ESG: What Are Frameworks?
Investors and other stakeholders are pushing companies to disclose ESG information. But what information is relevant? Frameworks aim to answer this question – but they do it in different ways …
Why do ESG Frameworks exist?
In contrast to the traditional forms of reporting we know for example from annual reports, there still is no uniformly recognized or legally mandated form of reporting on ESG-topics. ESG framework providers thus have stepped into this niche to make corporate reporting comparable. This would enable the readers of an ESG report, i.e., investors or customers, to better compare the various companies with each other and consequently make a more solid evaluation of a company’s ESG performance. At the same time, a report structured according to the guidelines of a well-known framework helps readers navigate better.
The most famous framework: The Global Reporting Initiative (GRI)
As early as 2007, the Swedish government put its money where the mouth is: it made it mandatory by law for all state-owned companies to set up ESG reporting and to use the framework of the Global Reporting Initiative (GRI). Ten years after its founding, this was a huge boost for the GRI standards, which have recently become more popular: More than 90 percent of DAX and MDAX companies used them for their 2019 ESG reports, as found in our ESG Study 2020. The GRI has established itself clearly as the general reporting framework for most large companies worldwide.
The GRI standards are the equivalent of a large lexicon of sustainability terms that companies can navigate along to structure their ESG report. Companies are able to comment on all the points listed in the GRI standards but they do not have to. This is because sometimes companies lack robust information on certain topics. In such cases, a brief explanation that the information is not available or does not apply is sufficient.
Frameworks on Frameworks – which ones are important, which are not?
In addition to GRI, there are numerous other ESG frameworks available on the market, each of which focuses on a different aspect of ESG reporting. IR, SASB, TCFD and UNGC are just four names at this point that every IR professional should have heard of at least once. Because of this wide selection, it can be difficult to know which framework should be used and to which degree – and which can be ignored (for now).
Which framework is absolutely ideal for your company? We are happy to advice you. Feel free to contact us!