Building on from part 1, it’s time to get into the disclosures and standards of sustainability reporting. What makes the soup hearty - the substance of sustainability reports! If you missed part 1, don’t forget to go back and check that out too!
Disclosures, reporting standards and boards
Disclosures are the contents of a sustainability report and come with standards to adhere by. For each standard, there is of course usually a board associated to ensure quality and frequent reporting. Whether you’re a student, climate activist, investing professional, environmental policymaker, small business owner, or part of the sustainability team at a non-environment-related company, you will need to know these. If we don’t get what the reports are meant to be reporting and to what standard, how can we a) interpret them or b) analyse them or c) demand them to be better?
Listed below are some of the high-ticket acronyms you will come across in the ecosystem or most commonly thrown around in hashtags, media headlines, and policy developments…
IFRS – International Financial Reporting Standards. IFRS is a non-profit developing global accounting and sustainability disclosure standards with an emphasis on consistency and transparency. They reach across different countries and industries and are designed to provide a common language for businesses to communicate financial performance to investors, regulators etc.
SFDR – Sustainable Finance Disclosure Regulation. These are EU regulations to guide ESG disclosures in the financial services sector. It means that professionals in the space must disclose exactly how they are integrating ESG factors into their investment approach and decision making. Remember, ESG does not equal sustainability. ESG is a financial risk framework relating to environmental, social, and governance risks posed to a businesses’ profits.
ESRS – European Sustainability Reporting Standards. ESRS is a sustainability reporting standard for companies of any industry (as opposed to aforementioned frameworks for the financial sector). It outlines the measures to be used to report ESG data in a comparable manner in order to standardise sustainability reporting across the EU. The aim is to increase transparency and comparability of reporting to provide consistent and reliable data for stakeholder decision-making,
GRI – Global Reporting Initiative. Whilst the previous frameworks were mainly EU oriented, GRI focuses on a global standard. They are an independent international non-profit setting the standards and guidelines for business sustainability reporting. They focus on economic, environmental, and social impacts.
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CDSB – Climate Disclosure Standards Board. CDSB is another international organisation, this time focused on climate-related financial disclosures. It sets a global standard for the intersection of climate and financial reporting, and has now been integrated into the ISSB.
CDP – Carbon Disclosure Project. CDP is a UK non-profit hosting a global disclosure system to encourage businesses to disclose their environmental impacts and performance in a central location. Environmental metrics include carbon emissions, water usage and deforestation. Over 6000+ corporations participate.
GHG Protocol – Greenhouse Gas Protocol. The GHG protocol is the most widely used international accounting tool for governments and businesses to manage their emission reporting. It is a joint initiative by the WRI and WBCSD to provide globally recognised accounting and reporting standards for measuring Scope 1 through 3 emissions.
SBTi – Science-Based Target Initiative. SBTi is another collaboration effort, this time between CDP, UN Global Compact, WRI, and WWF that supports companies to set GHG emission reduction targets in line with credible climate science. The targets validated by SBTi are considered scientifically rigorous and aligned with 2C scenarios.
TCFD – Task Force on Climate-Related Financial Disclosures (formerly). TCFD is a UK working group and framework established by Financial Stability Board. It provides a set of voluntary disclosures for climate-related financial risk to inform investors, insurers, and other financial stakeholders on the climate-related risks and opportunities within a business. Since the release of the 2023 report, TCFD has been disbanded and their responsibilities shifted to the IFRS Foundation to continue monitoring the progress of companies’ climate-related disclosures.
So that’s the rundown of your basic (yet heart) sustainability reporting alphabet soup. Now you are equipped with the knowledge to be able to critically evaluate the claims of sustainability reports and/or support the mission to get all companies reporting with transparent and accurate data. If you found this article useful, let us know!
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Disclaimer: Content is for informational and educational purposes only. This is not financial or investment advice.