Sustainability reporting has been growing in importance as sustainable investment has become mainstream in recent years.
QSE does not currently endorse specific sustainability reporting standards and frameworks that all issuers should adopt, however, certain standards (see below) are leading the way. In any event, issuers should consider their industry, business model, and the views of stakeholders to determine the most appropriate reporting format.
For reference, we include below the most used and internationally recognized standards and frameworks. Standards provide specific, detailed, and replicable requirements for what should be reported for each topic, while frameworks provide principles-based guidance. on how information is structured, how it is prepared, and what broad topics should be covered.
To date, the most widely used international sustainability reporting standards are the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB). The latter, SASB, has evolved via a merger with the International Integrated Reporting Council (IIRC) to form the Value Reporting Foundation (VRF), which in turn consolidated under the International Financial Reporting Standards Foundation (‘IFRS Foundation’) in June 2022, which provides oversight for the newly created International Sustainability Standards Board (ISSB).
The following disclosure resources are focused on individual standards and frameworks.
The ISSB is developing standards that will result in a comprehensive global baseline of sustainability disclosures, much like IFRS for financial reporting, focused on the needs of investors and the financial markets.
The ISSB has international support with its work to develop sustainability disclosure standards backed by the G7, the G20, the International Organization of Securities Commissions (IOSCO), the Financial Stability Board, and Central Bank Governors from more than 40 jurisdictions.
The ISSB has set out four key objectives:
- To develop standards for a global baseline of sustainability disclosures;
- To meet the information needs of investors;
- To enable companies to provide comprehensive sustainability information to global capital markets; and
- To facilitate interoperability with disclosures that are jurisdiction-specific and/or aimed at broader stakeholder groups.
The ISSB builds on the work of market-led investor-focused reporting initiatives, including the Climate Disclosure Standards Board (CDSB), the Task Force for Climate-related Financial Disclosures (TCFD), the Value Reporting Foundation’s Integrated Reporting Framework and industry-based SASB Standards, as well as the World Economic Forum’s Stakeholder Capitalism Metrics.
The ISSB has recently issued two publications: IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures.
These standards have been specifically welcomed by IOSCO.
GRI serves to assist organisations to understand and report on their impacts on the economy, environment, and people. The GRI Standards is a modular system of interconnected standards. It contains the GRI Universal Standards, which applies to all organisations, the GRI Sector Standards, which is applicable to specific sectors and the GRI Topic Standards, that lists disclosures relevant to a particular topic.
To date the GRI has seen the greatest uptake amongst reporting companies, particularly companies listed on recognised and/or regulated stock markets.
Frameworks, as opposed to standards, provide principles-based guidance, typically on how information is structured, how it is prepared and what broad topics should be covered. Commonly used sustainability reporting frameworks are the CDP, IIRC and the Task Force on Climate-related Financial Disclosures (TCFD), although it has been noted that the IIRC and TFCD’s work has been merged into the ISSB standards. For climate-related disclosures, issuers had historically looked to the TCFD recommendations.
CDP is a not-for-profit charity that runs a global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts.
CDP provides a structure for collecting data on companies’ environmental impacts such as carbon emissions, water usage and deforestation. They offer three questionnaires -- climate change, forests, and water security -- with individual methodologies used to score companies based on their environmental transparency and action.
The Integrated Reporting Framework is used to connect financial statements and sustainability-related financial disclosures. The International Integrated Reporting Framework and Integrated Thinking Principles have been developed and are used to advance communication about value creation, preservation, and erosion.
Integrated reporting aims to:
- Improve the quality of information available to providers of financial capital to enable a more efficient and productive allocation of capital
- Promote a more cohesive and efficient approach to corporate reporting that draws on different reporting strands and communicates the full range of factors that materially affect the ability of an organisation to create value over time
- Enhance accountability and stewardship for the broad base of capitals (financial, manufactured, intellectual, human, social and relationship, and natural) and promote understanding of their independencies
- Support integrated thinking, decision-making and actions that focus on the creation of value over the short, medium, and long term.
The Integrated Reporting Framework and Integrated Thinking Principles are now maintained under the auspices of the IFRS Foundations.
In 2015, the G20 Finance Ministers and Central Bank Governors asked the Financial Stability Board (FSB) to review how the financial sector can take account of climate-related issues. To help identify the information needed to assess and price climate-related risks, the FSB established an industry-led task force — the TCFD. The FSB asked the TCFD to develop voluntary climate-related financial disclosures that would be useful to investors and others in understanding material risks.
The disclosures are based on four themes: governance, strategy, risk management, and metrics and targets. The four recommendations are interrelated and supported by eleven recommended disclosures.
The Paris Agreement outlined the goal of limiting global temperature rise to 1.5°C, compared to pre-industrial levels. In 2018, the Intergovernmental Panel on Climate Change (IPCC) published a special report on “Global Warming of 1.5°C” (SR1.5), which underlines the critical importance of pursuing ambitious Paris Agreement pathways. The report reiterated the imperative need to cut carbon dioxide (CO2) emissions by half above pre-industrial levels by 2030 and reach net-zero CO2 emissions around 2050.
Corporates play a significant role in reducing greenhouse gas (GHG) emissions globally and are strongly encouraged to follow an internationally accepted carbon mitigation hierarchy. As outlined in SGX’s white paper on “Credible Decarbonization and Transition for Corporates in Asia”, there are six key steps that corporates can take to follow a carbon mitigation hierarchy.
The GHG Protocol is a globally standardised framework to measure, report and manage GHG emissions and mitigation actions. They supply the Corporate Accounting and Reporting Standard, which provides requirements and guidance for companies preparing a corporate-level GHG emissions inventory. The standard is supplemented by the Corporate Value Chain (Scope 3) Accounting and Reporting Standard which allows companies to assess their entire value chain emissions impact and identify where to focus reduction activities.