Guide to ESG Reporting Frameworks

Guide to ESG Reporting Frameworks

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There’s global consensus among governments, businesses and financial institutions that environmental, social and governance (ESG) risk is investment risk, and actions to protect the environment and society through strong governance are critical to our future. 

And just as organizations are required to produce reports on financial performance, they are expected — and sometimes required by law — to disclose their ESG performance. 

But how to do this? Unlike financial performance reporting, which is governed by clear expectations on format and content, the world of ESG reporting is still fragmented and confusing. Each framework poses its own set of questions and requirements, and frameworks cross over each other, requiring complex cross-checking of responses. Most frameworks require the provision of supporting documentation, and many quantitative questions require complex numerical calculations based on multiple data streams.  

 ESG reporting is now a high-stakes business imperative. Reports must be finance-grade, fully auditable, comparable across periods and approved by a corporate officer. 

In this guide, we set out to provide organizations with guidelines to assist with their approach to ESG reporting. We outline the ESG framework landscape, propose approaches that organizations can employ when selecting ESG frameworks, consider the future of ESG reporting, and how sustainability and carbon accounting software can simplify ESG reporting.

The rise of corporate ESG: why is ESG important?

The pace at which ESG metrics are being reported on is on an incredible trajectory. Largely in response to rising investor and community interest, growing numbers of organizations are focusing their attention on reporting their ESG performance and targeting sustainability, driven largely by ESG goals.  

 “Climate change has become a defining factor in companies’ long-term prospects.”
Larry Fink, Chief Executive Officer, BlackRock  

As a result, ESG has moved from the margins to the mainstream, and now more than ever before, organizations are expected to report their ESG performance. Failure to take ESG risks seriously could result in many negative impacts for firms, from shareholder action at annual general meetings to divestment by asset managers.  

The growing importance of ESG means that organizations must report their impact using an ever-increasing range of different frameworks. But how do these ESG guidance and reporting frameworks compare, and how can organizations better prepare in their journey to ESG reporting?  

Selecting ESG frameworks for reporting

The ESG reporting landscape is cluttered with a large number and variety of reporting frameworks. Applying different lenses to assess and categorize the various frameworks can help with understanding the options and selecting the appropriate ESG reporting frameworks for your organization. 

Lens 1: Potential for impact

Materiality and relevance 

The decision on which framework to report to should start by considering materiality and relevance.  

What is materiality in the context of ESG? 

The concept of materiality guides organizations to focus on ESG issues that are relevant to them and will have a measurable impact on their business. 

To determine materiality, an organization must first identify its risks and then assess the consequences of those vulnerabilities. Using a “risk matrix” approach, organizations can determine which ESG-related risks to prioritize based on their risk profile, and which of those consequences would have significant negative impacts on their organization.  

Example: A large-cap e-commerce company may choose to focus on packaging materials and waste (environmental), supply chain labor standards (social) and business ethics (governance) in its materiality assessment because it determined these to have the largest risk profiles when it comes to environmental impact, overall shareholder and consumer confidence, and regulatory requirements. In this case, the company should look for ESG reporting frameworks that cover all three ESG categories. 

Consider assessing double materiality  

Double materiality calls on organizations to consider materiality from two viewpoints: financial materiality and materiality to the market, the environment and people. 

Double materiality recognizes that an organization is responsible for managing its own financial risks by looking inward. But it also looks at the outward impacts of its decisions and operations on people and the environment.  

By applying the concept of double materiality, organizations can identify both the financial and non-financial impacts of their operations to help shape a more holistic ESG strategy.  

What is your organization’s impact and influence?  

The other side of the materiality and relevance coin is impact and influence. Organizations assessing their ESG reporting approach may also find it beneficial to consider the environmental and social factors that an organization can influence most directly and rapidly. 

Using an action priority or impact effort prioritization matrix, organizations can quickly identify where to focus their initial efforts and then use these insights to determine which ESG framework can help with realizing goals that are within reach.  

For example, organizations in the fast-moving consumer goods and retail sectors can exert influence within their supply chain. In these sectors, an organization’s procurement choices can have a significant impact on the ESG performance of companies in the supply chain, thus magnifying their ESG impact. 

Lens 2: Stakeholder expectations

What are external stakeholders looking for? 

Organizations may also consider what their stakeholders are looking for and which ESG frameworks these stakeholders expect to be used. For example, investors, boards, insurers and creditors may prefer the organization report to the Task Force on Climate-related Financial Disclosures (TCFD) or Sustainability Accounting Standards Board (SASB), while employees and consumers may expect disclosures based on the United Nations Sustainable Development Goals (UN SDGs), and governments or regulators may prefer Streamlined Energy and Carbon Reporting (SECR) or National Greenhouse and Energy Reporting (NGER), depending on the locale. 

How will internal stakeholders use the information? 

Stakeholders will use ESG disclosures for various reasons, and organizations should take this into account when developing their ESG reporting strategy. The risk, compliance and HR teams would be invested in the data to drive strategic decisions around equity and inclusion, while energy and utilities would be looking closely at consumption and expenditure across the organization. Procurement teams, on the other hand, would be using the data collected to assess their supply chain operations and the risk profile of suppliers.  

Lens 3: Geography

Certain ESG reporting frameworks are only relevant in particular geographies. In some cases, this is because reporting is mandated by law. In others, it can be because the framework is specific to local conditions. 

Examples include ENERGY STAR in North America and select other countries, SECR in the UK and NGER in Australia. 

Lens 4: Sector preference

Organizations belonging to a particular sector will find that there is a natural alignment between their sector and some ESG reporting frameworks, such as Global Real Estate Sustainability Benchmark (GRESB), which is used to assess the sustainability performance of real estate and infrastructure portfolios.  

Organizations interested in assessing which frameworks their peers report to can find this information by reviewing the websites of reporting frameworks which often include a sector filter and a list of reporters. Using this information, organizations can ascertain the relevance of the ESG framework to their sector. Similarly, organizations can also review sustainability reports along with annual reports published by their sector peers on their own websites to see how they have been reporting to their relevant framework. 

Lens 5: Framework coverage

Each of the major ESG reporting frameworks has different levels of focus on the key ESG performance metrics  

Understanding which framework focuses on which indicator can help with framework selection and provide insights into where organizations may be able to report to multiple frameworks using existing data. 

This matrix illustrates the focus areas for each reporting framework. 

Download full ESG matrix

Adopt a dedicated ESG reporting system

As the investor community sharpens its focus on ESG metrics, the level of scrutiny applied to this data intensifies. After all, the most valuable commodity in capital markets is reliable and auditable data. 

Unlike the typical financial data investors are familiar with, ESG data has generally not been held to the same standards of accuracy. It’s often held in disparate systems, and some organizations attempt to run their annual greenhouse gas (GHG) accounting using risk-laden spreadsheets. These approaches are not an efficient means of managing ESG data in the face of stakeholder and regulatory pressure, especially for complex global organizations reporting to multiple frameworks. 

Organizations have dedicated IT systems to support processes and security, accounting systems to securely store financial data, and HR systems to capture and manage people data. ESG reporting should not be any different. Organizations can benefit from having a specialized software platform to capture their activity data and calculate their emissions data, sustainability initiatives and supply chain data to bolster ESG reporting. 

Nowhere is this more important than for the “E” in ESG, which is the most difficult to report and track, and the most essential for organizations looking to reduce their carbon emissions.  

The metrics captured within the “E” of ESG generally include environmental factors such as water, waste, pollutants and energy, in addition to the metrics required to support GHG emissions accounting across Scopes 1, 2 and 3.  

ESG reporting software such as the IBM® Envizi Sustainability Performance Management suite (Envizi) can help you stay organized by automating data capture directly from the source and maintaining an emissions factor engine for nationally recognized carbon emissions factor data tables such as the US EPA Climate Leaders Program, e-GRID USA, Intergovernmental Panel on Climate Change (IPCC), IEA National Electricity Factors, Australian National Greenhouse Accounts, DEFRA (UK), and NZ Ministry for the Environment. 

ESG and sustainability reporting features

Automated data capture

Sustainability reporting software that automates data capture from the source significantly reduces the time, cost and effort of reporting.

Audit trails and data health checks

Software can ensure that all data captured is linked back to the transaction, including an audit trail for any changes subsequently made to that data.

Hierarchy management tools

In order to make meaningful comparisons of emissions over time, a GHG inventory boundary must be established between data sets. Sustainability software can apply in built tools that help set and manage boundaries over time.

Global coverage

Sustainability reporting platforms that support multi-country, multi-currency, and multi-metric reporting, and allow data capture in local units of measure and currencies and have the ability to convert to standard units simplify the sustainability reporting.

Support for reporting schemes and industry standards

Sustainability software can help organize your data, helping you to get the outputs required to report to various sustainability frameworks.

Ability to set and recalculate baselines

Baseline emissions need to be recalculated when structural changes occur in the organization that change the inventory boundary (such as acquisitions or divestments). Sustainability software can simplify the process for recalculating baselines.

Support for emission factors and carbon accounting methodologies

Sustainability software can maintain an emission factor engine for nationally-recognized carbon emissions factor data tables to include Australian National Greenhouse Accounts, DEFRA (UK), US EPA (Climate Leaders), e-GRID USA, IEA National Electricity Factors, NZ Ministry for the Environment,  and IPCC. In addition, sustainability software can allow system administrators to define custom time-varying factors.

Target tracking capability

Sustainability software enables you to set targets to match your goal setting and performance management practices as well as to meet voluntary or compliance reporting needs.

Ensuring ESG reporting is simplified

Envizi’s ESG Reporting Frameworks module provides organizations with one data set and one repository of information, so all responses across multiple, internationally recognized frameworks such as SASB and GRI, are available within a framework library on the platform.

Responses can also be exported and custom questions created, which is especially helpful for organizations with specific reporting requirements.

Prepare for future ESG trends

1. AI-driven data scraping by ESG ratings tools 

Increasingly, AI and bots are used to evaluate an organization’s ESG performance through publicly available data. This practice, known as data scraping, presents a new challenge for organizations because it means that the data being used to assess access to capital is largely outside their control. 

Various firms synthesize ESG data from different sources including ranked and “best of” lists, product review websites, social media posts and comments, company databases, and news articles to build an organization’s profile.  

Although these scoring systems and the piecemeal data gathered through data scraping don’t provide the context, methodology used and granular detail required from most investors, the practices are nonetheless becoming more widespread.  

How to prepare for an AI-driven ESG valuation

With the practice of data scraping on an upward trend, investment and sustainability teams should consider the following approach to regain control of their data and protect an organization’s ESG valuation from the inevitable downsides of AI-driven ESG data scraping.  

  • Step 1: Identify which ratings agencies you need to target
    Enter into a dialogue with your key institutional investors and ask them which ratings agencies they use. 
  • Step 2:  Understand what data the target ratings agencies use and how they go about uncovering it
    Ask the rating agencies directly if possible, or do online research to uncover what you can 
  • Step 3:  Ensure the data you are providing, and the places where you are sharing it meet the needs to the rating agencies.
    Methods you can use to do this are outlined in the table below. 
Determine the best keywords
Employ social listening
Increase publicly available ESG information
Check your organization’s publicly available information to ensure the data the AI data scraping and bots are capturing is accurate. Undertake an analysis of the terminology used and adjust for clarity. This analysis should be applied to your organization’s website, comparison websites and company search databases such as Bloomberg.
Track conversations online to determine what has been published about the organization and attempt to rectify any inaccurate statements. Examples include customer reviews, Google business listings, customer social media comments and mentions of the organization.
Provide more data in sustainability action plans and reports. Publish supporting documents that go into further detail about the organization’s ESG performance and efforts. This data can then be published on your organization’s website, social media or other platforms.

2. A global standard in ESG reporting

The future of ESG reporting can be seen from at least three perspectives: regulatory changes, industry coalescence around frameworks, and inter-framework consolidation. All these perspectives indicate one major directional move: the harmonization of ESG reporting frameworks.  

Regulatory changes
Industry sectors coalescing
Framework consolidation
Various progress has been made across national and supranational jurisdictions. The U.S. Securities and Exchange Commission (SEC) announced a proposal in March 2022 to mandate ESG disclosure modeled off the TCFD. Similarly, the EU’s sustainable finance package — the EU Taxonomy and the Sustainable Finance Disclosure Regulation (SFDR), which includes CSRD — will further require ESG-related disclosures from companies.
As the practice of ESG reporting matures, industry sectors are coalescing around their preferred frameworks. The early movers in this regard were in the property sector, which favors reporting against the GRESB framework. This trend occurs more recently among the investment community, with asset managers such as BlackRock encouraging their investees to report against SASB.
These changes are resulting in a reporting landscape in which frameworks are becoming more specialized, as seen with the IFRS and GRI, or are consolidating, as seen with the International Integrated Reporting Council (IIRC) and SASB.

How to prepare for ESG reporting changes

With progressive steps toward a common language around ESG reporting and new announcements being made every few months, how can organizations better prepare for the inevitable changes facing ESG frameworks?  

Get the data right

Having an accurate and auditable data foundation today means avoiding historical errors and changing processes when ESG reporting changes come into effect. Envizi can help organizations achieve this with an auditable data record and accurate emissions calculations.  

The solution is also regularly updated in line with new framework requirements to ensure ESG reporting remains current with market obligations.

Build ties with the right stakeholders 

Sustainability leaders should look beyond their current stakeholder group and consider others who can provide the granular data required from different frameworks and regulatory changes.

This approach will also ensure that there is significant support and endorsement from across an organization at all levels. The vested interest across a diverse stakeholder group also increases accountability and interest, ensuring that there is true alignment on an organization’s ESG strategy.

Consult different sources for guidance

In the lead-up to key reporting dates and throughout the year, frameworks will publish updates and guidance to help participants with their ESG reporting. 

These updates can be viewed on their various channels, including:

  • Social media, specifically LinkedIn  
  • e-newsletters  
  • Media and blog section of their websites  
  • Webinars and online forums  

It’s imperative that sustainability professionals involved with their organization’s ESG reporting immerse themselves in these online communities and resources.  

We also issue regular updates and guidance throughout the year on emerging trends and changes in the ESG reporting landscape. Envizi’s position as a global leader in ESG management software for over a decade gives us unique insight into the sector. You can access these resources through our website or LinkedIn page. 

Detailed guide to ESG frameworks

Below we provide a snapshot of sustainability performance indicators utilized in each ESG framework, and how ESG and sustainability reporting software can help.

These frameworks can be categorized into 4 broad groups including:

  • Benchmark frameworks
  • Voluntary frameworks
  • Regulatory frameworks
  • Rating agencies

Requires responses to all questions in the framework, and typically has a scoring element.

CDP

CDP is a framework for companies to provide environmental information to their stakeholders (investors, employees, and customers) covering governance and policy, risks and opportunity management, environmental targets and strategy and scenario analysis.

cpd-logo

How CDP works

CDP currently offers three questionnaires (Climate Change, Water, and Forests), each of these is scored using different methodologies.  Each questionnaire includes general questions alongside sector-specific questions aimed at high-impact sectors. The scoring of CDP’s questionnaires is conducted by accredited scoring partners trained by CDP.

How ESG+ sustainability software supports CDP reporting

The CDP Climate Change questionnaire for organizations includes a combination of qualitative and quantitative questions.  Sustainability reporting software is particularly well-suited supporting answers to the questions that require quantitative data.  Software can simplify emission calculations, particularly in calculating Scope 2 emissions using the required market-based method. In addition, it can be useful for maintaining a library of emissions factors used to calculate emission intensity, absolute emissions (Scope 1, Scope 2 location-based, Scope 2 market based and Scope 3), and can separate emissions by country/region, group, facility and activity.

Global Real Estate Sustainability Benchmark

GRESB is a global tool used predominately by investors to assess the sustainability performance of real estate and infrastructure portfolios and assets worldwide.

How GRESB Works

GRESB Assessments provide investors and asset managers with material insights into the sustainability performance of a companie’s real assets.  These performance insights are aligned with international reporting frameworks such as the Global Reporting Initiative (GRI) and Principals for Responsible Investment (PRI). Assessment participants receive comparative business intelligence on where they stand against their peers, a roadmap with the actions they can take to improve their ESG performance and a communication platform to engage with investors. Investors use the ESG data and GRESB’s analytical tools to improve the sustainability performance of their investment portfolios, engage with managers and prepare for increasingly rigorous ESG obligations.

How ESG +  sustainability software supports GRESB reporting

The GRESB Real Estate Assessment requires companies to report environmental performance data at the asset level and are required to compile asset level data such as green building certification, stakeholder engagement, and automatic asset categorization. Sustainability software helps manage the compilation and data quality of performance indicator data for energy, emissions, waste and water.

Sustainability data management and reporting systems that are GRESB data partners such as Envizi can aggregate and extract energy, emissions, water and waste data that are required to submit the GRESB – Asset Level Data Spreadsheet.

This will speed and simplify the submission of this GRESB data that is required to compile the Performance Indicators portion of the GRESB Assessment.

Allows reporters to select the questions they want to report against, depending on factors such as their industry of operation and their materiality. Scoring is typically not included in these frameworks.

Global Reporting Initiative (GRI)

GRI is a globally applicable guidance framework that provides standards (the GRI standards) which details approaches to materiality, management reporting and disclosure for a comprehensive range of sustainability issues.  Many organizations are guided by GRI standards in the production of their own sustainability reports.

How GRI works

The modular, interrelated GRI Standards are designed primarily to be used as a set, to prepare a sustainability report focused on material topics. The three universal Standards are used by every organization that reports under the GRI framework. An organization also chooses from the topic-specific Standards to report on its material topics – economic, environmental or social.

How ESG+ sustainability software supports GRI reporting

Once an organization has chosen the elements of GRI guidance they will adopt for their corporate sustainability reporting, ESG software acts as a single system of record for reporting – capturing data from source when required (in the case of energy data), bringing together data from other internal systems, and applying analytics to produce data required by the framework

Task Force for Climate Related Disclosures (TCFD)

The Task Force for Climate-Related Financial Disclosures (TCFD) helps organizations across the globe articulate how ESG performance is most likely to materially impact future financial performance and value creation.

The TCFD  was created in December of 2015 after the G20 Finance Ministers asked the Financial Stability Board to evaluate the connection between climate-related issues and the financial sector. The FSB is an international body that makes recommendations to the global financial system, so the push towards climate-related finance was significant.

How the TCFD works

Broken into four pillars, TCFD addresses disclosure requirements related to:  

  1. Metrics & Targets: What are the measurements in assessing material climate-related risks and opportunities?  
  2. Risk Management: How does the organization define, assess, and manage climate-related risks?  
  3. Strategy: What is the tangible material impacts of climate-related risks and opportunities on the whole business, including strategy and financial planning? 
  4. Governance: How does the organization’s governance structure address climate-related risks and opportunities?  

TCFD is explicitly designed to address climate risks to the business, falling squarely within the ‘E’ of ESG reporting.

How ESG + sustainability software supports TCFD reporting

Sustainability software can support the capture and storage of qualitative data, which is essential to support data capture for the TCFD pillars of Risk Management, Strategy and Governance.  Where software has most impact is the capture and management of data required for the Metrics & Targets pillar of the TCFD.  These figures underpin the governance, strategy and risk management pillars of TCFD, which makes adequate control and management of this data, which include Scope 1, 2 and 3 GHG emissions values essential.

Software like Envizi can simplify GHG accounting with out-of-the-box tools that automate the collection of energy consumption data, the management of emission factors and the calculation of emissions – all with traceability through to the source and audit trails to track any changes subsequently made to that data. 

Value Reporting Foundation – SASB + IIRC

In June 2021, The Sustainability Accounting Standards Board (SASB)  and the International Integrated Reporting Council (IIRC) announced their merger to form the Value Reporting Foundation (VRF).  The Value Reporting Foundation is an ESG guidance framework that sets standards for the disclosure of financially material sustainability information by companies to their investors.  The resources they provide include the Integrated Thinking Principles, the Integrated Reporting Framework, and SASB standards.  In total, the SASB Standards track ESG issues and performance across 77 industry standards.  VRF’s framework is built to support companies in sharing their outward ESG impacts through the language of investors, debt holders, and internal financial stakeholders.

How the SASB standards work

Of the other ESG reporting frameworks, the Global Reporting Initiative (GRI) is most similar to SASB, but supplies more broadly material information for reporting to stakeholders who are not just from financial portfolios.

Asset management companies, like BlackRock, Goldman Sachs, and Morgan Stanley, manufacturing giants, like GM and Nike, and even specialized industries with companies like Merck and JetBlue use SASB’s Standards to disclose ESG metrics. SASB also supplies resources to explain how investors across multiple asset classes use the standards. These tools allow organizations to be specific and report with a system that allows for transparency and relevancy with their investors.  

How ESG + sustainability software supports reporting to the SASB standards

SASB’s Environmental Reporting covers a variety of quantitative metrics within GHG Emissions, Air Quality, Energy Management, Water & Wastewater, Waste & Hazardous Materials, and Ecological Impacts.  Each category gets specific, asking for disclosure of data points in Scope 1, Scope 2, and Scope 3 emissions, measured on a company-wide portfolio level. Sustainability and carbon accounting software like Envizi can simplify carbon accounting for ESG by automating the collection of utility and meter data from across an organization with traceability through to the source and audit trails to track any changes subsequently made to that data. Hierarchy management tools help to adjust boundaries when organizations change, and an emission factor and GHG calculation engine help derive accurate calculations for each scope.

Similar to benchmark frameworks in that all responses are required but are not always scored. These frameworks and reporting requirements are also required by a government body.

National Greenhouse and Energy Reporting (NGER)

The National Greenhouse and Energy Reporting (NGER) scheme is the Australian national framework for reporting and disseminating company information about greenhouse gas emissions, energy production, energy consumption. It was established by the National Greenhouse and Energy Reporting Act 2007 (NGER Act) and is monitored by the Clean Energy Regulator.

How NGERs works

NGERs collects emissions related data about greenhouse gases such as carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), sulphur hexafluoride (SF6) and specified kinds of hydro fluorocarbons and perfluorocarbons.  Records of activities must be adequate to enable the Clean Energy Regulator to ascertain whether the corporation or the person has complied with its obligations under the NGER Act.

This includes information that can be used to verify the relevance, completeness, consistency, transparency and accuracy of reported data during an external audit.

How ESG + sustainability software supports NGERS reporting

NGERs compliant sustainability software helps to automate the capture of relevant data, assist with meaningful GHG emission calculations (linking back to the source) and helps to organize this data into categories for submission direct to NGER Emissions and Energy Reporting System (EERS).

Streamlined Energy & Carbon Reporting Framework (SECR)

The Streamlined Energy and Carbon Reporting framework is the UK government’s guidance for organizations required to disclose their energy use and and greenhouse gas emissions and related information. The SECR was introduced to take effect from 1 April 2019 as the previous Carbon Reduction Commitment (CRC) Energy Efficiency Scheme came to an end. It builds on and extends the previous reporting requirements faced by quoted companies while adding new mandates for large unquoted and limited liability partnerships (LLPs). It can also help all organizations with voluntary reporting on a range of environmental subjects, including greenhouse gas reporting and the use of key performance indicators (KPIs). The SECR is central to the UK’s strategy for improving energy efficiency and reducing carbon dioxide emissions, as set out in the Climate Change Act 2008. It is expected that an estimated 11,900 companies incorporated in the UK will need to report on their energy and carbon emissions under the new framework.

How the SECR works

Quoted companies who report to SECR are required to disclose their energy use, their global scope 1 and 2 greenhouse gas emissions in tonnes of carbon dioxide equivalent, and at least one emissions intensity metric of their choosing for current and previous financial years. Scope 3 emissions remain voluntary but are recommended for emissions sources considered material. Unquoted large companies and LLPs will also need to report as a minimum their UK energy use and associated GHG emissions from electricity, gas and transport fuels as well at least one intensity metric. Reporting each of these sustainability dimensions and tracking their progress over time requires access to consolidated, auditable data, which can be more easily achieved with sustainability reporting software.

How ESG + sustainability software supports SECR reporting

Reporting key environmental impact dimensions and tracking against targets year on year will be essential to reporting to SECR. Sustainability software can help you to maintain boundaries of your organization, time periods to collect data for, and key environmental data to measure and report over time. We recommend you develop and report at least 3 KPIs associated with your key environmental impacts.

You should consider actions 1-7 (below) which provide you with information to help you develop your environmental strategy.

  • ACTION 1  Intensity ratios
  • ACTION 2  Setting a base year
  • ACTION 3  Setting a target
  • ACTION 4  Verification & assurance
  • ACTION 5  Your upstream supply chain
  • ACTION 6  Downstream impacts
  • ACTION 7  Business continuity and environmental risks

Sustainable Finance Disclosure Regulation (SFDR)

SFDR aims to standardize the reporting of ESG metrics for financial products and entities within the EU. It does this by mandating that reporters publish a Principal Adverse Impact (PAI) statement detailing their disclosures. SFDR will act in concert with the EU taxonomy and the proposed EU Corporate Sustainability Reporting Directive (CSRD) to form the basis for the EU sustainable finance agenda. 

How SFDR works 

SFDR’s PAI statement requires financial bodies to report different types of quantitative indicators, including weighted averages across various ESG metrics for their investments as well as emissions from their own activities. In practice, this means that organizations must report the proportion of their investees’ activities that they finance. For example, if an investee generates 100 metric tons of hazardous waste, and the financial body has 20% of the equity in that company, the financial body reports 20 metric tons of hazardous waste in its SFDR PAI.  

How ESG+ sustainability software supports SFDR reporting

SFDR’s Principle Adverse Impact (PAI) statement requires data to be collected across a variety of investees, which can be challenging when attempting to keep an audit trail and whilst capturing large volumes of different data. ESG software facilitates the easy collection of data from different stakeholders by capturing it in a single location before it is used in final calculations. Workflow features in sustainability software also allow stakeholders to submit their information in the one platform and keep track of requests for information.

There is a scoring element, and they are often responded to through a questionnaire that is not public. Each responding organization may also have its own questionnaire.

ENERGY STAR

ENERGY STAR is a nationally recognized energy rating and benchmarking mechanism in North America that incorporates commercial buildings across a diverse group of building use types.

How ENERGY STAR works

ENERGY STAR is a U.S. Environmental Protection Agency (EPA) voluntary program that helps businesses and individuals save money and protect the climate through superior energy efficiency. Rankings compare a building against others within its peer group. Buildings can benchmark their performance internally across their portfolio and externally among similar sectors.

ENERGY STAR scores are based on data from national building energy consumption surveys, and this allows ENERGY STAR’S Portfolio Manager product to control for key variables affecting a building’s energy performance, including climate, hours of operation, and building size. What this means is that buildings from around the country, with different operating parameters and subject to different weather patterns, can be compared side-by-side in order to see how they stack up in terms of energy performance. The specific factors that are included in this normalization (Hours, Workers, Climate, etc) will depend on the property type. The 1-100 scale is set so that 1 represents the worst-performing buildings and 100 represents the best performing buildings, with 50 representing the average.

How ESG + sustainability software supports ENERGY STAR reporting

Sustainability reporting software can support the ENERGY STAR rating standard by allowing you to streamline and integrate with ENERGY STAR Portfolio Manager (ESPM) to get real-time and official ENERGY STAR(R) Score results for your buildings or locations. This centralized approach minimizes the need to manage two systems at the same time, so that you can focus more on what you need to do rather than spending time on additional data stewardship work.

Dow Jones Sustainability Index (DJSI) & the SAM assessment tool

The Dow Jones Sustainability Index tracks the performance of the world’s leading companies in terms of economic, environmental and social criteria and is used by investors who wish to jointly assess financial and ESG aspects of company performance.

How DJSI works

The DJSI applies a transparent, rules-based component selection process based on the companies’ Total Sustainability Scores resulting from the annual SAM Corporate Sustainability Assessment (CSA). The CSA compares companies across 61 industries via questionnaires assessing a mix of 80-100 cross-industry and industry-specific questions. Companies receive scores ranging from 0 to 100 and percentile rankings for approximately 20 financially relevant sustainability criteria across economic, environmental and social dimensions. Only the top-ranked companies within each industry are selected for inclusion in the Dow Jones Sustainability Index family.  Investors in these indices gain exposure to the performance potential of well-known common factors – low volatility, dividend yield, value or momentum – while avoiding ESG-related risks in their portfolios by directing their investment towards more sustainable companies.

How ESG +  sustainability reporting software supports DJSI reporting

Companies who report to DJSI will be required to respond to a variety of financially relevant economic, environmental and social dimensions dependent upon what is relevant to their industry. DJSI may ask companies to disclose to their Scope 1, 2 and 3 to greenhouse gas emissions,  their total energy consumption (renewable and non-renewable), their water and waste use, and climate-related targets such as energy intensity. DJSI respondents are permitted to calculate Scope 2 emissions using a location-based or a market-based method.

Reporting sustainability dimensions and tracking their progress over time requires access to consolidated, auditable data, which can be more easily achieved with sustainability reporting software.

National Built Environment Ratings Scheme (NABERS) – Australia

Using a 6 star scale, NABERS helps Australian building owners understand how their asset impacts the environment, and helps prospective tenants understand how energy efficient their leased space is.

How NABERS works

NABERS compares the performance of a building or tenancy to benchmarks that represent the performance of other similar buildings in the same location. NABERS scores are calculated by an independent assessor using 12 months of real, measurable information about a building or tenancy, such as energy and water bills or waste consumption data as the basis of their rating. NABERS ratings are currently available for Commercial Office Buildings, Tenancies, Hotels, Shopping Centers, and Data Centers. NABERS announced in 2019 a plan to expand to all major building types. Under Australia’s Building Energy Efficiency Disclosure Act, all buildings for sale or under lease over 10,000 sq ft must receive a NABERS rating. Governments are required to lease space in buildings with ratings of 4.5 or higher.

How ESG + sustainability software supports NABERS reporting

NABERS Energy and Water ratings rely on verifiable data from a building or tenancy, such as energy or water bills.

Sustainability reporting software that is ‘NABERS Equipped’ such as Envizi and has obtained a license from NSW Office of Environment and Heritage to capture all accredited NABERS rating information and auditing documentation in a centralized place for a portfolio of buildings and locations and allow you to view and calculate indicative NABERS Office Energy and Water ratings using the official NABERS algorithm.

NABERS Energy and Water ratings rely on verifiable data from a building or tenancy, such as energy or water bills. Sustainability reporting software that is ‘NABERS Equipped’ such as Envizi and has obtained a license from NSW OEH to capture all accredited NABERS rating information and auditing documentation in a centralized place for a portfolio of buildings and locations and allow you to view and calculate indicative NABERS Office Energy and Water ratings using the official NABERS algorithm.

NABERS Equipped software can also track and monitor the trend of NABERS Office Indicative ratings month by month, and compare with latest accredited rating, review consumption trend month-by-month and consumption intensity by rated area, store and review NABERS related consumption and building data in a centralized place for easy access by NABERS Assessors, and allow stakeholders to review and report NABERS Portfolio Average accredited ratings. These features can help companies monitor their historical performance and better ensure they meet or exceed their previous ratings.

Conclusion

ESG reporting is a complex space, and staying on top of requirements can be a burden for organizations that need to report to multiple frameworks. However, if organizations apply a systematic approach, they can stay ahead. The first step is to select the most appropriate reporting frameworks. This decision is crucial, yet it’s not always simple. One way to approach the selection decision is to apply numerous analytical lenses. These lenses may include:  

  • Where your organization can make the most difference, based on materiality assessments and its impact and influence across the supply chain.  
  • Stakeholder expectations specific to preferred ESG reporting frameworks and how different stakeholders will use information from disclosures. 
  • Geography and the relevance of some ESG frameworks to locations and jurisdictions 
  • Sector preference, as organizations belonging to a particular sector may find a natural alignment between their sector and some ESG reporting frameworks. 
  • Framework coverage of each ESG reporting framework pertaining to key performance indicators (KPIs), including environment, social, governance, carbon, energy, waste and water.

Part of this assessment also includes ensuring a solid data foundation to work from — one that meets the same standards applied to financial data. Accuracy, automation and auditability lay at the center of sound ESG reporting practices, and organizations that adopt these practices through a specialized ESG reporting solution such as the IBM Envizi Sustainability Performance Management suite will be best prepared for the swathe of changes facing the ESG landscape.