An ESG reporting guide for UK and EU-based businesses
Published: 22 Jun 2022 · Last updated: 30 Sep 2022
An overview of the ESG frameworks
To most companies, ESG Reporting is associated with a dizzying host of acronyms, starting with; ESG: Environmental, Social and Governance. There exists an array of frameworks and standards, each offering their own measuring stick for both monitoring and improving ESG performance. All too often, companies are left alone to find the right resources and learn about these frameworks and their main differences. Understanding which frameworks are applicable to each company’s specific context is a daunting, yet crucial, task, particularly for those businesses at the start of their ESG journey. The trend is clear: ESG reporting is moving from desired to required. Businesses now need to start engaging with the reporting process, including gathering relevant data, so as not to be caught out by new regulations.
To help navigate this complex field, we have mapped all major ESG frameworks required within the UK and EU and organised them into four key groups, offering you an essential overview of the landscape. There are promising signs that we’re moving towards a singular global ESG framework. However, in the meantime, this guide provides the first step for UK and EU-based companies looking to build an initial ESG reporting strategy. The figure below should help guide which frameworks are applicable to your company.
The 4 essential ESG framework categories all UK and EU-based businesses should know about
In this article, we will cover 4 main categories of ESG frameworks:
- The mandatory frameworks for compliance
- The voluntary frameworks
- The voluntary certification and ratings
- The investor frameworks
1. The mandatory frameworks for compliance
*Note that these dates are not set in stone and are subject to change pending legislative review (latest update: 17/06/22)
These frameworks are grouped together as they all involve mandatory disclosure requirements for select UK and EU-based companies based on a variety of criteria. Both the scope of these requirements and the range of companies they apply to are fast expanding. For example, in the EU, the Corporate Sustainability Reporting Directive (CSRD) replaces and increases the scope of the Non-Financial Reporting Directive (NFRD) by expanding the definition of what is considered a “large” company, as well as by including non-listed companies alongside listed companies. This broadens the scope from 11,600 to approximately 49,000 entities. Listed small and medium-sized enterprises (SMEs) will also have to comply with this regulation by January 2026.
Note: EU frameworks don’t just apply to EU-based companies; they can apply to UK-based companies that operate in the EU, or even apply to UK-based companies through EU investor pressure.
Note 2: For more details on SFDR, you can refer to our SFDR Blog Series which summarises everything you need to know about this evolving regulation
2. The voluntary frameworks
There are no reporting requirements associated with using these frameworks. This means that companies have the agency to decide which parts of the framework to consider and include in their ESG reports. This list includes some of the most reputable and longest-standing ESG reporting frameworks, such as GRI and SASB.
The primary purpose of these frameworks is to give companies guidance as to how various ESG criteria should be measured. Their goal is not to have each company reporting on all metrics, but rather to provide guidance as to which ones are most relevant for them, given their industry and operating model. It is worth noting that SASB provides detailed industry-specific standards across 77 industries, whereas the other voluntary frameworks are largely industry-agnostic.
3. The voluntary certification and ratings
Similar to the previous set, these frameworks are also voluntary. However, these frameworks have some form of scoring system. Completing them to a satisfactory threshold will provide companies with a certification or rating that they can share with relevant stakeholders. The information submitted by companies to these framework institutions undergoes strict verification processes to provide assurance that achieving the certification/rating comes with meeting stringent requirements. Once granted, companies are required to regularly disclose their ESG performance in order to maintain their certification/rating.
The duration of the assessment process is dependent on both the framework selected and the type of company being assessed. For example, B-corp certification typically takes 6-8 months for SMEs, but larger companies operating globally would have to wait longer. Filling out an annual CDP questionnaire can take anywhere from 10 hours to over 100 hours, depending on the extent of relevant supply chains.
4. The investor frameworks
This last set of frameworks highlights increasing demands from investors looking to ensure that their investments meet certain ESG performance criteria. They are particularly relevant for Private Equity (PE) managers and their portfolio companies, who have received less regulatory scrutiny than their public peers, given their private ownership*. These frameworks represent an effort from the investment industry to streamline ESG data demands and push for convergence. They prioritise the most material ESG metrics given the effort it will likely take first-time reporting companies to disclose the relevant information. For instance, the ILPA framework requires only 6 metrics for the 2021/22 reporting cycle. Though not legally enforced, requirements from investors regarding these frameworks are often placed on companies and/or financial institutions and can be seen as indicators for what may be enforced by governments in the future.
*Note that there is a push for regulation of the private financial sector, as shown through the introduction of SFDR, listed in group 1.
What is next for the ESG framework landscape?
The list of ESG frameworks considered in this article, while comprehensive, is by no means exhaustive, and there are additional frameworks being introduced each year. These frameworks often overlap in scope and can make it challenging for companies to navigate the world of ESG reporting.
Fortunately, there has recently been a movement towards more framework alignment to mitigate this issue. In 2020, five leading frameworks (CDP, CDSB, GRI, ILPA, SASB) published a “Statement of Intent to Work Together Towards Comprehensive Corporate Reporting”, aiming at addressing stakeholders’ confusion surrounding their overlap. Additionally, the merger last year of the SASB and IIRC to become the Value Reporting Foundation (VRF) further demonstrates the intentions of these institutions to increasingly work together moving forwards.
More recently, in late 2021, the new International Sustainability Standards Board (ISSB) was announced with the aim of establishing a global consensus on ESG reporting. The ISSB working group includes members from the following institutions (listed in the groups above): CDSB, TCFD, VRF (comprised of SASB and IIRC) and WEF, which is another strong indicator for future framework alignment. In March 2022, the ISSB released its first two proposed standards for public consultation, covering both general sustainability and climate-related disclosure requirements. These standards build upon recommendations from the TCFD and incorporate SASB standards for industry-specific disclosures. KEY ESG will be commenting on these proposals to ensure that the resulting frameworks are as useful as possible to both reporting companies and their stakeholders.
How KEY ESG helps navigate this complex framework ecosystem
KEY ESG is built with the business user in mind and understands the confusion that professionals can experience when starting to report their ESG performance. Choosing the right ESG framework and methodology can be daunting especially as they continually adapt to new challenges and as industry benchmarks change over time.
KEY ESG's experts do the research for you to ensure that our ESG software reflects the latest industry best practices and regulatory guidance, keeping you on top of new developments at all times.
Our intuitive onboarding experience guides you towards the right metrics and frameworks based on your company and helps you navigate the major ESG frameworks smoothly.
To learn more about KEY ESG software, book your demo now or get in touch with one of our experts.
An ESG reporting guide for UK and EU-based businesses
Published: 22 Jun 2022 · Last updated: 30 Sep 2022
An overview of the ESG frameworks
To most companies, ESG Reporting is associated with a dizzying host of acronyms, starting with; ESG: Environmental, Social and Governance. There exists an array of frameworks and standards, each offering their own measuring stick for both monitoring and improving ESG performance. All too often, companies are left alone to find the right resources and learn about these frameworks and their main differences. Understanding which frameworks are applicable to each company’s specific context is a daunting, yet crucial, task, particularly for those businesses at the start of their ESG journey. The trend is clear: ESG reporting is moving from desired to required. Businesses now need to start engaging with the reporting process, including gathering relevant data, so as not to be caught out by new regulations.
To help navigate this complex field, we have mapped all major ESG frameworks required within the UK and EU and organised them into four key groups, offering you an essential overview of the landscape. There are promising signs that we’re moving towards a singular global ESG framework. However, in the meantime, this guide provides the first step for UK and EU-based companies looking to build an initial ESG reporting strategy. The figure below should help guide which frameworks are applicable to your company.
The 4 essential ESG framework categories all UK and EU-based businesses should know about
In this article, we will cover 4 main categories of ESG frameworks:
- The mandatory frameworks for compliance
- The voluntary frameworks
- The voluntary certification and ratings
- The investor frameworks
1. The mandatory frameworks for compliance
*Note that these dates are not set in stone and are subject to change pending legislative review (latest update: 17/06/22)
These frameworks are grouped together as they all involve mandatory disclosure requirements for select UK and EU-based companies based on a variety of criteria. Both the scope of these requirements and the range of companies they apply to are fast expanding. For example, in the EU, the Corporate Sustainability Reporting Directive (CSRD) replaces and increases the scope of the Non-Financial Reporting Directive (NFRD) by expanding the definition of what is considered a “large” company, as well as by including non-listed companies alongside listed companies. This broadens the scope from 11,600 to approximately 49,000 entities. Listed small and medium-sized enterprises (SMEs) will also have to comply with this regulation by January 2026.
Note: EU frameworks don’t just apply to EU-based companies; they can apply to UK-based companies that operate in the EU, or even apply to UK-based companies through EU investor pressure.
Note 2: For more details on SFDR, you can refer to our SFDR Blog Series which summarises everything you need to know about this evolving regulation
2. The voluntary frameworks
There are no reporting requirements associated with using these frameworks. This means that companies have the agency to decide which parts of the framework to consider and include in their ESG reports. This list includes some of the most reputable and longest-standing ESG reporting frameworks, such as GRI and SASB.
The primary purpose of these frameworks is to give companies guidance as to how various ESG criteria should be measured. Their goal is not to have each company reporting on all metrics, but rather to provide guidance as to which ones are most relevant for them, given their industry and operating model. It is worth noting that SASB provides detailed industry-specific standards across 77 industries, whereas the other voluntary frameworks are largely industry-agnostic.
3. The voluntary certification and ratings
Similar to the previous set, these frameworks are also voluntary. However, these frameworks have some form of scoring system. Completing them to a satisfactory threshold will provide companies with a certification or rating that they can share with relevant stakeholders. The information submitted by companies to these framework institutions undergoes strict verification processes to provide assurance that achieving the certification/rating comes with meeting stringent requirements. Once granted, companies are required to regularly disclose their ESG performance in order to maintain their certification/rating.
The duration of the assessment process is dependent on both the framework selected and the type of company being assessed. For example, B-corp certification typically takes 6-8 months for SMEs, but larger companies operating globally would have to wait longer. Filling out an annual CDP questionnaire can take anywhere from 10 hours to over 100 hours, depending on the extent of relevant supply chains.
4. The investor frameworks
This last set of frameworks highlights increasing demands from investors looking to ensure that their investments meet certain ESG performance criteria. They are particularly relevant for Private Equity (PE) managers and their portfolio companies, who have received less regulatory scrutiny than their public peers, given their private ownership*. These frameworks represent an effort from the investment industry to streamline ESG data demands and push for convergence. They prioritise the most material ESG metrics given the effort it will likely take first-time reporting companies to disclose the relevant information. For instance, the ILPA framework requires only 6 metrics for the 2021/22 reporting cycle. Though not legally enforced, requirements from investors regarding these frameworks are often placed on companies and/or financial institutions and can be seen as indicators for what may be enforced by governments in the future.
*Note that there is a push for regulation of the private financial sector, as shown through the introduction of SFDR, listed in group 1.
What is next for the ESG framework landscape?
The list of ESG frameworks considered in this article, while comprehensive, is by no means exhaustive, and there are additional frameworks being introduced each year. These frameworks often overlap in scope and can make it challenging for companies to navigate the world of ESG reporting.
Fortunately, there has recently been a movement towards more framework alignment to mitigate this issue. In 2020, five leading frameworks (CDP, CDSB, GRI, ILPA, SASB) published a “Statement of Intent to Work Together Towards Comprehensive Corporate Reporting”, aiming at addressing stakeholders’ confusion surrounding their overlap. Additionally, the merger last year of the SASB and IIRC to become the Value Reporting Foundation (VRF) further demonstrates the intentions of these institutions to increasingly work together moving forwards.
More recently, in late 2021, the new International Sustainability Standards Board (ISSB) was announced with the aim of establishing a global consensus on ESG reporting. The ISSB working group includes members from the following institutions (listed in the groups above): CDSB, TCFD, VRF (comprised of SASB and IIRC) and WEF, which is another strong indicator for future framework alignment. In March 2022, the ISSB released its first two proposed standards for public consultation, covering both general sustainability and climate-related disclosure requirements. These standards build upon recommendations from the TCFD and incorporate SASB standards for industry-specific disclosures. KEY ESG will be commenting on these proposals to ensure that the resulting frameworks are as useful as possible to both reporting companies and their stakeholders.
How KEY ESG helps navigate this complex framework ecosystem
KEY ESG is built with the business user in mind and understands the confusion that professionals can experience when starting to report their ESG performance. Choosing the right ESG framework and methodology can be daunting especially as they continually adapt to new challenges and as industry benchmarks change over time.
KEY ESG's experts do the research for you to ensure that our ESG software reflects the latest industry best practices and regulatory guidance, keeping you on top of new developments at all times.
Our intuitive onboarding experience guides you towards the right metrics and frameworks based on your company and helps you navigate the major ESG frameworks smoothly.
To learn more about KEY ESG software, book your demo now or get in touch with one of our experts.
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