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Various voluntary reporting frameworks have emerged that help businesses provide reliable, complete, and important informationClimate change is a massive and complex issue that is rapidly gaining global attention. As such, sustainability reporting has become compulsory for many of the world’s largest companies. There is a growing need to be able to identify and measure climate-related risks to meet the needs of investors, regulators, and other stakeholders. To meet these expectations, various voluntary reporting frameworks have emerged that help businesses provide reliable, complete, and important information that assists in strategic sustainability decision-making for internal and external stakeholders. Currently, the ISSB, GRI, and CDP frameworks dominate the climate disclosure landscape.
The International Sustainability Standards Board (ISSB) was created as a part of the International Financial Reporting Standards (IFRS) to develop a “high-quality, comprehensive global baseline of sustainability disclosures focused on the needs of investors and the financial markets.”
The ISSB has issued two sets of reporting standards: the IFRS S1 and the IFRS S2. IFRS S1 generally describes how entities should assemble and disclose information about their financial-related sustainability risk opportunities. The IFRS S2 builds on IFRS S1.
These standards fully incorporate the Sustainability Accounting Standards Board (SASB) and Task Force on Climate-related Financial Disclosures (TCFD) frameworks, so firms that have already aligned themselves with these disclosures are well-positioned to integrate ISSB standards. The ISSB Standards, including SASB and TCFD, are investor-forward and focus on double materiality.
The SASB framework takes an investor-forward approach. They are useful for various money lenders and businesses as they provide relevant information about the company's climate-related risks, are expansive to include environment, social, and governance (ESG) topics, and provide specific guidance for different industries meaning easier reporting.
SASB serves as a baseline for disclosing industry-specific information, but the ISSB mandates additional reporting that can be used to evaluate a larger range of climate-related risks and opportunities.
While SASB and the TCFD are complementary, the TCFD framework focuses more on how climate-related risks will impact a company's financial performance. ISSB standards fully incorporate the TCFD recommendations, mandating that all entities report any information about climate-related risks or opportunities that could impact an entity’s short-, medium-, or long-term capital.
The new standards, however, require companies to disclose more information than TCFD standards.
Essentially, the ISSB standards preserve the core elements of TCFD and SASB but give businesses more guidance and require them to provide more detailed information. To read more about the intersection between the ISSB and TCFD, check out this document.
The ISSB standards not only help to improve disclosure standardization and transparency but also provide investors with more information about sustainability-related risks, enhancing strategic decision-making. Beyond providing investors with credible, consistent, and comparable information, ISSB reporting prepares companies for reporting under mandatory disclosures such as the European Union’s Corporate Sustainability Reporting Directive (CSRD) and the United States’ new Security and Exchange Commission (SEC) climate disclosure rule.
The Global Reporting Initiative (GRI) is an international non-profit reporting framework that, unlike ISSB which is geared toward investors, is intended to inform a large variety of stakeholders about a company’s social impact, regarding sustainable development. The GRI takes a two-pillar approach, employing double materiality to report on a company's economic, environmental, and social impacts. Reporting for the disclosure must include how climate risks affect the financial health of the company, as well as the consequences a company’s actions will have on the environment and society as a whole.
The GRI relies on three main standards:
Currently, the GRI does not have an official certification. However, the GRI is available to any company– large or small– and it falls in line with many internationally accepted sustainability norms and can be used to evaluate how an entity aligns with the UN Sustainable Development Goals and the Paris Climate Treaty.
The Carbon Disclosure Project (CDP) uses a questionnaire-style platform to request different companies and cities to disclose their environmental impacts, risks, and opportunities to increase stakeholder transparency and inspire companies to reduce their environmental impact. CDP offers reporting to companies and local & regional governments annually, and entities must disclose over multiple years to paint a more complete picture of their evolving environmental journey. When entities report through CDP, they earn a Carbon Disclosure Rating that assists investors in their ESG evaluation and strategy. CDP has made scores and reports public on its website.
Recently, at the 27th Conference of the Parties (COP) the U.S. announced a Federal Supplier Climate Risks and Resilience Rule that will make CDP reporting mandatory for all federal contractors. This will have a major impact as the U.S. is the world’s largest purchaser of goods and services. Contractors will use the CDP to disclose their scope 1 and 2 emissions and some of their scope 3 emissions and utilize the information to create emission reductions through science-based targets.
In April 2024, the CDP rolled out the CDP SME corporate questionnaire to make reporting easier for Small and Medium-sized Enterprises (SME). The new questionnaire parallels the CDP Full Corporate Questionaire but require simpler data entries and provide additional guidance.
The CDP operates under the principle that environmental action starts with a factual and comprehensive assessment of impact and progress. Their scoring reflects this ideology as companies are rewarded with higher scores for disclosing verifiable information rather than leaving a question blank, even if the answer indicates negative environmental effects.
Companies are evaluated through a four-tiered approach that takes into account disclosure, awareness, management, and leadership. They are scored from a D- to an A. A score of a D- or D demonstrates that a company has disclosed some information, while an A rating signifies that an organization is a leader in environmental policy and practice. These ratings are meant to incentivize companies to take accountability for their environmental impact and encourage change. However, the CDP has received some criticism for its F rating, which is given to organizations from which CDP has requested data that fail to report sufficient information.
Learn more about CDP ratings by reading the CDP Full Corporate Scoring Introduction 2024.
While voluntary, many of the standards have served as inspiration for regulatory disclosures or are likely to become mandatory in the future. Staying ahead of the curve is essential for companies if they do not want to fall behind in a market and political landscape that is increasingly prioritizing sustainability. Voluntary disclosures give organizations a competitive advantage in attracting capital investments, help illuminate risks and opportunities, and build trust by responding to the public’s rising concern over climate change. Incorporating these frameworks into business practices is a cost-effective way for firms to communicate with their stakeholders and show their commitment to the new era of sustainable business.