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Navigating Sustainability Reporting: TCFD, IFRS, ISSB, ESRS, GRI, SASB, and SFDR

Understanding sustainability reporting, with its alphabet soup of acronyms, can be exhausting.
TL;DR Embed
TLDR: This article offers a comprehensive guide to understanding key sustainability reporting standards: TCFD, IFRS (including ISSB's S1 and S2 standards), ESRS, GRI, SASB, and SFDR. Each standard has distinct disclosure requirements focusing on various aspects of sustainability reporting, such as governance, strategy, risk management, and specific environmental, social, and governance (ESG) metrics.

Untangling the complex web of sustainability reporting frameworks is a daunting task for any business. Questions like "Which standards are relevant to my organisation?", "Which standards compulsory?", and "How do these frameworks differ from one another?" are frequently asked. This guide aims to clarify the roles and applications of key sustainability reporting standards: TCFD, IFRS, ISSB, ESRS, GRI, SASB, and SFDR, assisting organisations in making informed decisions about their sustainability disclosures.

The Task Force on Climate-related Financial Disclosures (TCFD)

The TCFD offers a framework aimed at enhancing and expanding the reporting of climate-related financial information. It encourages organisations to evaluate and disclose information within four primary areas:

  • Governance: Disclose the organisation’s governance around climate-related risks and opportunities.
  • Strategy: Explain the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning.
  • Risk Management: Describe the processes used by the organisation to identify, assess, and manage climate-related risks.
  • Metrics and Targets: Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities.

International Sustainability Standards Board (ISSB)

The ISSB is dedicated to establishing a universal baseline for sustainability disclosures. It has issued two key sustainability disclosure standards, IFRS S1 and IFRS S2:

  • IFRS S1: This standard requires that companies disclose sustainability-related risks and opportunities across short, medium, and long-term horizons. It employs a four-pillar framework, focusing on governance, strategy, risk management, and metrics and targets, to ensure comprehensive disclosure.
  • IFRS S2: This standard requires entities reveal their significant climate-related risks and opportunities, aiding stakeholders in evaluating their effects on the entity's financial standing, performance, cash flows, enterprise value, and strategic direction. It aligns with the four-pillar approach of governance, strategy, risk management, and metrics and targets, as established in IFRS S1.

The European Sustainability Reporting Standards (ESRS)

The ESRS seeks to standardise sustainability reporting within the European Union, enhancing the reliability and comparability of sustainability data across member states. These standards support the Corporate Sustainability Reporting Directive (CSRD), aiming to improve the quality and consistency of sustainability information.

The ESRS requires comprehensive disclosures in several key areas:

  • Environmental Matters: Requires disclosure on climate change mitigation and adaptation, water and marine resources, resource use and circular economy, pollution, and biodiversity and ecosystems.
  • Social Matters: Organisations must report on their approach to human rights, community relations, employee matters, and aspects concerning customers and consumers.
  • Governance: Disclosure on the organisation’s governance structures, risk management processes, and the integration of sustainability risks into its governance.

Global Reporting Initiative (GRI)

Widely adopted globally, the GRI provides a detailed set of standards for reporting on various economic, environmental, and social impacts. Designed to be universally applicable, the GRI standards enable organisations of all sizes and sectors to report on sustainability issues comprehensively.

The standards necessitate detailed disclosures across a wide spectrum, including:

  • Economic Performance: Information on the direct economic value generated and distributed.
  • Environmental: Materials, energy, water, biodiversity, emissions, waste, and environmental compliance.
  • Social: Labour practices, human rights, society, and product responsibility, impacts on workforce, community, and customers.

The Sustainability Accounting Standards Board (SASB)

SASB offers industry-specific standards for disclosing financially material sustainability information to investors. These standards are tailored to reflect the distinct sustainability challenges faced by different sectors, promoting meaningful and relevant disclosures.

SASB standards require disclosures focusing on financially material sustainability aspects:

  • Environment: Disclosures may include energy management, water and wastewater management, waste and hazardous materials management, and ecological impacts.
  • Social Capital: Information on customer privacy, data security, access and affordability, product quality and safety, and customer welfare.
  • Human Capital: Report on labour practices, employee health and safety, and employee engagement, diversity, and inclusion.
  • Business Model and Innovation: Disclosures on product design and lifecycle management, supply chain management, and materials sourcing.
  • Leadership and Governance: Include aspects such as business ethics, competitive behaviour, management of the legal and regulatory environment, and critical incident risk management.

The Sustainable Finance Disclosure Regulation (SFDR)

SFDR is a European regulation that aims to increase transparency in how financial market participants and financial advisors integrate ESG factors into their investment decisions and advisory processes. Under SFDR, financial market participants and advisors are required to make disclosures on:

  • Sustainability Risks: Disclose how sustainability risks are integrated into investment decisions and the impact of sustainability risks on the returns of financial products.
  • Principal Adverse Impacts: Report on the principal adverse impacts of investment decisions on sustainability factors.
  • Product-level Disclosures: Provide information on how products with environmental or social characteristics, or a sustainable investment objective, meet those characteristics or objectives.

Understanding the nuances of these frameworks allows businesses to align their sustainability reporting with the most relevant standards, ensuring their disclosures are meaningful, compliant, and beneficial to their stakeholders. However, keeping up with standards, collecting necessary data, and knowing when to report it can be difficult. At FutureTracker, we have the solutions you need.

If you’d like to learn about how FutureTracker can help your business, book a demo here.

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