The pressure for asset owners to integrate sustainability analysis into their investment decision making process is rapidly growing. However, there is a need for better quality information. What exactly are investment managers looking for?
- Material, forward-looking, timely and complete information that shows how ESG issues are affecting the whole organization and systemic risks and opportunities.
- Standardized and comparable metrics to understand ESG performance across an investment portfolio, in a similar way to financial performance.
- Information on the climate resilience of business strategies and how companies are adapting to the climate transition.
The market is currently trying to address this need for standardized data by introducing sustainability reporting frameworks. Unfortunately, there are a variety of frameworks in place which can make the reporting landscape confusing for investors and companies alike.
What are the current top frameworks in sustainability reporting?
Task Force on Climate-related Financial Disclosures (TCFD)
The Task Force on Climate-related Financial Disclosures (TCFD) develops consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders.
The Sustainable Development Goals (SDGs)
The 17 Sustainable Development Goals cover social and economic development issues and have been described as “the closest thing the world has to a strategy.”
The Impact Weighted Accounts
This framework connects impact to accounting statements by measuring and monetizing a company’s positive and negative impacts on the environment and broader society, which will supplement financial information.
International Integrated Reporting Framework (IR):
An integrated report (IR) aims to communicate information on how a company creates value over time with its strategy, governance, performance and prospects.
Global Reporting Initiative (GRI):
GRI helps businesses and governments worldwide understand and communicate their impact on critical sustainability issues such as climate change, human rights, governance and social well-being.
United Nations Global Compact (UNGC):
By incorporating the Ten Principles of the UN Global Compact into strategies, policies and procedures, and establishing a culture of integrity, companies are not only upholding their basic responsibilities to people and planet, but also setting the stage for long-term success.
Sustainability focused management consultancy KKS advisors predicts that going forward we will see:
- “Increasing use of these frameworks by investors in their investment process and more efforts from their side to drive a better implementation of ESG.
- Improving quality of frameworks as companies and investors give feedback and adopt them.
- A closer collaboration between the standard setters and framework developers in order to clarify the key ‘asks’ and overcome the lack of standardization.”
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