The GRI Perspective

ESG standards, frameworks
and everything in between
Issue 4 - 10 March 2022

A recent Financial Times article referred to the ESG investments sector as ‘rife withgreenwashing’. These concerns not only diminish trust in institutions and the system as
a whole but, most significantly, pose a danger to the socio-economic and environmental
challenges we are trying to solve. From biodiversity loss to climate change, health crises toinequality, sustainable behavior should always begin with the end goal in mind.
Responsible business is under the magnifying glass due to the myriad of ways
sustainability performance of companies is accounted. The FT mentions that the desire
to get beyond ‘greenwashing’ ‘has accelerated the drive for sustainability standards’.
However, there is much misinformation around what the distinction is between standards,
frameworks, ranking and ratings, and their differences in approach and purpose.

Clearing up the vocabulary
To make it clear from the start, the sustainability landscape can be grouped in roughly two main directions:organizations that publish standards and the ones that issue frameworks or guiding principles. Of course, theworld is not entirely black and white as some organizations tend to do both.

STANDARD

FRAMEWORKRANKERS & RATERSSTANDARDSStandards are the agreed level ofquality requirements, that people thinkis acceptable for reporting entities tomeet. A standard can be thought ofas containing specific and detailed
criteria or metrics of ‘what’ should bereported on each topic. In general,
corporate reporting standards havein common the following features: apublic interest focus, independence,
due process, and public consultation,
generating a stronger basis for theinformation being asked.

Both standards and frameworks derive authority
from either being mandatory by law or being
endorsed by a majority of (relevant) stakeholders,for example through peer-group or investor pressure
to use them.
Last but not least there are the ratings andrankings that capture a ‘score’ of the maturity or
ESG savviness of organizations. A company’s ESG
rating is comprised of a quantitative score and a risk

FRAMEWORKS

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Frameworks on the other handprovide the ‘frame’ to contextualize
information. Frameworks are thosethat are normally put into practicein the absence of well-defined
standards. A framework allows forflexibility in defining the direction, but
not the method itself. A framework
can be thought of as a set ofprinciples providing guidance andshaping people’s thoughts on how tothink about a certain topic, but miss adefined reporting obligation.

category. The information that is disclosed basedon reporting standards and frameworks provides
an important input into the activities of rankers andraters. However, what the actual rating is comprisedof is often a black box. Nevertheless, the importanceof ranking and ratings, especially regarding accessto finance, is increasing. We will cover this topic inmore depth in a future GRI Perspective.

Applying due process
As Veronica Poole, global corporate reporting leader
at Deloitte, said: “To be effective, the standards willneed to be brought into regulation around the world,
together with associated enforcement, monitoring,governance and controls, assurance, and training.”
Precisely the associated ability of enforcement isthe distinctive feature of a standard.

civil society, labor, investment institutions, academics
and accountants around the world are involved,
through a consensus-seeking approach that draws
on their diverse backgrounds and expertise. GRI’s
Global Sustainability Standards Board (GSSB)
routinely conducts public comment periods to gather
stakeholder feedback on draft Standards.

Compared to frameworks, standards are more rigidand thorough. The GRI Standards are developed
according to a formally defined Due Process
Protocol, providing requirements for developinga standard, which is overseen by an oversightcommittee. The protocol ensures the Standards
are developed following a transparent and multistakeholder process. Experts including business,

The beauty of GRI’s due process is that, due
to the multi-stakeholder approach, there is abroad consensus between stakeholders on
what adequate reporting on sustainability topics
should look like.

3Developments in sustainability reporting standards
While there is a multitude of frameworks that deal
with the topic of sustainability, there are currently ona global scale only two reporting standards: GRI andSASB each with a different audience and scope. The
world of sustainability reporting is however changing.
There are currently two notable developmentshappening in the sustainability reporting landscape:1. The European Sustainability Reporting Standards(ESRS) being created by the EU will be basedon double materiality, for a multi stakeholder
audience (which includes investors). GRI and theEuropean Financial Reporting Advisory Group(EFRAG) are leading its co-construction efforts.
2. Standards for the disclosure of sustainabilityrelated financial information are being draftedby the IFRS Foundation - with which the newly
established International Sustainability Standards
Board (ISSB) is charged with - and will be basedon financial materiality for an investor audienceonly.
In our view, the approaches of the IFRS and theEU are not competing but complementary forces.
Different standards have different purposes fordifferent audiences. Standards with a sole purpose
to inform investors are built on a different conceptfrom impact standards that inform a broader groupof stakeholders. The GRI Standards are theonly global standards with an exclusive focus
on impact reporting for a multi-stakeholder
audience - making it an essential factor in theshaping of a reporting structure.

As such, GRI has a key role in working with EFRAG
and the ISSB to build this comprehensive global setof sustainability reporting standards. Only then thetwo-pillar structure can be created - for financial
and sustainability standards - with a core set ofcommon disclosures and each pillar of equal footing.
Covering the information needs of investors as wellas other stakeholders, this will increase confidence
and credibility in the sustainability behavior ofcompanies. GRI will cooperate with EFRAG, theISSB, and (inter) governmental organizations todrive sustainability disclosure in a two-pillar reportingstructure.
Credibility is created through accountability.
And accountability can only be provided throughtransparency. Frameworks without a definite
reporting obligation cannot fulfil this purpose- but publishing relevant information based on
widely used truly global corporate reporting
standards - underpinning both the financial andimpact materiality perspective - will.

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How we can help

Our askAs set out in this paper, standards matter. That
is why we encourage all organizations to use theGRI Standards, which we provide as a free public
good. Yet we recognize that effectively applying
sustainability standards requires support. Learn
more about GRI’s services and tools that are here
for you.

Our standards are free to use, but not free todevelop. Creating and maintaining standards is timeand resource intensive. To enable us to keep up thegood work and stay on the leading edge of corporate
sustainability reporting we need your support!
We are an international non-profit organization thatreflects multi-stakeholder interests by developing
and maintaining world-class sustainability reporting
standards. If you would like to help us to remain so,
we are happy to discuss other services you mayrequire.

Get in touch Barbara Strozzilaan 336
1083 HN Amsterdam
The Netherlands
www.globalreporting.org

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