Reporting fatigue? Don’t discard your GRI and CDP reports just yet!
Fifteen years ago, when first working on sustainability reports referencing GRI (then called Global Reporting Initiative), I was overwhelmed by the sheer number of indicators that entities were required to disclose. Now, several reporting frameworks exist, each with its own set of indicators and requirements, including:
CDP (formerly known as the Carbon Disclosure Project), an international organization helping companies and cities disclose their environmental impact, aligned its questionnaire with the Task Force on Climate-related Financial Disclosures (TCFD) framework beginning in 2017.
In Europe, the Sustainable Finance Disclosure Regulation (SFDR), and the Corporate Sustainability Reporting Directive (CSRD) support the EU Taxonomy, a green classification system defining which economic activities can be considered ‘environmentally sustainable’.
The International Sustainability Standards Board (ISSB) references the Sustainability Accounting Standards Board (SASB) Standards and the TCFD framework.
While these frameworks aim to help investors, regulators and consumers clearly understand climate and sustainability risks, strengthen decision-making, and enable them to compare corporate actions, understanding where to start can be a dizzying task. Recognizing what is required for compliance and for building competitive advantage is equally in the interest of Corporate Boards and Financial Market Participants as a growing number of Boards are facing litigation risks due to greenwashing allegations. For example, Goldman Sachs, the multinational investment bank based in New York, paid $4 million to the Securities and Exchange Commission in November 2022, to settle charges that the bank misled investors about investments marketed as environmental, social and governance funds.
To add to the confusion, some countries, including France and Spain, have country-specific disclosure regulations. Similarly, the Hong Kong Exchanges and Clearing Limited reporting obligations and guidance follow the recommendations of the TCFD, while the Securities and Exchange Board of India allows reports based on GRI, SASB and TCFD but also has its own set of 40+ indicators under the Business Responsibility and Sustainability Reporting (BRSR) framework. In addition, India is looking to adopt regulations like SFDR, which will mandate ESG schemes to invest a minimum of 65% of their assets in listed assets that carry out BRSR Core reporting. The China Securities Regulatory Commission, on the other hand, has its own criteria and is working on a Common Ground Taxonomy for the region.
Companies outside the country or region with the regulations are also expected to be impacted. A report by Refinitiv found the EU’s new sustainability reporting rule, CSRD to impact more than 10,000 non-EU companies - about 30% of American companies and 10% of Canadian.
To make sense of it all, I dove into the regulations, the updates, and the annexes to tease out the exact indicators required. I even enlisted the help of the artificial intelligence chatbot, ChatGPT – a fun exercise! It helped me see that “the most common indicators across these frameworks are greenhouse gas emissions, energy consumption, and the implementation of environmental management systems.”
GRI and CDP reporters rejoice
Entities using GRI to disclose the impact of their business on the economy, environment and people and vice versa (generally referred to as double materiality) are well on their way to being compliant with the newer standards. The GRI Standards contain several topic-specific standards to report on climate change where organizations identify climate as a material topic, specifically GRI 305: Emissions 2016 and GRI 201: Economic Performance 2016. Reporting entities can build on the Scope 1, 2 and 3 emissions disclosures to be compliant with other standards.
Similarly, entities disclosing climate-related risks and opportunities through CDP, a global disclosure system comprised of qualitative and quantitative information on governance, strategy, risk, impact and performance of over 7000 companies, are well aligned with TCFD.
It’s also good to note that the latest set of proposed climate-related disclosures by the US Securities and Exchange Commission are based on the TCFD.
The summary below outlines carbon emissions indicators as set in GRI, TCFD (CDP), CSRD, SFDR, and ISSB:
Build on governance and strategy
Investors, asset managers and financial advisors who are seeking to understand material risks for their investments, tend to closely examine the governance structures and methodology for identifying climate risks to better understand the organization’s strategy to align with a 2°C or lower scenario. Governance indicators in GRI are broader while each indicator category (for example GRI 305) is required to include a discussion of their management approach. These can be used as a conversation starter between the reporting entity and the investor. Similarly, firms that have carried out scenario analysis as part of their CDP/TCFD reporting would have robust strategic and risk reporting. This document <<link to PDF of the full table>> provides a comparison of all indicators related to climate risks and disclosure.
Fixed Income fund managers are also increasingly providing evidence of credible and measurable positive environmental and social impacts of investments in their impact reports. While the standards and regulatory environment for impact reporting continue to evolve, frameworks like the Operating Principles for Impact Management (formerly hosted by IFC and now with Global Impact Investing Network) help users define the target impact, manage the impact throughout the investment cycle, and report on the results achieved. For fixed-income reporting, basic carbon indicators remain the same - starting with Scope 1, 2, and 3.
Build a better report
Of note, these disclosures continue to fall short of assessing the true sustainability of assets and companies. Most indicators continue to focus on resource use rather than including the resource limitations due to planetary boundaries that firms are facing. This is an essential consideration for reporters and standard setters, including ISSB.
An AI conclusion
I asked ChatGPT to provide a concluding paragraph to the blog and here’s what it said: In conclusion, while the various sustainability reporting frameworks can seem daunting, understanding their requirements is critical for companies to comply with regulations, manage risks, and build competitive advantage. The GRI and CDP frameworks provide a solid foundation for companies, and the TCFD framework is increasingly becoming the global standard for climate-related financial disclosures.
Efforts to rationalize and harmonize the different regulatory regimes are underway, but progress is slow and uneven, with varying levels of cooperation among different countries and regions. Thus, it's essential to stay up to date with the latest regulations and disclosures in each country and region in which a company operates. By doing so, companies can avoid the risks of litigation, reputational damage, and greenwashing, and instead, reap the benefits of improved decision-making and stakeholder engagement.
Watch this space for further analysis of this growing landscape.