Acronyms like ESG, SDGs, GRI, and ESRS are becoming increasingly prevalent in today's sustainability landscape, guiding businesses and countries through this transition. However, the abundance of these terms can create what we might call "sustainability soup" that’s challenging to navigate for companies new to this journey. This article aims to simplify these concepts, serving as an introduction to the critical role ESG will play for businesses, investors, governments, and consumers in the near future. Let's dive in!
Basics
SDGs
In 2015, the United Nations' 2030 Agenda for Sustainable Development introduced 17 Sustainable Development Goals (SDGs) with 169 targets, urging global collaboration to address poverty, discrimination, and environmental harm while promoting peace, health, and human rights. The SDGs offer a roadmap for countries and businesses to tackle pressing global challenges, shape strategies, foster partnerships, and ensure accountability.
CSR (Corporate Social Responsibility)
CSR represents an ethical business approach where companies voluntarily adopt sustainable practices, addressing environmental, social, and financial responsibilities. Once predominant, CSR has now evolved into the more structured ESG framework, guiding companies to act responsibly towards the environment and society.
ESG
ESG criteria evaluate a company's commitment to sustainability through environmental stewardship (reducing emissions, minimizing waste), social responsibility (upholding human rights, fostering good working conditions), and responsible governance (policies for a company’s transition to sustainability), ensuring ethical principles for a sustainable future.
Regulations
NFDR (Non-financial Reporting Directive)
Arising from the need for greater business transparency and accountability concerning non-financial information, the 2014 EU directive mandated large companies (over 500 employees) to include sustainability information in their annual or separate reports, enhancing Corporate Social Responsibility (CSR). This directive has since been expanded and replaced by the new CSRD directive.
CSRD (Corporate Sustainability Reporting Directive)
The CSRD, introduced in 2021, expands the NFRD, enhancing ESG reporting standards for nearly 50,000 companies. This includes large listed companies with more than 500 employees and public interest entities already subject to the NFRD, (reports due in 2025), large companies with more than 250 employees (reports due in 2026), listed SMEs (reports due in 2027), and non-EU companies meeting specific criteria (reports due in 2029). Companies must report their sustainability performance according to the ESRS Standards and obtain limited third-party assurance, meaning an independent auditor must certify the credibility of their sustainability data.
European Green Deal
The European Green Deal is a set of proposals adopted by the European Commission that aim to make Europe climate-neutral by 2050, targeting a 55% reduction in net greenhouse gas emissions by 2030 (compared to 1990 levels) and planting 3 billion trees by 2030 through various climate, taxation, energy, and transport policies.
European Climate Law
The 2021 European Climate Law mandates EU institutions and Member States to take measures for achieving EU’s carbon neutrality by 2050 goal, as outlined in the European Green Deal, through measures like National Energy and Climate Plans.
EU Taxonomy
The EU Taxonomy defines "Environmentally Sustainable Economic Activities" to guide investments towards Europe's net-zero emissions goal by 2050. The focus is on climate change mitigation, adaptation, circular economy, pollution prevention, and biodiversity protection. Activities are considered sustainable if they substantially contribute to at least one objective and avoid significant harm to all others.
SFDR (Sustainable Finance Disclosures Regulation)
The SFDR regulation impacts financial market participants like asset managers and investment firms, mandating disclosing ESG information to investors regarding the sustainability of investments and products. It categorizes financial products into three groups based on sustainability contribution and requires entities to disclose their approach to addressing sustainability risks in potential or existing investments.
Standards
GRI (Global Reporting Initiative)
The GRI sets global standards for sustainability reporting, guiding organizations in understanding and reporting their impact. Companies identify material topics affecting the environment and society, then use GRI universal, sector-specific and topic specific standards to enhance transparency, accountability, and decision-making.
ESRS (European Sustainability Reporting Standards)
Under the CSRD, companies must report using the ESRS developed by EFRAG. Mandatory disclosures, determined through double materiality assessment, ensure reporting of significant ESG information. Topics include climate change, pollution, waste management, labor practices, affected communities, and business ethics.
SASB (Sustainability Accounting Standards Board)
The SASB creates industry-specific sustainability standards, ensuring comparability across industries and addressing ESG topics, business models, and leadership themes. These standards are being integrated into the new IFRS Sustainability Standards to reduce the ‘alphabet’ soup of ESG reporting.
IFRS Sustainability Disclosure Standards
The ISSB developed the IFRS Sustainability Disclosure Standards in 2023, consolidating initiatives like SASB and TCFD. This global foundation reduces duplicative reporting for companies and ensures compatibility with broader frameworks like the GRI Standards.
SBTi (Science Based Targets initiative)
The SBTi helps organizations set emissions reduction targets to meet the Paris Agreement's 1.5°C goal, focusing on Scope 1, 2, and 3 emissions in line with the GHG Protocol. It provides guidance and tools for short, medium, and long-term net-zero objectives.
TCFD (Task Force on Climate-related Financial Disclosures)
The Financial Stability Board (FSB) established the TCFD to provide a uniform framework for reporting climate-related financial risks and opportunities. Now integrated into the new IFRS standards, TCFD covers governance, strategy, risk management, and metrics, emphasizing materiality in key areas.
Organizations
EFRAG (European Financial Reporting Advisory Group)
Established in 2001, EFRAG develops the European Sustainability Reporting Standards (ESRS) under the CSRD. It also creates sector-specific standards for industries like Oil, Gas, and Agriculture, and specific disclosures for Listed SMEs (LSME) and Voluntary Standards for Non-Listed SMEs (VSME), assisting smaller companies in transitioning to sustainability and accessing sustainable finance opportunities.
IFRS (International Financial Reporting Standards) Foundation
The IFRS Foundation, founded to support decision-making, created the International Sustainability Standards Board (ISSB) in 2021 to develop the IFRS Sustainability Disclosure Standards, with the aim of setting a global sustainability reporting standard.
Navigating the ‘Sustainability Soup’
Navigating the world of sustainability can feel like diving into an ocean -or soup- of acronyms and regulations. We understand that it’s a lot to take in, but these complexities are crucial for creating a better, more enduring world. If you find yourself overwhelmed by terms like ESG, GRI, CSRD, ESRS we’re here to guide you through it.
Together, we can transform and simplify your sustainability journey with tailored ESG data solutions and strategies.
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