How to Choose the Right ESG Frameworks and Ratings for Your Organization

How to Choose the Right ESG Frameworks and Ratings for Your Organization

The current momentum around ESG consolidation and regulatory action signals a clear shift from voluntary to required disclosures and assurance, and toward more rigor around sustainability claims and reporting. But when it comes to ESG, nobody’s expecting perfection — yet. The important thing is having a plan in place to do better, be transparent, and communicate with stakeholders. Selecting ESG frameworks and ratings that align with the metrics that matter to your business can be the right starting point for many businesses.  

Most companies align with multiple ESG frameworks or ratings. But how do they choose? AuditBoard’s Step-by-Step Guide to Building Your ESG Program: Resources, Best Practices, and Key Considerations offers resources and guidance to help you understand the big picture and make the right choices for your ESG program. Get the full guide here, and read on for an overview of the different ESG frameworks and ratings, and what to know about each.

Step-by-Step Guide to Building Your ESG Program: Resources, Best Practices, and Key Considerations

How to Choose the Right ESG Frameworks and Ratings for Your Organization

Once you’re up to speed on the basics of ESG frameworks and how companies use them to guide reporting. As of October 2022, the many available frameworks are simply recommendations for standards and best practices that companies can elect to follow. At present, the most commonly used frameworks include:

  • Sustainability Accounting Standards Board (SASB) Standards — Covers ESG issues that are expected to have a financially material impact on companies (e.g., financial condition, operating performance, risk profile). Mainly caters to investors. Effective August 2022, SASB Standards are now under the oversight of the ISSB (see below), which will embed SASB’s industry-based approach.
  • Task Force on Climate-Related Financial Disclosures (TCFD) Framework — Helps public companies and other organizations more effectively disclose climate-related risks and opportunities through their existing reporting processes.
  • Global Reporting Initiative (GRI) Standards — Enables public or private organizations of any size to understand and report on economic, environmental, and people impacts in a comparable, credible, and transparent manner.
  • Carbon Disclosure Project (CDP) Scores — Not-for-profit charity that runs a global disclosure system to help investors, companies, cities, states, and regions manage their environmental impacts. Widely considered the “gold standard of environmental reporting,” offering a rich and far-reaching dataset on corporate and city action.
  • International Sustainability Standards Board (ISSB) IFRS Sustainability Disclosure Standards (SDS) — Established to “develop a comprehensive global baseline of sustainability disclosures for the capital markets.” Launched two proposed standards around sustainability-related and climate-related disclosure requirements. Issuance of final requirements in 2023 will provide a baseline of sustainability disclosures designed to meet the information needs of investors in assessing enterprise value.
  • Greenhouse Gas (GHG) Protocol Corporate Accounting and Reporting Standard — Offers comprehensive global standardized frameworks to measure and manage private- and public-sector GHG emissions resulting from operations, value chains, and mitigation actions.
  • Climate Disclosure Standards Board (CDSB) Framework — Sets out an approach for preparing and reporting environmental and social information in mainstream reports (e.g., annual reports, 10-K filings, integrated reports) for the benefit of investors. Allows investors to assess the relationship between specific environmental and social matters and the organization’s strategy, performance, and prospects.
  • Sustainable Finance Disclosure Regulation (SFDR) — Regulation designed by the EU to drive capital toward sustainably oriented investments. Widely considered the broadest regulatory action in sustainable finance to date. Seeks to “transform the global standard for risk management” by mandating that EU financial advisors and managers approach climate and sustainability as fundamental investment risks.
  • United Nations Sustainable Development Goals (SDGs) — 2030 Agenda for Sustainable Development adopted by all UN Member States in 2015. Provides a “shared blueprint for peace and prosperity for people and the planet, now and into the future.” 
  • Corporate Sustainability Reporting Directive (CSRD) — Proposal for a mandatory CSRD — adopted in April 2021 by the European Financial Reporting Advisory Group (EFRAG) — to amend existing Non-Financial Reporting Directive (NFRD) requirements, a voluntary 2017 framework. 

Commonly Used ESG Rating Agencies and Aggregators

Widely used rating agencies at this time include:

  • CDP — Awards letter grades from scoring methodologies based on TCFD recommendations.
  • EcoVadis — Gives sustainability ratings based on scores of 1-100 across four themes.
  • S&P Global CSA — Performs annual evaluation of industry-specific and financially material sustainability criteria using both publicly available information and private information from companies. 
  • GRESB — Provides star-based ratings relative to global performance, and percentage-based quantitative scores against peers. Heavily focused on real estate and infrastructure.

Widely recognized third-party aggregators of ESG scores at this time include:

  • MSCI — Awards “leader,” “average,” and “laggard” ratings that aim to measure how companies manage “financially relevant ESG risks and opportunities.” 
  • Sustainalytics — Gives “severe,” “high,” “medium,” “low,” and “negligible” ratings focused on measuring ESG risk magnitude.

Understanding Your ESG Reporting Options

Before selecting ESG frameworks or ratings to guide your company’s reporting, make sure you gain a baseline understanding of all your options, as well as what’s common in your industry and geography. For a more detailed view on the different frameworks and ratings, download our Step-by-Step Guide to Building Your ESG Program: Resources, Best Practices, and Key Considerations, which includes a helpful table that includes all of the above frameworks and ratings, resources and links for each, and much more.

Step-by-Step Guide to Building Your ESG Program: Resources, Best Practices, and Key Considerations

Claire

Claire Feeney is a Senior Product Marketing Manager at AuditBoard focused on ESG and RiskOversight. In her role, she helps support organizations in transforming their enterprise risk management and sustainability programs. Prior to joining AuditBoard, Claire worked in product marketing at OneTrust, VMware, and Infor. Connect with Claire on LinkedIn.

Judson

Judson Aiken is Senior Director of ESG Solutions, and leads a team of Sales Engineers. Prior to joining AuditBoard, Judson was at Ernst & Young in their Risk Advisory practice supporting enterprise risk management, SOX, and internal audit. Connect with Judson on LinkedIn.