Impact & ESG Standards & Reporting
Future Bright LLC
A summary of organizations & resultant guidance, standards, and frameworks on ESG, RI, and Impact reporting.
There is a widespread of evolving landscape of reporting standards, metrics, and principals pertaining to the emerging frameworks for sustainability and impact. Some are focused, others broad, some are specific and quantitative, others act as guidance or are self-determined. Still, some commonalities exist, and we can forecast certain drivers of value that should stand the test of time. One is that values, metrics, and reporting standards are accessible, comparable, complete, thorough, and independent. Also, sustainability reporting is, or should be, an active engagement with stakeholders, where, whether they be investors, communities, or otherwise, there is a mechanism for transparency, communication, and grievances.
Certainly, quantitative metrics offer certain value in integration for investors and analysts, and there exist focus areas, like emissions and water intensity, that have, and will continue to, garner widespread attention for both acute and chronic impacts and opportunities across industries and countries.
We like SASB’s evidence-based metric approach but also feel certain issues, that don’t meet SASB’s bar, have value in the mainstreaming of Impact and ESG reporting and investing. Standards that cannot be easily harmonized (compared) across investment/projects/groups, or are overly onerous, may fail to add value beyond particular subsets of stakeholders. Still, there is value to pull from all the approaches summarized herein. We summarize the major efforts below:
SASB (Sustainability Standards Accounting Board): NPO that develops sustainability accounting standards to help US Public companies disclose material information in SEC filings in a way that is decision-useful to reasonable investors. Industry specific (SICS) disclosure topics with accounting metrics and guidance. Evidence-based, complete, comparable, cost-effective, and neutral are some benchmarks used in SASB standards development.
SASB’s 5-factor test for standard development
- Financial Impacts & Risks: Would financial performance be improved/impaired through performance / non-performance
- Pending Regulation, Legal, and Policy Drivers
- Industry Norms and Competitive Drivers: Newsworthy, Timely, Actionable
- Investor / Stakeholder Concerns: Is the topic being raised
- Opportunities for Innovation: Competitive advantage from innovation to offer new products and services.
IFC E&S Standards: A set of 8 performance standards that define IFC client’s responsibilities for managing their environmental and social risks. The objectives of the IFC standards include identification and evaluation of E&S risks, development of mitigation hierarchy to avoid/minimize/offset/compensate affect parties/communities/environment, promote E&S performance, provide a grievance mechanism for communities/stakeholders/etc., provide an engagement mechanism for disclosure/reporting.
- Assessment and Management of E&S Risks and Impacts
- Labor and Working Conditions
- Resource Efficiency & Pollution Prevention
- Community Health, Safety, and Security
- Land Acquisition & Involuntary Resettlement
- Biodiversity Conservation & Sustainable Management of Living Natural Resources
- Indigenous Peoples
- Cultural Heritage
GRI (Global Reporting Initiative): A framework for organizations to engage in a multi-stakeholder process to identify, and then report on, the company’s significant economic, environmental, social, and governance aspects + aspect/issues that substantially influence analysis and decisions of stakeholders. Last updated in 2017, includes three universal standards plus topic specific standards. Supplemental guidance on a limited number of sectors
- The organization first determines who its’ stakeholders are (society, investors, customers, etc.)
- Report on Universal and selected topical standards
- 101: Foundation
- 102: General Disclosures
- 103: Management Approaches
- 200: Economic
- 300: Environmental
- 400: Social
IIRC (International Integrated Reporting Council): A principals-based framework for creating an integrated reporting mechanism on how strategy, governance, performance, and prospects, in the context of the external environment, create value over the short/medium/long term. Metrics are unspecified and up to the discretion of the reporting organization.
May not be easily harmonized (comparable).
CDP (Carbon Disclosure Project): System for disclosure of carbon emission, water use, deforestation, and supply chain data for companies and cities. Developed the CDSB (Climate Disclosure Standards Boards) >> Climate Change Reporting Framework that helps companies report GHG emissions and managements view on the extent to which climate change will affect the company’s strategy and operational performance.
Equator Principal: Project-focused risk management framework, adopted by financial organizations, for identifying, assessing, and managing environment and social risk in project. Intended as a minimum standard for due diligence. Applies to four products, 1.) Project Finance Advisory Services, 2.) Project Finance, 3.) Project-related Corporate Loans, 4.) Bridge Loans. References back to IFC Standards for reporting. Sets certain thresholds (project generates > 100,000 Mt C) for additional reporting. There are 10 principals:
- Review
and Categorization
- A: Projects with significant adverse environmental and social risks, and/or impacts that are diverse, irreversible or unprecedented
- B: Projects with potential limited adverse environmental and social risks and/or impacts that are few in number, generally site specific, largely reversible, and readily addressed through mitigation measures
- C: Projects with minimal or no adverse E&S risks and/or impacts
- E&S assessment
- Applicable E&S Standards
- E&S management systems and Equator Principals Action Plan
- Stakeholder Engagement
- Grievance Mechanism
- Independent Review
- Covenants
- Independent Monitoring and Reporting
- Reporting & Transparency
IRIS: Metrics designed to measure the social, environmental, and financial impacts of an investment.
Sustainalytics: A system for ESG and Corporate Governance research and ratings. Supports investors who incorporate ESG and Governance insight into their investment process. Includes ESG risk ratings, ESG Indices, Research products like Carbon Risk Ratings and Human Rights Radar. Uses GRI’s 4-step materiality process (identify, prioritize, validate, review) to arrive at a list of key issues then ranked two-dimensional materiality matrix.
3 Central building blocks
- Corporate Governance
- Material ESG Issues
- Idiosyncratic Issues (Black Swans)
ESG Ratings are categorized across 5 risk levels with a scale between 0-100
Covers 11,000 companies
40 industry specific indicators
API connectivity for data feed (Factset, BB)
UN SDG’s: A blueprint of 17 goals and associated metrics to create an improved and more sustainable future for all. The goals are designed to be interconnected and to offer support for all populations of people and other life on the planet.
| 17 Sustainable Development Goals | |
| 1 | No Poverty |
| 2 | Zero Hunger |
| 3 | Good Health & Well Being |
| 4 | Quality Education |
| 5 | Gender Equality |
| 6 | Clean Water & Sanitation |
| 7 | Affordable and Clean Energy |
| 8 | Decent Work & Economic Growth |
| 9 | Industry, Innovation, and Infrastructure |
| 10 | Reduced Inequalities |
| 11 | Sustainable Cities & Communities |
| 12 | Responsible Consumption and Production |
| 13 | Climate Action |
| 14 | Life Below Water |
| 15 | Life on Land |
| 16 | Peace, Justice, and Strong Institutions |
| 17 | Partnerships for the Goals |
Example of Metrics from Goal 1 – No Poverty
Goal 1. End poverty in all its forms everywhere
1.1 By 2030, eradicate extreme poverty for all people everywhere, currently
measured as people living on less than $1.25 a day
1.2 By 2030, reduce at least by half the proportion of men, women and children of
all ages living in poverty in all its dimensions according to national definitions
1.3 Implement nationally appropriate social protection systems and measures for
all, including floors, and by 2030 achieve substantial coverage of the poor and the
vulnerable
1.4 By 2030, ensure that all men and women, in particular the poor and the
vulnerable, have equal rights to economic resources, as well as access to basic
services, ownership and control over land and other forms of property, inheritance,
natural resources, appropriate new technology and financial services, including
microfinance
1.5 By 2030, build the resilience of the poor and those in vulnerable situations and
reduce their exposure and vulnerability to climate-related extreme events and other
economic, social and environmental shocks and disasters
1.a Ensure significant mobilization of resources from a variety of sources,
including through enhanced development cooperation, in order to provide adequate
and predictable means for developing countries, in particular least developed
countries, to implement programs and policies to end poverty in all its
dimensions
1.b Create sound policy frameworks at the national, regional and international
levels, based on pro-poor and gender-sensitive development strategies, to support
accelerated investment in poverty eradication actions
Impact Management Project: A qualitative matrix-driven approach to determining how invested assets act to achieve desired impacts. Once the descried impacts are known, stakeholders can determine how actively / passively the investment strategy either (1) acts to avoid harm, (2) benefits stakeholders, or (3) contributes to solutions
| Strategy / Impact | Act to Avoid Harm | Benefit Stakeholders | Contribute to solutions |
| signal that impact matters | |||
| engage actively | |||
| grow new / undersupplied markets | |||
| provide flexible capital |