ESG – Reporting Standards Overview
ESG stands for Environmental, Social, and Governance. It is a set of criteria used to evaluate the sustainability and societal impact of a company. It has become increasingly important in recent years because it helps to assess the long-term viability of a company and its potential risks and opportunities.
On this blog post, we present a brief overview of the current reporting standards and a small guidance on the tools which can help you during the reporting exercise.
What and Why?
ESG stands for Environmental, Social, and Governance. It is a set of criteria used to evaluate the sustainability and societal impact of a company. It has become increasingly important in recent years because it helps to assess the long-term viability of a company and its potential risks and opportunities. This is particularly relevant for investors, who want to understand the impact of their investments on people and the planet, as well as the governance practices of a company, but also for the current and future potential employees, as well as all the other stakeholders directly or indirectly influenced by the organization ecosystem.
In a nutshell, the following parameters should be considered:
- Environmental factors include a company’s impact on the natural environment and its efforts to reduce greenhouse gas emissions, conserve natural resources, and prevent pollution.
- Social factors refer to a company’s impact on society and its efforts to improve working conditions, support local communities, and promote human rights.
- Governance factors refer to a company’s management and leadership practices, including its adherence to ethical standards, transparency, and accountability.
Sustainability and societal impact of an organization and is increasingly being integrated into business reporting trends as a way to build trust, transparency, better decision-making and risk management. It should provide insight about a company’s performance in areas that are important to stakeholders, including employees, customers, suppliers, and the broader community, going beyond the traditional metrics such as: Revenue, Profit, EBITDA, Earnings per Share or Return on Investment…
What are the standards to follow?
Currently, The main reporting standards on ESG are the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) standards:
- GRI, or the Global Reporting Initiative, is an international organization that provides a comprehensive set of sustainability reporting guidelines for companies to use when disclosing their ESG performance. GRI was founded in 1997 and has since become the most widely used sustainability reporting framework in the world.
- SASB, or the Sustainability Accounting Standards Board, founded in 2011, that develops and maintains industry-specific standards (available for 77 industries) for companies to use when disclosing their ESG performance. 2022 was a year of consolidation, the Value Reporting Foundation (VRF) – home to the SASB Standards and the International Integrated Reporting Council (IIRC) – consolidated into the IFRS Foundation, which established the first International Sustainability Standards Board (ISSB). SASB Standards are now under the oversight of the ISSB, that will build upon the industry-based standards targeting the consolidation on IFRS Sustainability Disclosure Standards. IFRS Foundation is giving sustainability accounting equal footing to financial accounting.
SASB’s standards are designed to be more specific and industry-focused than those of GRI, allowing companies to provide more detailed and relevant information about their sustainability performance. In fact, GRI and SASB reporting can be seen as complementary, as can be seen on the practical guide of shared experiences of using both sets of standards together shared by GRI.
Finally, focusing on the climate related topics, the Task Force on Climate-related Financial Disclosures (TCFD): The TCFD is a group of financial experts and industry leaders that has developed a set of recommendations for companies to disclose information about the financial impacts of climate-related risks and opportunities.
What are the tools you can use?
SAP has a holistic approach with integrated products like Sustainability Control Tower, with embedded capability of addressing ESG standards, such as GRI, TCFD, EU Taxonomy. Depending on the objectives and scope of your business, solutions based SAP Analytics Cloud (SAC) or Profitability and Performance Management (PApm) can be an alternative tool to handle your requirements in applying GRI or SASB standards.
Likewise, Microsoft has developed Microsoft Cloud for Sustainability integrating with the other Microsoft components, particularly AZURE ecosystem, and relying on glowingly widely used Power BI for final reporting and dashboarding.
In case of questions, do not hesitate to contact us.
After this first intro, we will be posting on the subject on the coming months, with focus on the different reporting tools.
ERP consultant @Cubis Luxembourg