The ESG landscape includes numerous frameworks, standards, and rating systems. Understanding these frameworks is essential for effective ESG implementation and reporting. This chapter provides a comprehensive overview of the major ESG frameworks and how they work together.
Major ESG Frameworks
TCFD - Task Force on Climate-related Financial Disclosures
Focus: Climate-related risks and opportunities
Established: 2015 by Financial Stability Board
Key Components:
- Governance: Board oversight of climate risks
- Strategy: Climate risks/opportunities impacting business
- Risk Management: Processes for identifying and managing climate risk
- Metrics & Targets: Metrics used to assess climate performance
Who Uses It: Financial institutions, public companies, investors globally
SASB - Sustainability Accounting Standards Board
Focus: Industry-specific financially material sustainability topics
Established: 2011, now part of IFRS Foundation
Coverage: 77 industry-specific standards across 11 sectors
Key Features:
- Focused on financially material ESG issues by industry
- Designed for investor decision-making
- Quantitative metrics for comparability
- Aligned with SEC disclosure requirements
GRI - Global Reporting Initiative
Focus: Comprehensive sustainability reporting for all stakeholders
Established: 1997
Scope: Broad stakeholder impact (not just investors)
Structure:
- Universal Standards (applicable to all organizations)
- Sector Standards (industry-specific)
- Topic Standards (specific ESG issues)
Usage: Over 10,000 organizations in 100+ countries
CDP - Carbon Disclosure Project
Focus: Environmental disclosure (climate, water, forests)
Established: 2000
Participation: 18,000+ companies, 680+ cities, 120+ states/regions
Key Areas:
- Climate Change: GHG emissions and climate strategy
- Water Security: Water usage and stewardship
- Forests: Deforestation and forest commodity impacts
Scoring: A to D- rating system based on disclosure quality
Regional Regulatory Frameworks
European Union
EU Taxonomy
Classification system defining environmentally sustainable economic activities
- 6 environmental objectives (climate mitigation, adaptation, water, circular economy, pollution, biodiversity)
- Technical screening criteria for each activity
- "Do no significant harm" principle
- Minimum social safeguards
SFDR - Sustainable Finance Disclosure Regulation
Mandatory ESG disclosure for financial market participants
- Entity-level disclosures (sustainability risk integration)
- Product-level disclosures (ESG characteristics of funds)
- Article 8 funds (promote E/S characteristics)
- Article 9 funds (sustainable investment objective)
CSRD - Corporate Sustainability Reporting Directive
Replaces NFRD, expands sustainability reporting requirements
- Applies to 50,000+ companies (vs 11,000 under NFRD)
- Double materiality (impact and financial materiality)
- Assurance requirements
- Digital tagging (XBRL) for data accessibility
United States
SEC Climate Disclosure Rule
Proposed rule requiring climate-related disclosures for public companies
- Scope 1 and 2 emissions (mandatory for large accelerated filers)
- Scope 3 emissions (if material or have reduction targets)
- Climate-related risks and targets
- Board oversight and management processes
- Assurance requirements (phased in over time)
Asia-Pacific
- Singapore: Climate reporting mandatory for listed companies by 2025
- Hong Kong: TCFD-aligned disclosure requirements
- Japan: Prime Market companies must disclose TCFD
- Australia: Proposed climate disclosure legislation
ESG Rating Agencies
| Rating Agency | Coverage | Approach |
|---|---|---|
| MSCI ESG | 8,500+ companies | AAA to CCC rating, industry-relative scoring |
| Sustainalytics | 20,000+ companies | Risk-based approach, 0-100 scale |
| S&P Global ESG | 7,500+ companies | 0-100 score, industry-specific weights |
| ISS ESG | 9,000+ companies | 12-point scale (A+ to D-) |
| Refinitiv | 11,000+ companies | 0-100 score, 630+ metrics |
Convergence and Standardization
ISSB - International Sustainability Standards Board
Established in 2021 by the IFRS Foundation to create a global baseline for sustainability disclosure standards. The ISSB aims to consolidate existing frameworks and create consistency.
IFRS S1 - General Requirements
Overall disclosure requirements for sustainability-related financial information
IFRS S2 - Climate-related Disclosures
Specific requirements for climate-related risks and opportunities (based on TCFD)
Choosing the Right Framework
Consider Your Stakeholders
- Investors: SASB, TCFD for financial materiality
- Broad stakeholders: GRI for comprehensive impact reporting
- Climate focus: TCFD, CDP for climate-specific disclosure
- EU operations: EU Taxonomy, SFDR compliance mandatory
Industry Best Practice
Many leading companies report using multiple frameworks:
- TCFD for climate strategy and risk
- SASB for material financial topics
- GRI for comprehensive stakeholder reporting
- CDP for environmental data and scoring
Key Takeaways
- Multiple ESG frameworks exist, each with different focus and audience
- TCFD dominates climate disclosure; SASB focuses on financial materiality
- GRI provides comprehensive stakeholder reporting; CDP specializes in environmental data
- Regulatory requirements are increasing globally, especially in EU and emerging in US
- ISSB aims to create global baseline standards, building on existing frameworks
- Most companies use multiple frameworks to meet different stakeholder needs