Your glossary of the most-used, must-know ESG acronyms
Navigating the endless list of ESG acronyms? Here’s your guide to the most important standards, frameworks, advisory groups, initiatives, and more.
Environmental, Social, and Governance, or ESG has become a hotter and hotter topic over the last few years. It’s on nearly every company website and almost every executive’s lips. It’s probably so familiar that it hardly needs an introduction. However, with so many acronyms, not everyone is clear on them all. In fact, the acronyms continue to spawn more acronyms. Here, therefore, is my glossary of key terms for your conversations about ESG disclosures, ESG reporting, and the relevant standards, regulations and frameworks.
Main international bodies and organizations (Developing ESG & sustainability disclosure standards or frameworks)
Carbon Disclosure Project (CDP) is a not-for-profit which created a global environmental disclosure system for investors, companies, cities, and states. CDP works with questionnaires which have a sector-specific approach. The nice part is that the questionnaires are fully aligned with the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations. There are CDP’s questionnaires on climate change, forests, and water security. CDP also provides a scoring based on the answers provided and pushes this information to the stakeholders (investors or customers) and to the market in general, depending on the company’s initial choice either to have public or non-public the answers.
Financial Stability Board (FSB) is an international body that makes recommendations about the global financial system, based on their monitoring. Their role is coordinating financial authorities and international standard setters to develop financial regulatory and supervisory policies. Interestingly, some of the members are the secretary or the ministries of finance of countries, such as, Germany, France, Mexico, UK, Brazil, Japan, China, and the US. The FSB has worked on fostering climate disclosures in financial markets in order to ensure consistent climate-related risk disclosures and for that purpose, it has created the Task Force on Climate-Related Financial Disclosures (TCFD).
Global Reporting Initiative (GRI) is one of the most common sustainability reporting standards used worldwide by many companies. It is geared to a wide audience, unlike other reporting standards such as SASB or Integrated Reporting, which are mainly aimed at investors.
International Accounting Standards Board (IASB) is part of the International Financial Reporting Standards (IFRS) foundation, and it has developed accounting standards for companies to use in financial statements. Many of its standards are now used and even mandated by governments around the world. For instance, these accounting standards are used in 140 jurisdictions.
International Financial Reporting Standards (IFRS) foundation is a not-for-profit organization whose objective is to create globally accepted standards in accounting and sustainability. The IFRS act as an umbrella organization of the International Accounting Standards Board (IASB) and the newly created International Sustainability Standards Board (ISSB) – which are in charge of creating the standards for accounting and for sustainability disclosures, respectively.
International Integrated Reporting Council (IIRC) it’s a coalition of investors, accountants, regulators, companies, and standard setters (such as GRI) created in 2010 by the Prince of Wales’ Accounting for Sustainability Project. The IIRC developed the Integrated Reporting Framework to foster the corporate reporting and specifically to make the link between the strategy, governance, and financials to the environmental, social, and economic context within which an organization operates.
Integrated Reporting Framework is a principles-based disclosure framework created by the International Integrated Reporting Council (IIRC). The integrated reporting is based on linking the strategy, governance, and financials to the environmental, social, and economic context within which an organization operates. More importantly, the framework aims to consider all the factors that can affect a company and how the company manages these to create value over time. The Integrated Reporting Framework is now part of the resources of the Value Reporting Foundation (VRF).
International Sustainability Standards Board (ISSB) is part of the International Financial Reporting Standards (IFRS) but focuses on ESG. Its main goal is to establish a set of sustainability standards that can be used around the world. These standards will build on work done by other standard setters. The idea is that they’ll provide more certainty and ease the task of reporting and using the information reported, therefore enabling easier comparisons between organizations.
Sustainability Accounting Standards Board (SASB) is part now of the Value Reporting Foundation. It was responsible for developing standards for companies to disclose financially material sustainability information to investors. The standards are still relevant under the VRF and cover 77 industries, identifying sub-sets of ESG issues for each specific industry.
Task Force on Climate-Related Financial Disclosures (TCFD) was created by the Financial Stability Board to develop recommendations for climate-related disclosures that could help investors understand climate-related risks. The idea is to provide comparable and consistent information to the market so that investors and other actors can make informed investment decisions. TCFD has become even more relevant because many countries are mandating disclosures. Some, including Colombia and the UK, are mandating the use of TCFD for climate disclosures.
Value Reporting Foundation (VRF) is the result of the combination of the Sustainability Accounting Standards Board (SASB) and the Integrated Reporting Framework from the International Integrated Reporting Council (IIRC). The work of the previous bodies will be used as a basis for the creation of the sustainability standards, which will be released by the ISSB.
These organizations and sets of standards are interwoven and complement each other – yet they continue to change.
ESG-related organizations and initiatives
Science Based Targets Initiative (SBTi) is a partnership between the Carbon Disclosure Project (CDP), the United Nations Global Compact, World Resources Institute (WRI), and the World Wide Fund for Nature (WWF). It aims to help companies to define net-zero targets and reduce their emissions with a solid backing in science. This initiative is important because it has become a movement. Many companies are joining as a way to prove their commitment to net zero and reducing emissions based on climate science. More than 1,000 companies around the world have already joined this initiative.
United Nations Global Compact is a principle-based framework and a corporate sustainability initiative which aims at helping companies to conduct business responsible by implementing the 10 principles in the areas of human rights, labor, the environment, and anti-corruption. The companies are encouraged to take action by implementing the principles and contributing to the achievement of the United Nations Sustainable Development Goals (UN SDGs).
World Resources Institute (WRI) is a global research organization working with governments, companies and civil society to find solutions to challenges regarding food, climate, water, energy, forests, the oceans, and cities to improve peoples’ lives and overall, by making sure that the solution is in balance with nature.
World Wide Fund for Nature (WWF) is a non-for-profit, non-governmental organization (NGO) that is active in research and developing solution to conserve the natural resources, habitats, and species by working with local communities, companies, and governments. This is one of the world’s most well-funded NGOs. Its creation dates from 1961, and it was motivated by the need for resources to allocate to conservancy activities. Currently, and in line with its activities of promoting practical solutions, it is part of the Science Based Targets Initiative (SBTi).
Corporate Sustainability Reporting Directive (CSRD) is a proposal from the European Commission. It reviews the current Non-Financial Reporting Directive (NFRD) for Member States of the European Union. It was originally driven by inconsistencies in the way companies disclose non-financial information. However, it also aims to expand the scope of reporting to include more companies (including non-listed companies).
European Financial Reporting Advisory Group (EFRAG) is a private association which provides technical advice to the European Commission and is developing the sustainability standards against which companies would have to report under the Corporate Sustainability Reporting Directive (CSRD).
Non-Financial Reporting Directive (NFRD) is Directive 2014/95/EU (which amends the Accounting Directive 2013/34/EU ). The NFRD has already been transposed into national legislation of the Member States of the European Union with certain nuances among the Member States. This directive, as its short name suggests requires public interest companies (such as listed companies, banks and insurance companies) with 500 employees or more to disclose non-financial information, including environmental and social matters, as well as employee treatment, respect to human rights, anti-corruption and bribery and diversity on company’s boards.
ESG reporting standards: All for one, and one for all.
These ESG-related organizations and sets of standards are interwoven and complement each other – yet they continue to change. For example, SBTi can be used by a company that reports using GRI. The SASB standards can be used in conjunction with integrated reporting. At the same time, ESG is an actively developing field that’s constantly shaping new standards and regulations. This is by no means an exhaustive list of acronyms, but it serves as a good start. Knowing about the existence of all these organizations and standards will help to facilitate your ESG conversation and move you forward on your ESG journey.