Making Sense of the Sustainability Landscape

If you have had your eye on the ESG landscape in recent years, there is no doubt that you have seen a proliferation in the number of instruments available to report and communicate ESG performance, risk and management.

Navigating your way through the various sustainability reporting tools available can be daunting—and before you decide which ones to make use of, it's important to get a good look at the landscape of available options.  

Let’s take a moment to categorise the landscape, and deep dive into some of the biggest players. Classifying these tools into distinct categories provides insight into their overarching purpose and functionality. By and large, we can distinguish between standards, frameworks, certifications, and raters.  

Standards

Sustainability reporting standards are well-defined guidelines and requirements for reporting, and usually are provided by a recognised authority. Standard-setters provide very specific guidelines and metrics for reporting, and in the world of sustainability reporting, standards are generally regarded as the most thorough reporting instruments available.

The result of this is that reporting with sustainability standards generates comparable information from organisation to organisation. And really, this is what sustainability reporting standards are all about. In essence, establishing a shared language and standardised information system for ESG, enabling stakeholders to assess sustainability performance, management, and risk across organisations.  

Some of the most prominent sustainability standards include:

The Global Reporting Initiative (GRI) Sustainability Reporting Standards

A globally applicable standard for reporting on the impact side of materiality. The most widely-used sustainability standards internationally, which are mostly voluntarily used by organisations. 

The European Sustainability Reporting Standards (ESRS)

The newly implemented standards for mandatory reporting in the European Union, as part of the Corporate Sustainability Reporting Directive (CSRD). Organisations will start reporting to these in 2025. 

The IFRS Sustainability Reporting Standards

Published in 2023, this set of standards  focuses specifically on the financial impact of sustainability issues on an organisation, leveraging the structure of the TCFD framework. Some global governments are adopting this standard, or building upon it to create their own set of mandatory financial reporting requirements on sustainability matters—like Australia, for example.  

Frameworks

Unlike a standard, a framework is a ‘looser’ set of guidelines that provide a structure or a process to reporting, including concepts and guidance on key sustainability topics. They do not come with strict reporting metrics and requirements.

This makes them more open to interpretation by the reporting entity, and in practice, means that the information they generate is less comparable from organisation to organisation. Nonetheless, frameworks often help guide our thought process around reporting on a particular topic—one that there might not be a standard available to report on. 

Some sustainability reporting frameworks include:

The Taskforce on Climate-related Financial Disclosure (TCFD) Recommendations

TCFD provides broad, recommended disclosures and recommendations on climate-related reporting, but does not specify how to report these disclosures with precise metrics.  

The Taskforce on Nature-related Financial Disclosure (TNFD) Recommendations

Similarly structured to the TCFD, this framework looks at financial disclosure of nature-related risk and opportunity. Again, it does not provide precise metrics for reporting, but a structure in which to consider the effects of nature on financial risk and opportunity.  

Certifications

Certifications are used to communicate ESG performance, and are awarded by a third-party after an assessment process. Of course, the assessment methodology per certification is different. Often, certifications focus on a specific topic or target a particular sector, like for example, a certification on health and safety, or a certification specific to the construction industry.

All in all, a certification is sought out by an organisation to demonstrate ESG performance, providing stakeholders with assurance regarding business practices. Ultimately, seeking certification is a proactive step for organisations looking to showcase their dedication to ESG values. 

Some of the biggest global ESG certifications include: 

EcoVadis

A certification that awards platinum, gold, silver or bronze medals (or no medal) after assessment of a company’s sustainability management system. EcoVadis requires an organisation to complete a documentation-based questionnaire about the policies, measures and reporting structures it has in place around certain sustainability topics, such as:

• GHG emissions
• Diversity, equity and inclusion
• Ethical business conduct
  

EcoVadis ratings are usually used to assess a company’s supply chain partners.

If you are interested in learning more about EcoVadis, you can download our comprehensive guide for free here. 

B Corp

B Corp consists of a comprehensive assessment process about a company’s performance in key areas including governance, workers, community, environment, and customers. It asks companies to legally change core processes to balance both profit and purpose through stakeholder governance—a model that requires an organisation to consider the impact of their decisions on all of their stakeholders.

If a company is eligible for certification and reaches a score of more than 80 in their assessment, they are awarded B Corp status. B Corp status is used by organisations to signal to a wide range of stakeholders, like customers, investors, or supply chain actors, that they are meeting high standards of social and environmental impact.  

Raters

Raters, or rankers and raters, are independent bodies that use their own developed methodologies to generate a quantitative score of an organisation’s ESG performance. These methodologies often involve collecting data from a variety of sources, including company disclosures, public records, and third-party data providers, to assess sustainability performance. The score awarded is very frequently based on a financial perspective—that is, looking at the financial impact of a certain sustainability topic on an organisation, both current and in the future.

For this reason, many raters and rankers deal cater to investors, who use ESG ratings to assess the sustainability risk of companies and make investment decisions. However, these assessments can also help wider stakeholders, including consumers, to make informed decisions based on certain sustainability criteria. 

However, something important to note is that rating methodologies can vary greatly between providers, so users should understand the specific criteria used by each rating agency when interpreting scores and rankings. An organisation may score completely differently from one rating to the next.

In fact, the methodologies used by ESG rankers and raters can be complex and opaque, which can make it difficult to understand why a company received a particular rating. 

Some of the biggest rankers and raters: 

Sustainalytics ESG Risk Ratings

This index measures a company’s exposure to long-term financial risk generated by environmental, social, and governance factors. It also considers how well a company is managing these risks. From this information, it generates a rating used by investors, corporations, and other stakeholders to make sustainable investment and business decisions. 

FTSE4Good Index Series

Created by FTSE Russell, this index includes companies that meet specific sustainability criteria. The index is widely used by those looking to invest in companies that demonstrate high standards of environmental, social and governance performance.  

Conclusion

In conclusion, navigating the vast and dynamic landscape of ESG reporting tools requires a strategic understanding of the available options. As we've categorised the terrain into standards, frameworks, certifications, and raters, it’s evident that each plays a unique role in shaping the sustainable reporting narrative.

Standards establish a universal language for reporting, frameworks guide the narrative in the absence of strict metrics, certifications offer tangible proof of ESG commitment, and raters provide a quantitative lens for assessing sustainability performance and risk.

When deciding how to report and communicate your sustainability performance, it's vital to acknowledge that each category — standards, frameworks, certifications, and raters — plays a distinctive role in shaping your ESG narrative.

A deliberate selection of these tools is essential to fostering transparency and continuous improvement within your ESG system, ensuring that your organisation aligns with its sustainability goals and effectively communicates its commitment to stakeholders.