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LIDO INSIGHTS | The Evolution of ESG Disclosure Frameworks | March 2022

Published 03-08-2022

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By: Gina Sanchez


While it is easy to agree on a philosophical level that businesses should be responsible in how they source, use, and treat resources used in the manufacturing process and that their goods should avoid harmful impacts to customers using the product or to the communities where goods are either manufactured or disposed of, determining sustainability and harm measurement metrics is not a straightforward task. Regulation is required to establish what is considered a harmful impact, when acts cross over from negligent to criminal and furthermore what channels of legal recourse are available to those harmed. Moreover, mandatory disclosures are necessary to deter companies from committing harmful impacts, engaging in irresponsible resource use, or willfully failing to measure for the purpose of plausible deniability. Without this key information, investors will not be able to accurately price potential corporate risks.

To that end, we have seen frameworks for determining metrics that matter as well as levels of materiality for three decades now, so it is worth taking stock of what information is available. The first iteration of these had a defined climate/environmental bent, driven by key events. The first modern framework out of the gate was the Global Reporting Initiative (GRI), which is the oldest framework still being actively used. After the Exxon Valdez oil spill in 1997, the GRI was founded in Boston. The standards were rooted with Ceres, a nonprofit organization focused on building a just and sustainable future for people and the planet through capital markets and market-based policy solutions. The GRI was also influenced by the Tellus Institute, an organization focused on scientifically interrogating environmental and social issues. Finally, the GRI took guidance from the UN Environment Programme, which aims to serve an advocate for the global environment. The GRI aimed to create an accountability mechanism to ensure compliance with responsible environmental principles. The organization provided on the first and currently one of the most broadly used frameworks for sustainability reporting. This was quickly followed in the year 2000 with the Carbon Disclosure Project was created to encourage disclosure of greenhouse gas emissions after a significant rise in greenhouse gas emissions. Not to be outdone, the World Economic Forum stepped into the fray in 2007 with the Climate Disclosure Standards Board (CDSB) creating an international consortium of business and environmental non-governmental organizations (NGO’s) to align the corporate reporting model to equate natural capital with financial capital.

The next two out of the gate came in 2010 and 2011, respectively. In 2010, the International Integrated Reporting Council (IIRC) was formed in the United Kingdom while in 2011, the Sustainability accounting Standards Board (SASB) was formed in the United States. Both of these were broad-based frameworks that included environmental, social and governance metrics. Meanwhile, the GRI expanded reporting to include social and governance metrics. Though one of the last out of the gate, the IIRC and SASB were the first to merge, announcing the creation of the Value Reporting Foundation in 2021. Less than a year later, the VRF would join forces with the CDSB and another late comer to the party, the Task Force on Climate Related Disclosures (TCFD), founded in 2015 by Michael Bloomberg, and the International Financial Reporting Standards (IFRS), the global equivalent of the Financial Accounting Standards Board (FASB) in the United States, a set of standards for traditional financial disclosures. The new merged entity was formed in January of 2022 and is now called the International Sustainability Standards Board. What began as seven separate entities has emerged as three dominant frameworks: The GRI, the CDP and the ISSB.

It worth taking a moment to discuss the differences between frameworks because while they may seem similar in purposes, they are very different in practice. The CDP focuses very narrowly on climate impacts such as carbon emissions, water usage and deforestation, while the CDSB encourages companies to disclose metrics on the 10-k to equate climate change related disclosure with financial disclosures. That said, the CDSB does not specify their own metrics, but rather leans on CDP, GRI and other organizational metrics. Prior to the merger, the CDSB framework began to look similar to the TCFD. The GRI, on the other hand, is still very broadly used by more than 1300 global organizations in 90 countries. Similar to the GRI, the IIRC which eventually was merged into the ISSB specified key content elements to be included in reports. The IIRC framework is used by over 1,600 companies in 64 countries. SASB takes an industry specific approach, laying out 77 industry standards. Though SASB and GRI cover much of the same information, SASB takes a narrower financial lens versus the broad impacts that GRI is aiming at measuring.

From our vantage point, the narrowing of the frameworks should create greater standardization for disclosures. The next great bridge that the industry must cross is the notion of mandatory disclosure, which for the moment is still not mandatory. However, we believe that the move towards unification of the frameworks is a key step towards mandatory disclosure.


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