Despite or perhaps because of
the existence of hundreds of ESG reporting frameworks, there is a real lack of
harmonization between them.
Indeed, this inconsistency
even pushes some companies to suspend ESG reporting, for lack of being able to
agree on a viable framework.
Understandably, companies,
financial institutions and public stakeholders have started to ask for a more
streamlined ESG reporting framework, to improve their ability to monitor and
seize opportunities.
There was a growing demand for
a global consensus, preferably a consensus that would not "reinvent the
wheel", but would build on existing reporting frameworks to provide
consistent standards for organizations around the world interested in ESG.
The wide variety of companies
involved in reporting is the main cause for the growing number of ESG reporting
frameworks.
Different industries have
different ESG aspects and impacts, so it is understandable that they will have
to report on different metrics.
Likewise, different
stakeholders such as investors, regulators and customers are interested in
different types of information.
II- The existence of many
different ESG reporting frameworks
We will provide an
introduction to some ESG reporting frameworks.
These frameworks are designed
to help the company understand the implementation of these frameworks and to
which industries they apply.
But before building the ESG
program begins, the company should ensure to research the latest news and
frameworks that apply.
Going forward, the world of
ESG reporting remains fragmented and confusing, unlike financial performance
reporting, which should have a clear format and content.
Each framework presents its
own issues, and overlapping frameworks require complex cross-checking of
responses.
There are currently more than
a dozen leading ESG reporting frameworks, each with their own metrics,
methodologies and rating systems.
These reporting frameworks
form the basis of how companies define their KPIs, what they measure and what
information is included in the sustainability reports they produce.
III- Strengths and weaknesses of
the different ESG reporting standards
It is important to note that
each of these types of ESG reporting frameworks is designed to meet the needs
of their target audience.
This makes them weak to meet
the needs of other groups.
For example, governments
cannot effectively use ESG reporting frameworks designed for investors.
Similarly, ESG frameworks
designed for governments cannot be used by management.
In fact, one of the leading
audit firms estimates that there are hundreds of ESG frameworks and standards
globally.
Some are specific to
particular sectors or countries.
Others are widely applicable
to many operations, but no universal basis has been found.
One of the key considerations
for ESG reporting is the ability to provide meaningful data that is comparative
to data from other companies in an industry or portfolio.
