Reporting frameworks are established frameworks or guidelines that provide a structured and standardized approach for organizations and businesses to measure, disclose, and report their environmental, social, and governance (ESG) performance. In this blog post, we at Codo summarize the main environmental and sustainability reporting framework to help you choose the one most relevant for your organization. For more tailored ESG reporting support, you can contact us here.
Why should we be reporting?
Sustainability reporting helps your company avoid corporate risks, including greenwashing claims, that can impact your brand image, value chain quality and customer loyalty. Demonstrating credibility of sustainability claims through data-backing reduces the risk of reputational damage. Investors, academics and NGOs delineate corporations to support or undermine through assessing the sustainability of their actions. Detailed, structured reports allow them to present their successes and acknowledge how they are still working to improve.
Reporting allows a corporation to meet evolving stakeholder demands who increasingly seek transparency and accountability on environmental and social issues. Investors, suppliers, consumers, and shareholders consider ESG for many reasons: competitive positioning, business ethics, regulatory intervention, innovative strategy and supply chain reliability are amongst the most decisive ones.
Reporting also enables access to green financing options, which are becoming more prevalent as investors prioritize environmentally responsible initiatives with the support of regulatory incentives. Whether it’s obtaining green loans or bonds, accessing transition financing, or attracting investments from asset managers and ESG funds, a strong reporting framework serves as a powerful tool.
Does your existing ESG reporting program sufficiently meet the requirements and demands at hand?
How do we report and what do we include?
What are the major reporting Frameworks?
The framework landscape of sustainability reporting is vast and can be quite confusing, full of an alphabet soup of acronyms. At Codo, we help you navigate the different tools your company might need. In Japan, TCFD and CDP are the most disclosed frameworks, while ISSB S1 and S2 are the most recent. The three following frameworks enable companies to assess climate-related risks specific to their industry, evaluate their company’s resilience in the face of those risks, and develop a robust transition plan to mitigate and overcome these risks.
First, the Task Force on Climate-related Financial Disclosures (TCFD) framework helps an organization understand what their (financial) risks are. It identifies climate risks linked to an organization’s industry sector, localization and activities. Understanding these risks helps an organization evaluate how exposed and, alternatively, resilient a business is. As it is only about the risk from climate to a company, it is considered single materiality.
The next most disclosed framework in Japan is the CDP Questionnaire. The Carbon Disclosure Project’s (CDP) reporting framework consists of a standardized questionnaire that covers a range of topics, including emissions data, climate governance, targets and performance, and climate-related risks and opportunities. Participating companies and cities disclose their information to the CDP, which then assesses and scores their responses based on the completeness and quality of the disclosed data. This allows them to assess what a company’s impact on the potential risks identified are.
Finally, the International Sustainability Standards Board (ISSB), is an organization that establishes globally recognized standards for sustainability reporting and disclosure. They are responsible for creating sustainability disclosure standards supported by prominent global entities such as the G7 or the G20. In July 2023, the ISSB introduced a new set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face.
A bit about other frameworks:
GRI: The GRI (Global Reporting Initiative) framework is widely recognized as a leading standard for sustainability reporting, specifically tailored to each reporting sector. It provides organizations with a comprehensive framework and guidelines for transparently reporting their environmental, social, and governance (ESG) performance, and work around study groups linked directly to specific sectors (infrastructures, textiles, labor, services). They shed light on potential targets across various dimensions: universal standards, sector-specific standards, and topic-specific standards.
Countries all around the world have also started to develop their own tools to assess corporate sustainability reporting.
GX-League: In Japan, the GX-League demands every company to set 2030 emission reduction targets, as well as interim targets for both domestic direct and indirect emissions, under the Emissions Trading Scheme (GX-ETS). Additionally, companies are expected to declare a carbon neutrality target for 2050 or even earlier, accompanied by the formulation and publication of a transition strategy aimed at achieving this goal.
CSRD: In Europe, the Corporate Sustainability Reporting Directive (CSRD) will have serious consequences for EU business and foreign businesses implemented in the EU. In the US, the Securities and Exchange Commission is also implementing a new regulation apparatus on climate-related risk disclosure.
What does reporting include?
Sustainability reporting, in a general sense, encompasses the practice of disclosing an organization’s environmental, social, and governance (ESG) performance and impacts. It involves providing transparent information about the organization’s activities, initiatives, and progress towards achieving sustainability goals.
Greenhouse Gas (GhG) inventory is a first step in defining where you and your company are: a GhG inventory measures and allows disclosure of an organization’s greenhouse gas emissions by assessing emissions in a quantified manner. These inventories include not just carbon dioxide (CO2), but also methane (CH4) and nitrous oxide (N2O), which are directly or indirectly associated with the organization’s activities.
Up until now, scope 1 and 2 emissions (direct process emissions, and indirect electricity usage emissions) have often been the primary focus, but reporting frameworks increasingly require the inclusion of scope 3 emissions (supply chain emissions) as well. Scope 3 emissions encompass indirect emissions that occur in the value chain of an organization, such as those from purchased goods and services, business travel, and employee commuting. Accounting for scope 3 emissions provides a more comprehensive understanding of an organization’s environmental impact and is essential for effective environmental management. Thus, GhG inventory is a fundamental starting point for understanding and managing an organization’s environmental impact. It allows businesses to assess their carbon footprint, identify areas of high emissions intensity, and develop strategies to mitigate their climate impact.
Targets also play a crucial role in sustainability reporting. Organizations are encouraged to set specific, measurable, and time-bound targets related to their sustainability objectives. These targets can range from reducing GHG emissions to increasing energy efficiency, promoting diversity and inclusion, and/or achieving supply chain sustainability. The disclosure of these targets enables stakeholders to monitor the organization’s progress and ensures that the organization can be held responsible for their sustainability commitments through robust metrics of accountability.
In recent years, reporting standards have evolved: there is now, more than ever, a growing expectation for detailed and robust transition plans. Organizations are now being asked to outline their strategies and action plans for achieving their sustainability targets. This includes describing the specific measures, investments, and initiatives they intend to undertake to drive sustainable practices and mitigate risks. Transition plans highlight the organization’s commitment to addressing sustainability challenges and provide a roadmap for their journey towards a more sustainable future.
Robust plans as defined by the Carbon Disclosure Project (CDP) are recognized by other standards and frameworks, notably:
- The Sustainability Accounting Standards Board (SASB) Conceptual Framework offers a comprehensive overview of sustainability accounting, outlining its objectives and intended audience.
- The Task Force on Climate-related Financial Disclosures (TCFD) identifies climate risks linked to an organization’s industry sector, localization and activities.
- The International Sustainability Standards Board (ISSB), responsible for creating sustainability disclosure standards supported by prominent global entities such as the G7 or the G20.
- The International Society of Sustainability Professionals (ISSP) provides a comprehensive approach to sustainability by offering guidelines and best practices for professionals in the field.
- The Glasgow Financial Alliance for Net Zero (GFANZ), a coalition that emerged during the COP26 climate conference in Glasgow and identifies itself as a “global alliance of leading financial institutions committed to accelerating the decarbonization of the economy.”
- Tools such as the Transition Plan Taskforce (TPT), which refers explicitly to the CDP definition of “robust plans”, are now available to support the development of high-quality standards for transition plans, providing corporations with a structured framework to disclose their long-term reduction targets and roadmap, and the short-term actions they plan to take accordingly. The TPT brings together industry leaders, academic experts, and regulators, collaborating with global initiatives mentioned above.
How do Transition Plans Fit within the Reporting Landscape
While reporting frameworks provide a universal application approach to disclose sustainability information, transition plans serve as a comprehensive “toolbox” enabling organizations to not only meet the requirements of these frameworks but also go beyond them. Transition plans encompass a strategic approach that outlines the specific steps and actions an organization intends to take to achieve its sustainability objectives and address climate-related risks and opportunities. Unlike sustainability reports that primarily focus on disclosing information, transition plans emphasize the development and implementation of actionable strategies for a sustainable future. They are integral to frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD), Carbon Disclosure Project (CDP), and International Sustainability Standards Board (ISSB), providing a roadmap for organizations to navigate their sustainability journey and contribute to the global transition towards a more sustainable and resilient future.
Thankfully, the international community has come together to develop a universal transition plan disclosure framework to minimize the alphabet soup in this area (as compared to ESG reporting in general). The Transition Plan Taskforce (TPT), emphasizes the importance of considering all available measures to contribute to and prepare for a comprehensive transition to a net-zero economy, avoiding potential drawbacks such as superficial decarbonization. The TPT advises entities to release separate transition plans at least every three years, and more frequently when significant changes occur. Annual reporting on the progress and important updates should be included in TCFD- or ISSB-aligned disclosures within general-purpose financial reports, such as the Annual Financial Report. If an entity prepares a comprehensive TCFD or sustainability report, the transition plan should be clearly distinguishable, such as by including it as an appendix or a separate document. We at Codo are actively developing our deployment support with this framework.
Another major methodology tool is the Assessing Low-Carbon Transition (ACT), which provides a structured approach for companies to assess how to mitigate their risks in the context of the low-carbon transition. It enables organizations to evaluate their current strategies, activities, and performance related to reducing greenhouse gas emissions and transitioning to a more sustainable and low-carbon future. At Codo, we can guide you through the ACT process!
Looking to navigate through these complex frameworks?
Look no further! Our sustainability consultants can guide you through the intricacies of these reporting frameworks to help you build a robust transition plan.
Helping our clients on their way towards green transition
At Codo, we specialize in assisting clients in navigating the complex landscape of sustainability frameworks. With their deep expertise and comprehensive understanding of various sustainability frameworks, Codo is well-equipped to guide clients through the intricacies of implementing sustainable practices and reporting. We provide tailored solutions that align with the specific needs and goals of each client, ensuring compliance with recognized standards such as ACT and TBT. By leveraging their extensive knowledge and experience, Codo empowers organizations to integrate sustainability into their operations, enhance their environmental and social performance, and effectively communicate their progress to stakeholders.
Helping you find the right partners
Codo is committed to providing comprehensive support to its clients in addressing compliance issues related to sustainability frameworks. Recognizing that navigating the complexities of sustainability reporting can be challenging, Codo leverages its extensive network and industry connections to help clients find support from other platforms. These platforms may include industry associations, expert networks, and specialized service providers who can offer guidance and assistance in achieving compliance with sustainability frameworks. By tapping into these resources, Codo ensures that clients have access to the necessary expertise and tools to effectively meet their sustainability goals, enhance their reporting accuracy, and maintain alignment with evolving industry standards.
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