporting in accordance with the GRI standards means providing a comprehensive picture of an organisations most significant impacts on the environment, people, and economy. The information must be traceable, transparent, and credible. This also includes reasoning for the topics identified as not material, or data points that the organisation is unable to report on.
The GRI universal standards reflect changes from intergovernmental organisations such as the UN Guiding Principles and International Labour Standards, and all organisations must comply with these standards. It introduces key concepts such as materiality and due diligence which help shape your sustainability reporting and guarantee you are aligned with all necessary laws and regulations. It can also provide guidance for how to structure your reporting, and what kind of language to use to ensure you are communicating effectively with your stakeholders.
There are three subsections of the universal standards:
The sector standards are intended to be used to increase the quality, completeness, and consistency of reporting. There are standards for 40 different sectors, and help businesses identify the topics most likely to be material for them. If a sector standard is applicable to a business, they are required to use it when reporting with GRI. Each sector standard consists of characteristics, activities, and business relationships that can underpin potential impacts.
The topic standards contain disclosures for providing information on relevant ESG topics such as occupational health and safety, waste, water usage, and tax. Each standard incorporates an overview of the topic and disclosures specific to the topic, and how an organisation can manage its associated impacts. An organisation chooses the topic standards that relate most to the material topics identified.
SASB Standards are industry specific and help identify the sustainability issues most relevant to the financial performance of the business. Each industry specific standard was developed based on feedback from companies, investors, and other stakeholder groups, meaning that the standards are well informed, and each company is only reporting on the data points most relevant to them. The standards help identify, measure, and manage the sustainability related risks and opportunities that most directly affect cash flow, access to finance, and cost of capital. On average, each standard consists of six disclosure topics, and thirteen metrics, meaning alignment and reporting can be concise and specific. Reporting is categorised into disclosure metrics and activity metrics based on whether the data points that need to be provided are quantitative or qualitative.
SASB has now been consolidated into the International Sustainability Standards Board (ISSB) along with TCFD and CDSB frameworks. By doing this, investor information needs are more easily met, and companies are able to communicate more effectively to global markets. This move provides both cross-industry and industry-specific disclosures as well as topics that go beyond climate and financially related risks. SASB can be used to identify topics and metrics that may not be included in a specific ISSB standard, but that are still relevant to the business and/or industry.
The ISSB was established due to strong market demand and public interest. It consists of standards that will ultimately result in high quality, comprehensive sustainability disclosures that focus on the needs of investors and the financial market.
It has four main objectives:
The ISSB builds on other reporting initiatives such as SASB, the Task Force for Climate-related Financial Disclosures (TCFD), and the Climate Disclosure Standards Board (CDSB). A company can avoid reporting the same information twice by applying the ISSB standards as they take into account other standards as well as regulations and other jurisdictional requirements.
CDP (formerly Carbon Disclosure Project) supports organisations in measuring and managing their risks and opportunities relating to climate change, water security, and deforestation. They have developed questionnaires to encourage honest and credible disclosures, and score organisations based on their reporting. This is a clear snapshot of an organisations disclosures and performance based on accurate and transparent assessments of their impact and progress. Disclosing to CDP is a great way to track and benchmark your progress against industry peers, as well as identifying risks and opportunities emerging from environmental impact. Not every organisation has to disclose for each questionnaire as there may only be one questionnaire relevant to your operations.
This questionnaire acknowledges an organisations positive and effective actions to mitigate risks due to climate change. It covers topics such as awareness, management and leadership within categories of risks and opportunities, board oversight, incentives, policy frameworks and engagement, and transition plans.
This questionnaire covers topics such as identification and management of risks, board-level oversight, environmental policies, engagement with suppliers, emissions targets, and company-wide water accounting. Not all subsections of the questionnaire are relevant to all industries, but this should be made clear in the CDP platform.
The forest essential criteria includes full commodity disclosures, identification and management of risks, board-level oversight, environmental policies, engagement with suppliers, emissions targets, origin of forest risk commodities, traceability, deforestation and conservation-free status, monitoring of deforestation and conversion footprint, and engagement in external activities.
Science-based targets provide organisations with a clear and defined path to reduce emissions in line with the Paris Agreement goal of limiting global warming to 1.5°C. The initiative emphasises the importance the private sector has to commit to reducing global warming temperatures. Any business (apart from those in the fossil fuel industry) can commit to a target, and there is specific guidance for companies in heavy emitting industries. Targets are set based on a businesses Scope 1 and 2 greenhouse gas emissions data. Scope 3 is incorporated in Net-Zero targets as these targets must encompass all of the value chain. All committed businesses have their targets displayed on the SBTi website. This includes in a company has committed to setting a target and then has not done so in the timeframe, so it shows as ‘commitment removed’.
There are multiple targets that an organisation can set:
ISO is an independent organisation that develops international standards and guidelines in agreement with experts. They are voluntary standards that a business can use to show their commitment to various ESG topics. There is a standard for many different environmental, social, and ethics topics, such as Environmental Management and Health and Safety. The development of the ISO standards is a multi-stakeholder process that helps identify gaps in the wider certification system and manages the process to deliver effective reporting and results. In order to receive an ISO certification, an internal or external audit needs to be conducted. Most countries have only one ISO recognised organisation that are permitted to conduct the audits. It is important to only get an audit by these organisations as the certification may not be recognised otherwise. Each certification will be valid for 3 years, but audits must be completed on an annual basis.
The ISO 14001 standard provides a framework for organisations to design and implement an environmental management system. This shows that the business is taking proactive measures to minimise their environmental footprint, comply with necessary legal requirements, and achieve various environmental objectives. Included in this is waste management, resource usage, and involving stakeholders in all environmental commitments. This standard offers a structured approach to address environmental concerns and can add credibility to the environmental claims your organisation is making. The ISO 14001 can enhance environmental performance, ensure regulatory compliance, build stakeholder and consumer trust, and also provide cost savings through reduced resource and energy usage. It is a great way to communicate with stakeholders that you have identified gaps in your environmental management system and are continually improving your environmental performance.
The ISO 45001 standard focuses on employee safety, reducing workplace risks, and creating safer working conditions. This certification provides significant value to organisations looking to reduce workplace incidents and demonstrate strong health and safety commitments. It enables an organisation to assess hazards and implement strong risk control measures, which can lead to reduced work-related injuries, illnesses, and accidents. The ISO 45001 utilises a methodology of planning, doing, checking, and then acting on identified gaps and improvements. The standard is based on legal and regulatory conformity, which helps the business stay aligned with national and international regulations. It also promotes proactive risk management that strengthens resilience against safety threats and crises which can protect your business more in the future.
The ISO 9001 helps organisations improve their performance, meet customer expectations, and demonstrate their commitment to quality. It defines how to establish, implement, maintain, and improve a quality management system. This standard is the most widely used in the world, and helps a business communicate effectively to stakeholders and customers that they are committed to consistently deliver high quality products and services. Certification for this standard can add confidence to stakeholders that the business is doing what they can to guarantee high quality and commit to the best practices in their industry. The benefits of this certification include process improvement, ongoing optimisation, effective complaint resolution, and increased customer confidence. Internal audits are conducted to check how the businesses quality management system is working, but third parties may also be used to verify conformity with the standard.
The ISO 26000 is different from the other standards noted above in that it can not be certified against. It is used as guidance to identify necessary social responsibility terms and characteristics, as well as the core subjects and issues related to the business. It provides direction in how to implement and promote social responsibility within your business, and how to engage with stakeholders on commitments, business performance, and other information related to social responsibility. The ISO 26000 is intended to assist organisations in contributing to sustainable development, and takes into account different environmental, social, legal, cultural, and political topics to provide holistic guidelines that are affiliated with legal compliance.
While there are many voluntary standards and frameworks that your organisation can align with, it is important to note that relevance to your company and its operations is the most important factor in the decision to align with them or not. In order for disclosure and reporting to be worthwhile, priorities and strategy must be taken into account to ensure the standard adds credibility and value to what you are trying to communicate. Conducting a materiality assessment or simply engaging with various stakeholder groups are a great place to start if you are unsure of which standard may be the most beneficial. While laws and regulations around ESG topics are becoming more detailed and strict, voluntary disclosures are a great way to show you are going above and beyond and committing to best practice rather than just compliance with regulation. Aligning with voluntary standards and frameworks adds credibility to your ESG or sustainability strategy as well as ensures your reporting is reputable and as transparent as possible. In conclusion, you do not need to disclose against all voluntary standards, nor would you be expected to do so. But aligning with best practices shows customers that you take your ESG strategy and reporting seriously, which can be a huge positive for your businesses reputation, as well as the potential for being positive for the environment and society.
