Deciphering the sustainability spaghetti

Corporate sustainability is a hot topic, but it can be confusing for business owners who don't have the time or expertise to delve into the details.

For example, there are dozens of sustainability frameworks that range from simple checklists to complex documents with hundreds of pages and thousands of metrics. The average business owner isn't an expert in sustainability, so how can they decipher the different frameworks? This guide will help you understand which frameworks are relevant for your company and its customers so that you can make smart decisions about how meaningful sustainability is for your organisation.

There's been a lot of talk about corporate sustainability recently.

The term "corporate sustainability" refers to an organisation's commitment to long-term economic, environmental, and social well-being. This means that companies are taking steps to reduce their negative impacts on the environment, while also enhancing their positive contributions to society through philanthropy and other initiatives.

Corporate sustainability has become increasingly important in recent years due to growing concerns about climate change, natural resource depletion and pollution--all of which threaten our planet's ability to support life as we know it today. It's also urgent because companies will need the support of consumers if they want consumers' dollars (and votes).

The average business owner isn't an expert in sustainability, so how can they decipher the different frameworks?

In a real-world setting, the average business owner isn't an expert in sustainability. If you're trying to understand the different frameworks, don't worry about the details--just look for overlaps and outliers.

For example, if you see one of your competitors has a triple bottom line (people, planet and profit) but yours only has two (profit and planet), then maybe it's time to take another look at how your company measures success beyond just pounds, euros and dollars.

There are lots of different standards out there that vary widely.

There are many different standards out there, and they vary widely. Some are voluntary, some mandatory; some are global, some local; some new and others old. Some are prescriptive (telling you how to do something) while others are descriptive (describing what has been done).

First, understand which frameworks you and your customers are subject to

The first step in deciphering the sustainability spaghetti is to understand which frameworks you and your customers are subject to. While it may seem like an obvious thing to do, many organisations fail to consider this issue until it's too late. The reason for this oversight is simple: many frameworks operate differently depending on where they're implemented and what industry they apply to.

In Europe alone there are over 15 separate regulatory frameworks that companies must adhere to when reporting on their sustainability performance or risk sanctions from regulators if they don't comply with them. Each of these has its own requirements and terminology which can make understanding them difficult without prior knowledge or experience working within them regularly.

The UN Sustainability Development Goals (SDGs) are a great place to start

The UN Sustainability Development Goals (SDGs) are a great place to start. The SDGs are a set of 17 goals that were designed to end poverty, protect the planet and ensure prosperity for all by 2030. They were developed by 193 UN member states in 2015, and they're meant to be universal, ambitious and transformative – a framework for global development.

Companies listed in the UK - ISSB, TCFD, TNFD

The three sustainability frameworks applicable to UK listed companies have different aims, but all have a common goal of driving companies to be more transparent about their environmental and social performance.

The International Sustainability Standards Board, which forms part of the IFRS Foundation, has issued two draft standards (IFRS S1 and S2) covering the guiding principles of sustainability reporting and climate-related disclosure. The ISSB was formed in 2021 and in 2022 incorporated the work of the SASB. The ISSB will issue further standards concerning ESG reporting over the coming years and has committed to working with EFRAG (tasked by the EU with drafting the European Sustainability Reporting Standards) to align the requirements where possible.

Unlike the ISSB standards, TNFD and TCFD are global frameworks with high-level principles to guide companies’ reporting of climate- and nature- related financial disclosures. This means that each company adopting these frameworks will have differing interpretations of the data they require and wish to disclose. The frameworks are by no means concise – they still give War & Peace a run for its money – but will make it difficult to guess a customer’s data expectations. We recommend that businesses engage their customers as early as possible in the process to understand their requirements.

Companies listed in the EU - CSRD and ESRSs

The Corporate Sustainability Reporting Directive (CSRD) was formalised in November 2022 and is effective from 1 January 2024 for the largest EU listed groups, with staggered implementation for SMEs and other companies. In addition to providing guidance on the reporting of environmental performance, it also requires companies listed on regulated markets (such as the Paris Stock Exchange) to disclose their management systems for sustainability and supply chain management.

This requirement can be met by publishing an annual report that fulfils certain criteria set out in European Sustainability Reporting Standards drafted by EFRAG. These guidelines are more comprehensive than those required under US regulations, which only require disclosure if there has been a material change since the prior year's filing period; however, they do not include some important elements like executive compensation policies or board composition requirements.

What makes the draft ESRSs very different from other frameworks is that they introduce the concept of 'double materiality'. Simply put, this requires organisations to consider a sustainability-related matter from the perspective of both the primary users of their sustainability reporting in their decision-making (i.e. investors, lenders etc) and the stakeholders most impacted by the organisation's activities (eg. the environment, the climate, communities, employees, suppliers, customers and so on). In practice, this is a very challenging area to regulate and organisations caught by these rules will need to explain their rationale and judgements in determining what is and isn't 'material'.

SEC registrants - climate finance disclosures

The SEC has been requiring publicly traded companies with a US listing to disclose climate change risk, mitigation and adaptation since 2010. In 2022, the SEC published additional proposals which are expected to be effective from 2024. Many companies have adopted sustainability reporting frameworks that include metrics for each of these areas, but as yet information on the social and governance aspects of sustainability reporting have not been proposed. Unlike the ISSB and EFRAG, the SEC adopts a 'bright line' approach to materiality by requiring companies (in agreement with their auditors) to determine a financial threshold (often a fixed percentage of revenues, EBITDA or total assets).

Prior to the SEC's most recent proposals, some of the most common sustainability reporting frameworks used by SEC registrants today include:

• GRI (Global Reporting Initiative) - The GRI framework is a standardized approach for collecting and reporting information about corporate social responsibility performance. It includes three main categories: environmental issues; economic issues; societal issues and stakeholder initiatives.

• CDP (Carbon Disclosure Project) - The CDP was founded in 2003 with the goal of encouraging businesses worldwide to measure their greenhouse gas emissions and take actions related to climate change mitigation or adaptation. Today they are an independent organisation headquartered in London with offices throughout Europe as well as North America

• SASB (Sustainability Accounting Standards Board) – The SASB drafted guidance on sector-specific disclosures for 77 industries and in 2021 was used by 96% of S&P 500 companies. In August 2022, the ISSB assumed responsibility for SASB standards when it merged with the Value Reporting Foundation. Moving forward, the ISSB will require companies adopting its standards to consider the SASB sector-specific standards in addition to those issued by the ISSB.

One size fits none

The frameworks are not the same. The data they require is not the same, nor are the standards and requirements. One size doesn't fit all when it comes to sustainability reporting – and that's a good thing. It means you can choose one that works for your organization and allows you to focus on what matters most: making progress toward achieving your goals.

As you can see, there are many different frameworks used to measure sustainability. Each one has its own strengths and weaknesses, which means that there's no single standard that will work for every company. But don't worry - we're here to help! We can help you determine the appropriate frameworks and requirements applicable to you and your customers. Click here to book a free consultation with our director, Tim Dee.