the Most Renowned ESG Voluntary Frameworks: Dow Jones Sustainability Indices (DJSI)

The Dow Jones Sustainability Indices (DJSI) are a family of best-in-class benchmarks for investors who have recognized that sustainable business practices are critical to generating long-term shareholder value and who wish to reflect their sustainability convictions in their investment portfolios. The family was launched in 1999 as the first global sustainability benchmark and tracks the stock performance of the world’s leading companies in terms of economic, environmental and social criteria. Created jointly by S&P Dow Jones Indices and Robeco Sustainable Asset Management (SAM), the DJSI combine the experience of an established index provider with the expertise of a specialist in Sustainable Investing to select the most sustainable companies from across 61 industries. The DJSI World applies a transparent, rules-based component selection process based on the companies’ Total Sustainability Scores resulting from the annual S&P Global Corporate Sustainability Assessment (CSA). Only the top ranked companies within each industry are selected for inclusion in the Dow Jones Sustainability Index family. No industries are excluded from this process as shown in Figure 1.

* Global Indices: Top 10%, Regional Indices: Top 20%, Country Indices: Top 30%

Figure 1

The composition of the DJSI is reviewed each year in September based on the S&P Global ESG Scores resulting from the annual SAM and CSA and is rebalanced quarterly (S&P Global, 1, 2023). The CSA has become the basis for numerous ESG indices over the last two decades. S&P Global acquired the CSA in 2019, which included the transition of the related ESG ratings and ESG benchmarking teams and that now operate out of S&P Global Switzerland. The Corporate Sustainability Assessment (CSA) empowers you to leverage the unique expertise and the proprietary methodology and database underlying the world’s most renowned sustainability indices (S&P Global, 2, 2023). While increasing numbers of companies have chosen to participate in the CSA, annual reviews have enabled the questions to be refined and streamlined over the years. The result is that currently relevant sustainability themes are combined with the systematic introduction of emerging sustainability issues and it can be said that it is the continuing evolution process of the CSA (S&P Global, 3, 2023).            Starting April 2019, S&P DJI has begun further leveraging SAM sustainability data to deliver an extensive range of ESG indices. The S&P ESG Index Family, which are sets of indices, offers investors exposure to companies according to their ESG profile in the context of country-specific and regional indices. The index families are based on S&P DJI ESG Scores, based on the results of the annual S&P Global Corporate Sustainability Assessment (CSA). The index family includes broad market indices like the S&P 500 ESG, S&P Europe 350 ESG, S&P Global 1200 ESG, and S&P Japan 500 ESG, designed to closely track their parent indices with similar risk and return profile and low tracking error. The key criteria for constituent eligibility and selection in the S&P ESG Index Family are the S&P DJI ESG Scores. The scores contain a total company-level ESG score for a financial year, comprising individual environmental (E), social (S), and economic & governance (G) dimension scores. The criteria scores are weighted to eliminate biases among different industries and companies that complete the CSA versus companies that are assessed on the basis of publicly available information. The methodology of the S&P ESG Index Family is constructed to be simple, with a selection process meant to keep index’s industry weights in line with S&P broad market indices. The index methodology results in improved composite ESG scores, and offers improved ESG performance across each industry group (S&P Global, 4, 2023). Figure 2 Shows the score of CSA and ESG Indices, and figure 3 shows an example feature of S&P ESG Indices (S&P Global, 5, 2023).

Figure 2

Figure 3

CSA Methodology 

The Corporate Sustainability Assessment (CSA) will ask invited companies about methodologies and rationales of reporting in order to gather information from invited companies for calculating the S&P Global ESG Score, which is a crucial part of the Dow Jones Sustainability Indices (DJSI). CSA provides a guideline, called CSA Handbook, to be a check list for invited companies’ activities. For each covered question, this document provides the Assessment Focus, the Question Rationale, details of the Question Layout and specific guidance on how to answer. Moreover, the Question-Specific Guidance & Definitions sections define the terms that use and provide details on how to interpret and answer each question. They also specify the question’s alignment with the GRI or other standards and framework (Based on GRI mainly), and whether internal or public documents will be necessary to answer the question. The CSA is a holistic assessment, but the structure and weighting of each criterion depends on its financial materiality in a given industry. To aid companies’ preparation for the CSA, it shares the weights for the different aspects of the assessment under CSA Methodology. It also provides general guidance on how to complete the CSA, its expectations and some general tips for a successful submission. Each question in the questionnaire consists of one or more sub-questions. Invited companies are given the possibility of selecting one or more answers to each question. Each question also contains a standard set of answer options that enable you to indicate if a company do not have the information asked for or if the question is not applicable to that company. For the Assessment focus, there are icons to give an indication of what CSA looking for as showed in Figure 4 (S&P Global, 6, 2023).

Figure 4

Invited Companies

Every year more companies see the value of disclosing their sustainability performance to capital markets via active participation in the Corporate Sustainability Assessment (CSA). In 2023, 13,800 companies were invited to complete the CSA. Of those, 3,519 companies were eligible for selection into a Dow Jones Sustainability Index (DJSI). A record number of 1,728 DJSI eligible companies actively participated, an increase of 9% over last year in this group. Of all invited companies, 2,480 have already submitted, representing over 48% of global market capitalization, relative to the S&P Global Broad Market Index (BMI), up from 45% in 2021. The assessment is still ongoing until end of January. Participating companies can choose the degree to which they permit S&P Global to share underlying datapoints submitted in the CSA that are supplemental to the company’s public reporting. The majority of participating companies took advantage of this option to leverage S&P Global’s platforms to communicate this information to a wider capital market audience. To inform the growing number of ESG-focused investors about corporate sustainability performance. Companies will be invited in 3 groups, starting with those eligible for any Dow Jones Sustainability Index (DJSI), then companies will be chosen from 3 factors including:

Companies that are invited but decide not to participate may be assessed by S&P Global based on publicly available information, and the resulting ESG Scores and data may be shared via S&P Global platforms. Participation in the CSA is not a prerequisite for eligibility in the DJSI or other S&P ESG Indices. Official invitations will be sent out between February and June. Companies may also check their invitation status via CSA online platform.

Participation without invitation

Any company interested in the CSA that agrees to make their resulting ESG Score public on S&P Global platforms will be assessed free of charge by contact [email protected] for more information. The 2023 CSA questionnaire opens for all companies on April 4th. New for this year, companies are able to select an assessment window that best meets individual reporting schedules. Log in to the CSA Portal to reserve a slot (S&P Global, 7, 2023).

            In Thailand, there are currently 26 Thai companies in DJSI, which is the highest number in ASEAN, including ADVANC, AOT, BANPU, BDMS, BJC, BTS, CPALL, CPF, CPN, CRC, DELTA, EGCO, GPSC, HMPRO, IRPC, IVL, KBANK, MINT, PTT, PTTGC, SCB, SCC, SCGP, TOP, TRUE and TU. There are 11 Companies among These 26 companies, which has world class potential to be in DJSI World Family and achieve ESG Index Family (SET, 2022).

References:
  1. S&P Global, 1 (2023) DJSI Index Family. [online] New York: S&P Global. Available from: https://www.spglobal.com/esg/performance/indices/djsi-index-family#objective [Access 27 July 2023].
  2. S&P Global, 2 (2023) Sustainability & Climate Indices. [online] New York: S&P Global. Available from: https://www.spglobal.com/esg/solutions/indices [Access 30 July 2023].
  3. S&P Global, 3 (2023) The S&P Global Corporate Sustainability Assessment. [online] New York: S&P Global. Available from: https://www.spglobal.com/esg/csa/about/ [Access 27 July 2023].
  4. S&P Global, 4 (2023) S&P ESG Index Family. [online] New York: S&P Global. Available from: https://www.spglobal.com/esg/performance/indices/esg-index-family [Access 28 July 2023].
  5. S&P Global, 5 (2023) Core ESG. [online] New York: S&P Global. Available from: https://www.spglobal.com/spdji/en/index-family/esg/core-esg/#overview [Access 28 July 2023].
  6. S&P Global, 6 (2023) CSA Methodology. [online] New York: S&P Global. Available from: https://www.spglobal.com/esg/csa/methodology/ [Access 28 July 2023].
  7. S&P Global, 7 (2023) Invited Companies. [online] New York: S&P Global. Available from: https://www.spglobal.com/esg/csa/invited-companies [Access 28 July 2023].SET (2022) บจ. ไทยครองแชมป์เข้าดัชนี DJSI สูงสุดในอาเซียนต่อเนื่องเป็นปีที่ 9. [online] Bangkok: SET (Stock Exchange of Thailand). Available from: https://www.set.or.th/th/about/setsource/news-release/article/137-djsi [Access 28 July 2023].
  8. SET (2022) บจ. ไทยครองแชมป์เข้าดัชนี DJSI สูงสุดในอาเซียนต่อเนื่องเป็นปีที่ 9. [online] Bangkok: SET (Stock Exchange of Thailand). Available from: https://www.set.or.th/th/about/setsource/news-release/article/137-djsi [Access 28 July 2023].

the Most Renowned ESG Voluntary Frameworks: Global Real Estate Sustainability Benchmark (GRESB)

            GRESB is the global ESG benchmark for financial markets, which is established in 2009 and composed of an independent foundation and a benefit corporation. The GRESB Foundation focuses on the development, approval and management of the GRESB Standards while GRESB BV performs ESG assessments and provides related services to GRESB Members. GRESB is a mission-driven and industry-led organization that provides actionable and transparent environmental, social and governance (ESG) data to financial markets. The 2022 real estate benchmark covers more than 1,800 property companies, real estate investment trusts (REITs), funds, and developers. In addition, GRESB coverage for infrastructure includes over 800 infrastructure funds and assets. Combined, GRESB represents USD 8.6 trillion in real asset value. More than 170 institutional investors use GRESB data to monitor their investments, engage with their managers, and make decisions that lead to a more sustainable real asset industry. Led by a Foundation Board composed of representatives from GRESB Members and Partners, the GRESB Foundation is the primary platform for GRESB to engage with the industry, owning and governing the standards upon which GRESB BV – a separate profit-for-purpose benefit corporation – performs its assessments. The GRESB Foundation, GRESB BV and GRESB Members work as one to deliver a shared vision of an investment community that plays a central role in creating a more sustainable world, one where society can meet the needs of the present without compromising the ability of future generations to meet theirs. As an independent standards-setting body, the GRESB Foundation works to develop, maintain, improve and publish GRESB Standards annually, in time for GRESB BV to perform its assessments.

Specifically, the GRESB Foundation:

The GRESB Standards are a set of guidelines to assess and benchmark ESG and related performance of real and other assets. The Standards include the questions, evidence and indicators to assess ESG performance, including the weighting of the indicators. On 14 September 2022, the GRESB Foundation Board approved all the recommended changes for the 2023 GRESB Standards. This is an important outcome of the new GRESB Standards Development Process, which puts the voice and priorities of GRESB members and partners at the forefront of the global ESG realm (GRESB 1, 2023).

Stakeholder Engagement

GRESB’s stakeholder engagement strategy is built on the AA1000 AccountAbility Stakeholder Engagement Standard (2015) and references the ISEAL Alliance Standard-setting Code of Good Practice, which defines how a sustainability standard should be developed, structured and improved over time. To ensure stakeholder engagement is embedded across the organization, GRESB have committed to the AccountAbility principles of inclusivity, materiality, responsiveness and impact. For GRESB, the stakeholder landscape is complex, with some stakeholder groups overlapping others in terms of roles and responsibilities:

According to GRESB plays an important role within the world of sustainable real assets, and critically engage with the many stakeholders that operate in the ESG space. That said, they cannot and should not engage every stakeholder in the same way or at the same level. Therefore, an “interest-influence” grid helps illustrate our approach, which shows active engagement with GRESB Investor Members, Participant Members and Partners, which is done primarily through the GRESB Foundation as shown in Figure 1.

Figure 1

It can be seen that “influential ESG reporting frameworks” are among our most important stakeholders, just below our own members and partners. For these frameworks, we create bilateral partnerships and engage through representation on various committees and working groups such as Principles for Responsible Investment (PRI) The Global Reporting Initiative (GRI), The Sustainability Accounting Standards Board (SASB), The International <IR> Framework, EU Sustainable Finance Disclosure Regulation (SFDR), Task Force on Climate-related Financial Disclosures (TCFD), Carbon Disclosure Project (CDP) (GRESB 2, 2023). Especially, The EU’s Sustainable Finance Disclosure Regulation (SFDR) is a new transparency requirement for financial market participants related to key environmental, social and governance (ESG) criteria. The purpose is to increase market transparency and direct capital towards more sustainable businesses. SFDR imposes different disclosure obligations on Financial Market Participants, depending on their size and the nature of their products and/ or services. All participants in the EU will need to make general disclosures about sustainability practices for both the entity and their products and/ or services. They will also need to report on their Principle Adverse Impacts (PAIs), which are a series of indicators covering a range of ESG issues, such as greenhouse gas emissions and waste management. At the moment, most companies and funds do not provide disclosures or collect data that is granular enough to satisfy the requirement, once it goes fully in effect, or to provide investors with the level of transparency that is expected by this regulation. GRESB, hence, offers an assessment that provides Financial Market Participants with the framework they need for their Principal Adverse Impact Statement. The Assessment is comprised of around 60 ESG metrics that need to be reported on (GRESB 3, 2023). The SFDR Assessment consists of a number of aspects that a participant is required to report on, including:

The SFDR Assessment is broken into 3 parts to reflect the different tables of PAIs as outlined by the EU documentation. The Assessment evaluates performance against three ESG Components – Management, Performance, and Development. The methodology is consistent across different regions, investment vehicles and property types and aligns with international reporting frameworks, such as TCFD, GRI or PRI. The GRESB Real Estate Assessment provides investors with actionable information and tools to monitor and manage the ESG risks and opportunities of their investments, and to prepare for increasingly rigorous ESG obligations. These 3 tables are detailed as follows:

Table 1: Mandatory climate and other environment-related indicators, Social and employee, respect for human rights, anti-corruption and anti-bribery matters.

Table 1 focuses on 14 environmental and social indicators applicable to investments in investee companies and 2 indicators applicable to investments in real estate assets that have to be disclosed by financial market participants, these are considered as part of the “mandatory indicators that have to be reported on”.

Table 1 consists of 16 indicators across 7 aspects:

  1. Greenhouse gas emissions
  2. Biodiversity
  3. Water
  4. Waste
  5. Social and employee matters
  6. Fossil fuels (Real Estate specific indicators)
  7. Energy efficiency (Real Estate specific indicators)

Table 2: Additional climate and other environment-related indicators. These are considered to be optional although participants are encouraged to report on at least one of those indicators in order to abide by regulatory requirements. Table 2 consists of 16 applicable to investment in investee companies and 5 indicators specific to real estate across 9 aspects:

  1. Emissions
  2. Energy performance
  3. Water, waste and material emissions
  4. Green securities
  5. Greenhouse gas emissions (Real Estate specific indicators)
  6. Energy consumption (Real Estate specific indicators)
  7. Waste (Real Estate specific indicators)
  8. Resource consumption (Real Estate specific indicators)
  9. Biodiversity (Real Estate specific indicators)

Table 3: Additional indicators for social and employee, respect for human rights, anti-corruption and anti-bribery matters. These are considered to be optional although participants are encouraged to report on at least one of those indicators in order to abide by regulatory requirements. Table 3 consists of 17 indicators across 3 aspects:

  1. Social and employee matters
  2. Human rights
  3. Anti-corruption and anti-bribery

Those issues in 3 Tables are reported through following tools (online) that help participants with the submission process:

The tools are designed to streamline data flows and increase data quality. For example,

*Note that the term table is used as a reference point to the mandatory and optional indicators as per the template provided by the EU but that the SFDR Assessment Portal itself is not composed of ‘’tables’’. The SFDR report will however be in table format.

The goal of the GRESB Assessments is to capture the most material ESG data related to the sustainability performance of real estate and infrastructure companies and assets. This data and the insights derived from it are used by investors to assess organizational exposure to various risks and to identify new opportunities to invest in strong-performing companies. For a detailed description of the new governance structure, the GRESB Standards Development Process, and the changes for the 2023 GRESB Standards, by relating more to external frameworks as showed in Table 1.

Real EstateInfrastructure
IR FrameworkCDP
CDPPRI
SASBGRI
GRISASB
PRI 
Table 1

For each external framework, GRESB created an analysis table with the framework’s relevant indicators, which were mapped to specific indicators from the relevant GRESB’s standards. From this, GRESB analyzed the level of alignment between the GRESB indicators and those from the external framework (GRESB 7, 2023). GRESB collects, validates, scores, and independently benchmarks ESG data to provide business intelligence, engagement tools, and regulatory reporting solutions for investors, and asset managers in the wider industry. GRESB provides a rigorous methodology and consistent framework to measure the ESG performance of individual assets and portfolios based on self-reported data. Performance assessments are guided by what investors and the wider industries consider to be material issues, and they are aligned with the Sustainable Development Goals, the Paris Climate Agreement and major international reporting frameworks. Through a GRESB Membership, data is reported to the relevant GRESB Assessment each year on a regular cycle and are validated by a third party and scored before being used to generate the following ESG benchmarks for the industry:

Each year, GRESB publishes the global aggregated benchmark data showing the state of ESG in the industry. The benchmark itself evolves over time, ensuring that scores reflect relative performance and evolving sustainability expectations (GRESB 8, 2023).

References:

AccountAbility (2018) AA1000 AccountAbility Principles. [online] New York: AccountAbility. Available from: https://www.accountability.org/standards/aa1000-accountability-principles/ [Accessed on 19 July 2023].

GRESB 1 (2023) GRESB Foundation. [online] Amsterdam: Global Real Estate Sustainability Benchmark. Available from: https://www.gresb.com/nl-en/gresb-foundation/ [Accessed on 17 July 2023].

GRESB 2 (2023) ESG Frameworks and Stakeholder Engagement. [online] Amsterdam: Global Real Estate Sustainability Benchmark. Available from: https://www.gresb.com/nl-en/esg-frameworks-and-stakeholder-engagement/ [Accessed on 17 July 2023].

GRESB 3 (2023) SFDR Reporting Solution. [online] Amsterdam: Global Real Estate Sustainability Benchmark. Available from: https://www.gresb.com/nl-en/products/sfdr-reporting/ [Accessed on 17 July 2023].

GRESB 4 (2023) GRESB Documents. [online] Amsterdam: Global Real Estate Sustainability Benchmark. Available from: https://documents.gresb.com/ [Accessed on 17 July 2023].

GRESB 5 (2023) Partner Directory. [online] Amsterdam: Global Real Estate Sustainability Benchmark. Available from: https://www.gresb.com/nl-en/gresb-partners/ [Accessed on 22 July 2023].

GRESB 6 (2023) GRESB Real Asset Spreadsheet. [online] Amsterdam: Global Real Estate Sustainability Benchmark. Available from: https://www.gresb.com/nl-en/?s=asset+spreadsheet [Accessed on 22 July 2023].

GRESB 7 (2023) How GRESB Aligns with Common ESG Reporting Frameworks. [online] Amsterdam: Global Real Estate Sustainability Benchmark. Available from https://www.gresb.com/nl-en/how-gresb-aligns-with-common-esg-reporting-frameworks/ [Accessed on 17 July 2023].

GRESB 8 (2023) How We Work. [online] Amsterdam: Global Real Estate Sustainability Benchmark. Available from: https://www.gresb.com/nl-en/about-us/ [Accessed on 17 July 2023].

the Most Renowned ESG Guidance Frameworks: Value Reporting Foundation (VRF)

The VRF’s SASB Standards serve as a key starting point for the development of the IFRS Sustainability Disclosure Standards, while the Integrated Reporting Framework provides connectivity between financial statements and sustainability-related financial disclosures. The consolidation delivers on market demand—including from companies, investors and regulators—for simplification of the sustainability disclosure landscape, and follows the consolidation of the Climate Disclosure Standards Board (CDSB) into the IFRS Foundation (IFRS, 1., 2022). The VRF unites the IIRC’s historic focus on enabling management and business decision-making with SASB’s historic focus on enabling investor decision-making. The two organizations share a core belief that external reporting can create a common language among businesses and investors and help both businesses and investors understand how value is created, preserved or eroded over time. The Value Reporting Foundation’s three resources comprise a robust toolset:

When used together, tools from the Value Reporting Foundation create a perpetual feedback loop, enabling businesses and investors to more effectively communicate on enterprise value and how it is created, preserved or eroded over time. Across the globe, organizations are increasingly leveraging the complementary benefits of the <IR> Framework and SASB Standards as shown in Figure 1.

Figure 1

Clarifying compatibility across the Value Reporting Foundation Tools

The <IR> Framework and the SASB Standards are complementary, and many businesses use both to fulfill their reporting needs. The tools provide a powerful structure for reporting qualitative context and activity alongside quantitative industry-specific metrics. Within the growing field of sustainability-related disclosure, frameworks and standards have been developed to help establish a foundational layer of relevant, comparable and reliable information from companies. Each serves a unique purpose to help companies understand and report on critical drivers of long-term value.

The <IR> Framework helps companies explain how they create, preserve or erode value. Applying well-defined Guiding Principles and Content Elements, integrated reports look beyond financial performance alone to demonstrate how businesses manage up to 6 forms of capital: financial, manufactured, intellectual, human, social and relationship, and natural. Integrated reporting offers internal and external benefits. Internally, it builds communication and coordination across departments. It improves internal decision-making through building a deeper understanding of the resources and relationships that are critical to the long-term success of the business. Integrated reporting also enables an organization to evaluate its governance, performance and prospects in the context of the external environment, and provide investors and other users of integrated reports with a more holistic view of the business. SASB Standards complement the <IR> Framework’s principles-based approach. An integrated report provides essential context to investors, helping them more fully understand the business’ current position, future prospects and the relevant circumstances under which performance has been achieved. This provides investors with insight into the quality of thinking and strategic planning of the board and management. However, an integrated report, a concise and connected narrative, offers valuable explanations and context for the data provided through SASB Standards. On the other hand, SASB Standards identify the subset of environmental, social, and governance (ESG) issues likely to materially impact the financial performance of a typical business in an industry. By starting with this subset of issues, businesses can establish best practices, produce decision- useful reports, and then seek to improve disclosure and performance year on year. Available for 77 industries, SASB Standards provide investors with consistent, comparable and reliable information on the ESG factors most relevant to financial performance and enterprise value. With an average of six disclosure topics and 13 disclosure metrics per industry, the SASB Standards are an accessible starting point for companies beginning their ESG reporting journey. Many businesses using both the <IR> Framework and SASB Standards find that the two tools strengthen one another. Furthermore, SASB Standards provide comparable information on the business-critical risks and opportunities that fall beyond the scope of traditional financial disclosure.

Internal business benefits

                The corporate disclosure has been described as complex and confusing for businesses. The breadth of reporting frameworks and standards can strain a company’s resources. Amidst this broad reporting landscape, the <IR> Framework and SASB Standards provide an efficient solution. These tools provide companies with a robust system that integrates sustainability disclosure with financial disclosure practices. The <IR> Framework and SASB Standards provide an accessible starting point to high-quality, investor- focused disclosure. With the <IR> Framework, organizations can understand and communicate how their resources (capitals) are changed through business activities to create value over time. With SASB Standards, companies can report on the ESG information most critical to their industry and enable comparability. While certain information is useful across industries, many sustainability-related value drivers are industry-specific. By adding SASB Standards, reporters provide: 1) industry-specific rigor; 2) quantitative evidence/ support for the integrated report’s narrative claims; and 3) deeper comparability against peers. For example, with SASB Standards, Badische Anilin and Sodafabrik (BASF) can succinctly highlight the sustainability topics most material to the Chemicals industry (such as Hazardous Waste Management), and Unilever, a UK-based consumer goods provider, can do the same for the topics in the Household & Personal Products industry (such as Environmental & Social Impacts of Palm Oil Supply Chain). (SASB Standards, 2021).

External business and investor benefits

                With the <IR> Framework and SASB Standards, businesses can provide a more complete picture of long-term value creation while meeting investor needs for comparable, consistent and reliable information. Reporting with both tools can bolster a company’s credibility and trust among its external stakeholders, especially investors and other providers of financial capital. Investors are not monolithic — they have varying strategies and priorities. To best meet investor needs, businesses should engage with their investors directly, understand their priorities, and then tell the company story with that lens in mind. The <IR> Framework and SASB Standards are useful tools to strengthen, enhance and clarify a business’ value creation story. BASF conducted an “ESG to value creation” mapping exercise to help prioritize and disseminate sustainability practices and initiatives. In particular, with the issuance of its first green bond in 2020, BASF found that reporting and performance improvements subsequently increased its access to financial capital. While green bonds are an uncommon offering for a chemical business, BASF turned it into a successful financing tool. In many ways BASF attributes this success to its reporting with the <IR> Framework. Investors credited their support for the BASF green bond to a strong trust in BASF’s business and ESG practices. Investors feedback further underlined that this trust arose from the company’s reporting and how investors are able to see financially-relevant sustainability issues integrated into management of the business. Due to high investor demand for consistent, comparable and reliable ESG data, businesses find that disclosing with SASB Standards has a positive effect on investor relations. Because they are industry-specific, metric-driven and focused on financial materiality, SASB Standards enable integration of ESG considerations into investment and stewardship decisions across global portfolios and asset classes. They also provide comparable data to the data and analytics ecosystem that supports investment decision making.

Communicating Inside and out

                Disclosure with the <IR> Framework and SASB Standards creates a positive feedback loop between businesses and investors. Used in conjunction, this positive feedback loop helps communicate progress and facilitate further improvement over time. When a business is clear about its sustainability objectives, the reporting process, using the <IR> Framework and SASB Standards, creates a positive feedback loop as shown in Figure 2.

Figure 2

Incorporating feedback will look different at every organization. It may result in the review of corporate strategy, adaptation of management systems or evolution of governance processes. In all scenarios, the feedback loop will ensure that resources are allocated efficiently to maximize value over the short, medium and long term. Many businesses describe this holistic approach as integrating ESG or sustainability into their DNA. In the same way that sustainability issues manifest differently for every industry, integrating ESG across internal business units looks different for every business. Disclosure with the <IR> Framework and the SASB Standards is far more than a communications exercise. Within a business, these tools can help break down internal barriers, build connectivity and enhance decision-making. This promotes integrated thinking, a process by which boards and management teams gain new insights into their organization’s value creation process. They improve their understanding of the resources and relationships (or capitals) on which the organization depends, the risks it faces and the financial and non-financial outcomes it generates.

Contributing to a more sustainable future

                Disclosure and transparency are a means to an end: more informed business and investment decision making that can lead to improved economic, environmental and societal outcomes. Businesses engaging in sustainability disclosure and integrated reporting are embarking on a continuous journey, an interactive cycle, which benefits their business, their investors, society and the planet as shown in Figure 3.

Figure 3

International References:
  1. IFRS, 1. (2022) IFRS Foundation Completes Consolidation with Value Reporting Foundation. [online] Delaware: Integrated Reporting (now part of IFRS Foundation). Available from: https://www.ifrs.org/news-and-events/news/2022/08/ifrs-foundation-completes-consolidation-with-value-reporting-foundation/# [Access 21 June 2023].
  2. SASB Standards (2021) Complementary Tools: Using the <IR> Framework and SASB Standards Together. [online] Delaware: SASB Standards (now part of IFRS Foundation). Available from: https://sasb.org/knowledge-hub/complementary-tools-using-the-framework-and-sasb-standards-together/ [Access 21 June 2023].

the Most Renowned ESG Guidance Framework: International Integrated Reporting Council (IIRC)

The International Integrated Reporting Council (IIRC) was found in August 2010 and aims to create a globally accepted framework for process that results in communications by an organization about value creation over time. The IIRC Board of Directors oversaw the strategy, finances, and operations of the organization and appointing members of the International Integrated Reporting Framework Board. The International Integrated Reporting Framework Board recommended any revision, modification or other updates to the International Integrated Reporting Framework Council. The Council was the primary institutional forum for expression of the broad market view on matters relating to integrated reporting and integrating thinking, as well as a medium for its interaction and provision of advice, guidance and input on issues of relevance for the organization, including its nature, objectives, purpose, vision and mission, as well as its strategy and the means by which to deliver integrated reporting framework to the market (Integrated Reporting, 1., 2023). In November 2011, the IIRC announced a number of changes to its organizational structure according to its complexity. Under the new arrangements, an initial transitional phase until the end of 2013 will see the IIRC supported by a strengthened secretariat operating through a not-for-profit company established for the purpose under the same name. A Governance Committee has also been established for replacing the original, with responsibilities relating to audit, nominations, and executive remuneration for the company. At this point, the IIRC Created the foundations for a new reporting model to enable organizations to provide concise communications of how they create value overtime in 2014. The IIRC refers to this process as Integrated Reporting, which it stylizes as <IR>. <IR> structured around the organization’s strategic objectives, its governance, and business model and integrating both financial and non-financial information. The objectives for an integrated reporting framework are to:

(UK Accounting Plus, 2023) and <IR> aims to:

The <IR> framework is divided into 3 parts including Fundamental Concepts, Guidance Principles, and Content Elements. Firstly, the Fundamental Concepts underpin and reinforce the requirements and guidance in the <IR> Framework. It explains how an organization crates, preserves, or erodes value over time. Value is not created, preserved, or eroded by or within an organization alone, it is influenced by the external environment though. It, in addition, is created through relationships with stakeholders on various resources as following:

Figure 1

Figure 2

7 combination guidance principles underpin the operation and presentation of an integrated report, informing the content of the report and how information is presented:

The <IR> also comprises of 8 content elements that are fundamentally linked to each other and are not mutually exclusive:

In 2021, the IIRC merged with the Sustainability Accounting Standard Board (SASB) Foundation into the Value Reporting Foundation (VRF). The IIRC Board of Directors and the SASB Foundation Board of Directors combined to form the Value Reporting Foundation Board of Directors (“the VRF Board”). A governing board, the VRF Board was responsible for overseeing the strategy, finances, and operations of the organization and appointing members of the International Integrated Reporting Framework Board (IIRF) (Integrated Reporting, 2021). Then in 2022, The IFRS Foundation announced the completion of the consolidation of the Value Reporting Foundation (VRF) into the IFRS Foundation. The IFRS Foundation’s International Accounting Standards Board (IASB) and the International Sustainability Standards Board (ISSB) will work together to agree on how to build on and integrate the Integrated Reporting Framework into their standard setting projects and requirements. It follows the commitment made at COP26 to consolidate staff and resources of leading global sustainability disclosure initiatives to support the IFRS Foundation’s new International Sustainability Standards Board’s (ISSB) work to develop a comprehensive global baseline of sustainability disclosures for the capital markets. The <IR> helps businesses think holistically about their strategy to build investor and key stakeholder confidence and improve future performance. With integrated reporting now being adopted in 75 countries worldwide, by over 2,500 organizations and with support from 40 stock exchanges and counting, more and more organizations are experiencing its benefits for business decision-making and long-term value creation. (Integrated Reporting, 3., 2021).

References:

  1. UK Accounting Plus (2023) International Integrated Reporting Council (IIRC). [online] London: Deloitte. Available from https://www.iasplus.com/en-gb/resources/global-organisations/iirc [Access 21 June 2023].
  2. Integrated Reporting, 1. (2023) Governance Archive. [online] Delaware: Integrated Reporting (now part of IFRS Foundation). Available from: https://www.integratedreporting.org/the-iirc-2/governance-archive/ [Access 21 June 2023].
  3. Integrated Reporting, 2. (2021) International <IR> Framework. [online] Delaware: Integrated Reporting (now part of IFRS Foundation). Available from: https://www.integratedreporting.org/resource/international-ir-framework/ [Access 21 June 2023].
  4. Integrated Reporting, 3. (2021) Transition to Integrated Reporting: A Guide to Getting Started. [online] Delaware: Integrated Reporting (now part of IFRS Foundation). Available from: https://www.integratedreporting.org/news/transition-to-integrated-reporting-a-guide-to-getting-started/ [Access 21 June 2023].

the Most Renowned ESG Guidance Frameworks: Carbon Disclosure Standard Board (CDSB)

The Climate Disclosure Standards Board (CDSB) was an international consortium of business, environmental and social NGOs, committed to advancing and aligning the global mainstream corporate reporting model to equate natural social capital with financial capital. CDSB, created in 2007, did this by offering companies a framework for reporting environment and social information with the same rigor as financial information. CDSB has now consolidated into the IFRS Foundation. On November 3rd 2021 the IFRS Foundation announced that it would form a new International Sustainability Standards Board (ISSB), as well as the consolidation of the Climate Disclosure Standards Board and the Value Reporting Foundation (VRF—which houses the Integrated Reporting Framework and the SASB Standards) by June 2022. The first CDSB Framework, the Climate Change Reporting Framework, released in 2010, focused on the risks and opportunities that climate change presents to an organization’s strategy, financial performance and condition. In 2015, following two public consultations, the CDSB Framework for reporting environmental and climate change information was released. The CDSB Framework was updated in April 2018 to align with the recommendations of the Task Force on Climate-related Financial Disclosures and other key mainstream reporting requirements, helping to streamline the reporting cycle for many organizations. In light of changing market and user demands, the scope of the CDSB Framework was expanded to include social as well environmental, including climate change, information. Following public consultation, the CDSB Framework for reporting environmental and social information was released in 2022. CDSB technical guidance will form part of the evidence base as the ISSB develops its IFRS Sustainability Disclosure Standards. CDSB’s Framework and technical guidance on Water, Biodiversity and Social disclosures will remain useful for companies until such time as the ISSB declare any change on such topics. CDSB technical work has not been subject to the IFRS Foundation’s due process, which the International Sustainability Standards Board will follow in its work and does not form part of IFRS Standards. Through the provision of robust environmental and social information, CDSB hopes to encourage analysis and decision-making by investors that recognize the dependence and impacts of economic and financial stability on natural, human and social capital (CDSB, 1., 2022).

The objective of CDSB Framework

The CDSB Framework formed a foundation for the Task Force for Climate-Related Financial Disclosures (TCFD) recommendations and sets out an approach for reporting environmental and social information in mainstream reports, such as annual reports, 10-K filing, or integrated reports.  The objectives of the CDSB Framework are to:

The Framework also indirectly supports organizations by:

The development of the CDSB Framework has been overseen by the CDSB Technical Working Group, consisting of representatives from the largest accounting firms, reporting organizations, companies and academia. Currently, voluntary and mandatory reporting schemes on sustainability have multiplied, but there is no single standard about how companies should identify relevant information on natural, social and human capital and how users of such information can interpret it. As such, the information available is inconsistent and financial institutions are not taking account of environmental and social factors in their decision-making (CDSB, 2., 2022). Therefore, an organization should select reporting schemes that suit for its activities.

CDSB Framework Application Guidance

The first one is Climate Guidance which is produced for assisting companies in the disclosure of material climate-related information in the mainstream report. The Climate Guidance is designed to complement the CDSB Framework and other frameworks, codes and recommendations that are aligned with some or all of the requirements of the CDSB Framework. This guidance offers companies a means of developing their reporting practices and ensuring that investors are receiving the material climate-related information needed for efficient and effective capital allocation to drive the transition to a just, low-carbon economy. The current standard of mainstream reporting on climate risks and opportunities means that there is an information deficit for investors and other decision-makers. This shortfall in high quality, decision-useful material climate information means that investors are unable to make the capital allocations that can drive change across economies and societies. The focus of the guidance is on the first six reporting requirements of the CDSB Framework. These reporting requirements set out the key content elements for reporting material environmental information in the mainstream report as following:

For each of these reporting requirements, the Climate Guidance provides:

The Climate Guidance also offers some further important considerations for companies in making mainstream climate disclosures, covering aspects of the reporting principles and remaining requirements of the CDSB Framework. In addition, the Climate Guidance provides an overview of the significance of climate change to business, explaining the importance of physical and transition risks, and highlighting the key and unique characteristics of the climate system and their importance to corporate reporting. Finally, the Appendices to the Climate Guidance provides a mapping of the CDSB Framework to the TCFD Recommendations and a list of additional CDSB resources for preparing effective climate disclosures (CDSB, 3., 2022).

Water Guidance is the second guidance for water-related disclosure, which has been developed for assisting companies in the disclosure of water-related financial information in mainstream report. It is designed to supplement the CDSB Framework for reporting environmental and climate change information to investors. The Water Guidance offers companies a means of developing their reporting practices and ensuring that investors are receiving the material water-related information needed for effective capital allocation to drive the transition to a sustainable, resilient, and water secure economy. The intended users of this Guidance are organizations, both single companies and corporate groups, and in particular those responsible for financial, governance and sustainability reporting (CDSB, 4., 2022).

The third part of a series of CDSB Framework Application Guidance is Biodiversity Guidance, which aims to extend the TCFD recommendation and its core elements to nature. It is designed to support the intended users in applying the CDSB Framework to the natural capital elements of climate change, water, and biodiversity. Following the guidance on climate-related and water-related disclosures, the Biodiversity Application Guidance is designed to enhance the quality of disclosures for such significant matters. Working in conjunction with the reporting principles and requirements of the CDSB Framework, each application guidance assists companies to develop clear, concise, consistent, and comparable (inter-period comparability of the same entity and inter-entity comparability) disclosures, enhancing the decision-usefulness of their mainstream reporting on sustainability-related financial matters to investors. Given the interconnected nature of environmental topics, the application guidance documents are complementary with some overlapping subtopics. The objective of the Biodiversity Application Guidance is to support organizations in preparing high-quality disclosures that enable users of mainstream reports to assess material biodiversity-related financial information. In addition, the Biodiversity Application Guidance also provides an overview of the significance of biodiversity to business, explaining the importance of biodiversity-related business risks and opportunities, and highlighting the key characteristics of biodiversity and their importance to corporate reporting (CDSB, 5.,2022).

In July 2021, CDSB published a position paper on social reporting and determined the benefit of expanding the scope of the CDSB Framework to include social as well as environmental information. This decision was made for three key reasons. First, the importance of social information to companies, investors and regulators in their decision-making continues to grow and increasingly poses material risks and opportunities to organizations. Second, the significance of the connections between environmental and social issues and the resultant businesses effects are being better understood, demonstrating the need to comprehend and report on these matters in an interlinked manner. Finally, there is presently no reporting framework for social information that is definitively committed to the principles, approaches, and structure of the mainstream report. The updated version of the CDSB Framework is hoped to assist in the development of higher-quality and more decision-useful environmental and social disclosures, benefitting both report preparers and users. The “Corporate reporting on social matters” integrates social information into the market-tested and well-aligned reporting principles and requirements of the CDSB Framework, offers specific guidance for reporting on social issues in the mainstream report, and more generally seeks to add detail and clarity to several areas of the framework. Challenges exist with the present practices of reporting consistent, comparable, decision-useful information on social issues, particularly for material social issues in the mainstream report. The challenge hence is not necessarily one of volume of data, but more one of quality, rigor, and context of that information (CDSB, 6., 2022).

CDSB is setting out to expand the scope of its reporting framework and technical work to suitably accommodate financially material social issues. This will see CDSB provide the market with the framework for TCFD-style reporting across all financially material social and environmental issues and offer companies the means of reporting decision-useful information that meets ever-developing needs and expectations of users.

References:
  1. CDSB, 1. (2022) Consolidation of CDSB. [online] London: Climate Disclosure Standard Board. Available from: https://www.cdsb.net/ [Access 14 June 2023].
  2. CDSB, 2. (2022) Framework for Reporting Environment and Social Information. [online] London: Climate Disclosure Standard Board. Available from: https://www.cdsb.net/what-we-do/reporting-frameworks/environmental-information-natural-capital [Access 14 June 2023].
  3. CDSB, 3. (2022) Climate Guidance. [online] London: Climate Disclosure Standard Board. Available from: https://www.cdsb.net/climateguidance [Access 14 June 2023].
  4. CDSB, 4. (2022) Water Guidance. [online] London: Climate Disclosure Standard Board. Available from: https://www.cdsb.net/water [Access 14 June 2023].
  5. CDSB, 5. (2022) Biodiversity Guidance. [online] London: Climate Disclosure Standard Board. Available from: https://www.cdsb.net/biodiversity [Access 14 June 2023].
  6. CDSB, 6. (2022) Social Guidance. [online] London: Climate Disclosure Standard Board. Available from: https://www.cdsb.net/what-we-do/corporate-reporting-social-issues [Access 14 June 2023].

the Most Renowned ESG Standard: Global Reporting Initiative (GRI)

Global Reporting Initiative (GRI) standards are strongly aligned with the UN Sustainable Development Goals and provide resources and tools that enables companies understand and communicate their contribution to the SDGs. Information from GRI reveals that 82% of 250 big companies in the world adopted GRI standards for reporting sustainability issues and 10,557 companies around the world are following the GRI standards with more than 27,000 published papers. There are 177 listed and non-listed companies in Thailand that used that GRI standards with 342 published papers. GRI is an independent entity that was established by United Nation Environment Programme (UNEP) with Ceres Company Network by launched the first standards in 2000, called G1. Then, the standards have been developed until G4 which totally different from G1 by emphasized on qualitative reporting rather than quantitative reporting, especially in terms of disclosure of analysis issues, material aspects and stakeholder analysis. Moreover, there also was change in the level of reporting from A, B, C, which cause confusion between grading quality and scale of disclosure following GRI guideline, to be “In accordance” in form of “Core” or “comprehensive” instead of the level. This change entailed organizations highlight more about contents that relevant to their business contexts and stakeholders. After the popular version (G4), GRI recently launched “GRI Standards” for replacing G4 in 2016 by maintaining principal and format of reporting, but the change was structure of reporting which is more systematic and less of redundancy of reporting data by changing some significant indicators. Furthermore, structure of the GRI standards was designed for internal changing of organization’s indicators and regulations in the future without reviewing entire report. GRI standards was not created for only communication, but also being checklist in order to help organizations plan their long-term strategy. Michael Meehan stated in “Sustainability Reporting as a Tool for Better Risk Management” from MIT Management Review 2016 that following GRI guideline will help organizations to see a gaps between business operation and stakeholder needs in value chain. Organizations will have “the development” for creating “value add” when they can close those gaps and reduce potential risk in the future. Therefore, GRI is business management rather than a reporting, which comprises of 3 foundations of reporting including in gathering data processes, codification processes and connecting data with organizational strategies, and operational metrics particularly. These processes spotlight on operational progress and priority, and also provide efficient data for decision makers in organizations in terms of adding value by sustainability such as adopting an innovation for improving competitive capability. The sustainability report can be in deferent formats according to organizational readiness. It can be either a part of annual report or separated report, or published in form of paper, digital file, or website, organizations should concern about users and appropriate channel though. In addition, there currently are many forms of presentation like infographic, motion clip or social media that organizations can adopt for making productive ESG report and good brand image simultaneously (Tantimangkorn, A. and Ekachaiphaiboon, S., 2017). The GRI Standards are the only global standards with an exclusive focus on impact reporting for a multi-stakeholder audience – making it an essential factor in the shaping of a reporting structure. For example, GRI has a key role in working with European Financial Reporting Advisory Group (EFRAG) and the International Sustainability Standard Board (ISSB) to build this comprehensive global set of sustainability reporting standards. Only then the two-pillar structure can be created – for financial and sustainability standards – with a core set of common disclosures and each pillar of equal footing. Covering the information needs of investors as well as other stakeholders, this will increase confidence and credibility in the sustainability behavior of companies. GRI has a robust policy in cooperate with EFRAG, the ISSB, and (inter) governmental organizations to drive sustainability disclosure in a two-pillar reporting structure. Credibility is created through accountability. And accountability can only be provided through transparency. 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 and impact materiality perspective of sustainability (GRI, 4., 2022).

GRI in The Sustainability Reporting Landscape

The sustainability reporting landscape is changing fast. With the rise of dedicated Environmental Social and Governance (ESG) investments, rankings and exchange-traded funds, the need for standardized, comparable information to enhance decision making by shareholders and stakeholders. On the other hand, cherry picking, and greenwashing are bigger than ever for avoiding standard and framework shopping.  The current landscape is often referred to as an ‘alphabet soup’. While there is a confusing myriad of guidelines, frameworks, surveys, and certifications that deal with the topic of sustainability, there is no a confusing assortment when it comes to actual standard setters. On a global scale there are only two reporting standards: GRI and SASB. There are currently two complementary developments happening in the sustainability reporting landscape: 1) European Sustainability Reporting Standards (ESRS) are being created by the European Union– with EFRAG and GRI leading co-construction efforts. 2) Standards for the disclosure of sustainability-related financial information are being drafted by the International Financial Reporting Standards (IFRS) Foundation – with which the newly established International Sustainability Standards Board (ISSB) is charged. The main differences between them are: 1) First, the European Union is focused on developing reporting standards that reflect multi-stakeholder information needs on the full sustainability spectrum across socio-economic and environmental aspects. The exclusive remit of the standards developed by the IFRS Foundation is on the needs of investors and the financial impact of sustainability issues on the reporting entity itself, focusing on enterprise value creation. 2) The second major difference is enforcement. The EU standards are backed by a political process and enforcement capabilities, making reporting mandatory for some 50,000 companies from financial year 2023. IFRS can only encourage uptake of ISSB standards. Towards a two-pillar corporate reporting landscape GRI firmly supports the creation of a comprehensive corporate reporting system based on a two-pillar structure – for financial and sustainability reporting – with a core set of common disclosures and each pillar on an equal footing based on the idea that sustainability reporting initiatives should not be regarded as competing but complementary forces as shown in Figure 1.

• Pillar 1 – addressing financial considerations through a strengthened financial report which includes sustainability disclosures, in the context of enterprise value.

• Pillar 2 – concentrating on sustainability reporting exposing on all external impacts a company is having on society and the environment and hence their contributions towards the goal of sustainable development.

Figure 1 (GRI, 3., 2022, 2)

GRI is fully committed to supporting this sustainability objective and will cooperate with the ISSB, EFRAG and (inter) governmental organizations to drive sustainability disclosure in a two-pillar reporting landscape forward and call for:

In 2021, GRI responded on the updated strategic direction of the IFRS Foundation and the establishment of a working group between GRI and IFRS. In November 2021, GRI welcomed the announcement of the launch of the ISSB, which included the consolidation of the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF) (which includes the IIRC and SASB) into the ISSB. GRI has previously had long-running collaborations with both the IIRC and SASB, including a 2021 joint report on how to use GRI and SASB standards together. In March 2022, GRI and the IFRS Foundation signed a Memorandum of Understanding (MoU) to coordinate their work programs and standard-setting activities as well as join each other’s consultative bodies related to sustainability reporting. By working together, the IFRS Foundation and GRI provide two pillars of international sustainability reporting – a first pillar representing investor-focused capital market standards of IFRS Sustainability Disclosure Standards developed by the International Sustainability Standards Board (ISSB), and a second pillar of GRI sustainability reporting requirements set by the Global Standards Setting Board (GSSB), compatible with the first and designed to meet multi-stakeholder needs. On the other hand, Since July 2021, GRI and the European Reporting Advisory Group (EFRAG) have been working together to co-construct the European Sustainability Reporting Standards (ESRS), which will set mandatory disclosure requirements under the EU Corporate Sustainability Reporting Directive (CSRD). Under the EFRAG-GRI cooperation agreement, the two organizations agreed to join each other’s technical expert groups and align standard-setting activities and timelines as much as possible (GRI, 2., 2023).

Basics and Confusions of Materiality

Back to basics, Materiality is a key concept in the world of reporting and plays a part both in the preparation of the disclosures and their verification by an auditor. Materiality is used to ‘filter in’ the information that is or should be relevant to users. Particular information is considered ‘material’ – or relevant – if it could influence the decision-making of stakeholders in respect of the reporting company. This brief description outlines that materiality is not a clear-cut concept and is subject to interpretation. What matters is not just what is meant by information but, crucially, who the stakeholders are. Are these only financial decision-makers such as investors and financiers? Or do they also include other parties such as employees, suppliers, customers and communities; that is, the socioeconomic environment? The next question is how influence must be interpreted for an organization’s stakeholders. Is this purely financial, in terms of costs or compliance – in other words, value creation for the reporting company itself? Or must it be viewed in terms of impact on the economy, the environment and people? There are the confusions around the concept of materiality for defining significant. To make it clear from the start, GRI determine two main directions of thinking about materiality, which together make up the concept of ‘double materiality’ as shown in Figure 2:

Figure 2 (GRI, 1., 2022, 2)

Recently There are wildly used terms in addition to the more familiar concepts of financial materiality and impact materiality such as: ‘dynamic materiality’, ‘nested materiality’, ‘extended materiality’ and ‘core materiality’. They are meant to strike a bridge between financial and impact materiality, but all it does is adding to the materiality madness, making the idea behind the concept of materiality unnecessarily complicated. Of those concepts, dynamic materiality is heard most often. It is based on the primacy of ‘financial materiality’ but has been extended by the notion of ‘pre-financial information’. The point of departure is that some sustainability issues have no direct monetary impact on the company’s financial value creation in the here and now, but may do so in the medium or long term. Blurring the boundaries between financial and impact materiality, by stating that some information is dynamic rather than static, complicates the way substance should be given to sustainability disclosures. The concept of dynamic materiality is basically a postponement of double materiality due to, at the end of the day, companies should report on matters that influence enterprise value (financial materiality) and matters that affect the economy, environment, and people (impact materiality). The reality is that the impacts of an organization are or will become financially material over time. Without understanding these impacts, it won’t be possible to get a complete overview of financially material issues affecting the company, an exercise that GRI supports. Besides, impact reporting is also highly relevant in its own right as a public interest activity for multiple stakeholders. The impacts of a company matter and must be reported even if the company or its investors do not consider them to be financially material, either now or in the future. That is to say two sustainability reporting developments are happening that take a different approach on materiality. 1. The European Sustainability Reporting Standards (ESRS) being created by the EU will be based on double materiality, for a multi stakeholder audience (which includes investors). GRI and the European Financial Reporting Advisory Group (EFRAG) are leading its co-construction efforts. 2. The standards for the disclosure of sustainability-related financial information are being drafted by the IFRS Foundation will be based on financial materiality for an investor audience only. In GRI’s perspective, the approaches of the IFRS and the EU are not competing but complementary forces. Different standards have different purposes for different audiences. In conclusion, the GRI Standard is currently the only global standard with an exclusive focus on impact reporting for a multi-stakeholder audience – making it an essential factor in the shaping of a reporting structure based on double materiality (GRI, 1., 2022).

Stakeholder Capitalism (Sustainable Capitalism) in Practice

The widely supported neoliberal economic view, especially popular since the 1980s, entails that a company is accountable only to the shareholders and investors. In this context, ‘profit maximalization’ is the company’s principal duty. Social matters are the responsibility of the government. At present, there are many who believe this view (in its extreme form) is no longer tenable. The objective of value creation by the company (purely) for the benefit of shareholders is moving towards a broader view, which takes account of social engagement and the impact on climate and society for a larger group of stakeholders. According to these topics are shifted market overview that will affect your reputation and brand, your ability to hire staff, mitigate and manage environmental risks (within the value and supply chain) and your access to capital markets. Recent milestones in this movement include The New Paradigm of Corporate Governance from the International Business Council of the World Economic Forum (WEF), the subsequent 2020 Davos Manifesto, as well as the adoption of stakeholder governance by the American Business Roundtable. Therefore, the real meaning of stakeholders should be reidentified. An interest (stake) is something of value to an individual or group, that can be affected by the activities of an organization. So, there are many individuals and groups either human or non-human that have the potential to be affected, for example: business partners, civil society organizations, consumers, customers, employees, governments, local communities, NGOs, shareholders and investors, suppliers, trade unions, and vulnerable groups etc. Together we call them stakeholders. The balancing act businesses face in a stakeholder centric economic model is to remain attractive to investors while taking into account the interests of your stakeholders. Alas, that is not an easy thing to do. First of all, you cannot please everyone. Secondly, you need to make money to stay competitive. Some business decisions may conflict with certain stakeholder’s interests. Hence, explaining to stakeholders your actions to become (more) profitable while (trying to) safeguard their interests is a powerful tool to show the world your contribution to the economy, environment and society. That is where financial reporting standards and GRI’s sustainability reporting standards come into play. The needs of the world’s economy, its people and environment go beyond climate metrics or investor interest alone. The topics of the top-10 most downloaded GRI Standards in 2021 clearly reflect this as shown in Figure 3. These numbers prove that there is broader interest in sustainability issues. Moreover, companies around the world are not all impacted by environmental issues to the same extent, with many organizations facing relatively higher-pressure levels on social and governance matters.

Figure 3 (GRI, 2., 2022, 2)

GRI bringing stakeholder capitalism into practice by suggested that the objective to generate profit should not be dismissed given that companies play an essential role in the creation of jobs and developing and scaling innovative technologies, which are crucial as the world seeks to shift from fossil to renewable energy. However, companies also need to set targets that are aligned to their sustainability impacts, including the Sustainable Development Goals (SDGs).  Applying comprehensive sustainability reporting and financial reporting means the company, asset manager, asset owner or rating agency can legitimately respond to calls for an approach that reflects both their profit-making mandate as well as responsibilities to the environment and society. That is why GRI is a firm supporter in the creation of a comprehensive corporate reporting system based on a two-pillar structure – for financial and sustainability reporting – with each pillar on an equal footing and mandated. (GRI, 2., 2022).

The Global Standards for Reporting Sustainability Impacts

The GRI Standards enable any organization – large or small, private or public – to understand and report on their impacts on the economy, environment and people in a comparable and credible way, thereby increasing transparency on their contribution to sustainable development. In addition to companies, the Standards are highly relevant to many stakeholders – including investors, policymakers, capital markets, and civil society. ​

Figure 4 (GRI, 1., 2023)

·         The Universal Standards – now revised to incorporate reporting on human rights and environmental due diligence, in line with intergovernmental expectations – apply to all organizations;

·         The new Sector Standards – enable more consistent reporting on sector-specific impacts;

·         The Topic Standards – adapted to be used with the revised Universal Standards – list disclosures relevant to a particular topic.

Access an overview of how the Standards are set up and what to look for in the reporting process with this short introduction: Get to know the GRI Standards system (GRI, 1., 2023)

References

  1. GRI, 1. (2022) the GRI Perspective: The Materiality Madness: Why Definitions Matter. [online] Amsterdam: Global Reporting Initiative. Available from:  https://www.globalreporting.org/news/news-center/putting-sustainability-reporting-in-perspective/  [Access 7 June 2023].
  2. GRI, 2. (2022) the GRI Perspective: Towards Stakeholder Capitalism: How We Can Get There. [online] Amsterdam: Global Reporting Initiative. Available from:  https://www.globalreporting.org/news/news-center/putting-sustainability-reporting-in-perspective/  [Access 7 June 2023].
  3. GRI, 3. (2022) the GRI Perspective: A Business Case for Environment & Society. [online] Amsterdam: Global Reporting Initiative. Available from:  https://www.globalreporting.org/news/news-center/putting-sustainability-reporting-in-perspective/  [Access 7 June 2023].
  4. GRI, 4. (2022) the GRI Perspective: ESG Standards, Frameworks and Everything in Between. [online] Amsterdam: Global Reporting Initiative. Available from:  https://www.globalreporting.org/news/news-center/putting-sustainability-reporting-in-perspective/  [Access 7 June 2023].
  5. GRI, 1. (2023) The Global Standards for Sustainability Impacts. [online] Amsterdam: Global Reporting Initiative. Available from:  https://www.globalreporting.org/standards/ [Access 7 June 2023].
  6. GRI, 2. (2023) Our Position in the Reporting Landscape. [online] Amsterdam: Global Reporting Initiative. Available from:  https://www.globalreporting.org/public-policy-partnerships/the-reporting-landscape/ [Access 7 June 2023].
  7. GRI Standards: จากการรายงานสู่เครื่องมือการจัดการธุรกิจอย่างยั่งยืน. [online] Bangkok: The Securities and Exchange Commission, Thailand. Available from: https://www.setsustainability.com/libraries/628/item/315-gri-standards [Access 9 June 2023].

the Most Renowned ESG Guidance Frameworks: Taskforce on Climate Change-Related Financial Disclosure (TCFD)

TCFD and FSB

Task Force on Climate Change-Related Financial Disclosure (TCFD) was formed by the Financial Stability Board (FSB) from Basel, Switzerland, which is an international body that seeks to strengthen and protect global financial markets from systematic risks such as climate change. The FSB’s structure is a framework for the identification of systemic risk in the financial sector, for framing the policy sector, and policy actions that can address these risks, and for overseeing implementation of those responses (FSB, 2020). The members of FSB, who committed to TCFD, comprise of 24 nations including 1) Argentina 2) Australia 3) Brazil 4) Canada 5) China 6) France 7) Germany 8) Hongkong SAR 9) India 10) Indonesia 11) Italy 12) Japan 13) Korea 14) Mexico 15) Netherland 16) Russia* (not participate in FSB meetings at present) 17) Saudi Arabia 18) Singapore 19) South Africa 20) Spain 21) Switzerland 22) Turkey 23) United Kingdom 24) United State of America, and 13 organizations including 1) International Monetary Fund (IMF) 2) The World Bank 3) Bank of International Settlements (BIS) 4) Organization for Economic Cooperation and Development (OECD) 5) European Central Bank (ECB) 6) ECB Banking Supervision (SSM) 7) European Commission 8) Basel Committee on Banking Supervision (BCBS) 9) International Association of Insurance Supervisors (IAIS) 10) International Organization of Securities Commissions (IOSCO) 11) International Accounting Standard Board (IASB) 12) Committee on the Global Financial System (CGFS) 13) Committee on Payments and Market Infrastructures (CPMI) (FSB, 2023).

TCFD Objectives

The FSB established the Task Force on Climate-related Financial Disclosures (TCFD or Task Force) to develop recommendations for more effective climate-related disclosures that: 1) could “promote more informed investment, credit, and insurance underwriting decisions” and 2) on the other hand, enable stakeholders to understand better the concentrations of carbon-related assets in the financial sector and the financial system’s exposures to climate-related risks. The Task Force identified several categories of climate-related risks and opportunities. These include potential financial impact to assist investors, and companies consider longer-term strategies and most efficient allocation of capital in light of “the potential economic impacts of climate change”. TCFD recommended disclosures into 4 thematic areas 1) Governance: Disclosure the organization’s governance around climate-related risks and opportunities. 2) Strategy: Disclosure the actual and potential impacts of climate-related risks and opportunities on the organizational’ s business, strategy, and financial planning where such information is material. 3) Risk Management: Disclosure how to organization identifies, assesses, and manages climate-related risks. 4) Metrics and Targets: Disclosure the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material (TCFD, 2022).

The Principles for Effective Disclosures

The first key consideration for prepare disclosures is the Principles for Effective Disclosures in which influences high-quality and decision useful disclosure that enable stakeholders to understand the impact of climate change on organizations. The TCFD recommended The Principles for Effective Disclosures including 7 concerns: 1) Disclosures should represent relevant information 2) Disclosures should be specific and complete 3) Disclosures should be clear, balanced, and understandable 4) Disclosure should be consistent over time 5) Disclosures should be comparable among companies within a sector, industry, or portfolio 6) Disclosures should be reliable, verifiable, and objective 7) Disclosure should be provide on a timely basis. Secondly, the Cross-Industry Metric Categories is a set of climate-related metric categories that all organizations should disclose, where data and methodologies allow. For example, A printing company, which familiar with printing process, may adopt a building rating system for identifying GHG from company’s building despite of GHG from printing process. However, the extract metrics and units of measure to be used are not prescribed in the Cross-Industry Metric Categories in order to allow organizations, industries, standard setters, and jurisdictions to develop specific climate-related metrics within those defined categories along with specific climate-related risk issues in each micro climate area. The third key consideration is the Financial Sector Metrics, which provides specific considerations for financial sector organizations due to the nature of their business activity. Another key consideration is the Transition Plans that ask for disclosure of the actual and potential impacts of climate-related risk and opportunities on the organization’s businesses, strategies, and financial planning, reporting on transition plans. The final one is the Implementation Over Time according to different organizations require vary resources, budgets and timing for producing disclosures, hence each organization should update the guidance continually.

Climate-related metrics

In terms of climate-related metrics, there are 3 “connective tissue” for connect those 4 thematic areas, which are mentioned above, comprise of 1) characteristics of effective climate-related metrics 2) Disclosing climate-related metric 3) driving toward comparability: cross industry metric categories. For the first one, TCFD described the character of reporting that ought to be. Firstly, organizations should elaborate about climate-related metrics that how it relates to organization, what are risks and opportunity of those metrics, and show how the organizations manage such risks and opportunities as part of governance, strategies, and risk management processes. This stage helps stakeholders to understand potential impacts of climate-related risks and opportunities over a specific time period, including financial impacts and operational consequences. Disclosure of climate-related metrics will be most effective when metrics are presented in manner that aids understanding including clear articulation of any limitations and caution. Climate-related metrics should also provide important context around such points as management’s thinking in terms of goal setting, internal process management, and communication objectives and should be supported by contextual and supporting narrative information on items such as organizational boundaries, governance, methodologies, and basis of preparation. The climate-related metrics support effective internal control for purposes of data verification and assurance. Hence. Climate-related metrics should be free from bias and value judgement so that they yield an objective disclosure of performance that stakeholders can leverage regardless of their worldview or outlook. In consistency of over time, there are three time horizons that are relevant to climate-related metrics: current, historical, and forward-looking, which are identified as: Current period data, outlining most recent reporting period and covering the same period as the current period in the organization’s financial filings (e.g., 12 months year to date). Historical, data for the period(s) prior the current year period, covering at a minimum the same period as in the organization’s financial fillings. Forward-looking is future period data, covering shot-, mid-, and long-term time horizons. Forward-looking metrics may be based on methodologies such as scenario analysis, trend analysis, sensitivity analysis, and simulations, as well as commitments and climate-related targets as shown in Figure 1. Unlikely historical and current data, forward-looking data are usually more appropriately reported as ranges based on assumptions about the future state of the world, often tied to one or more probable climate scenarios. Importantly, climate-related metrics are most effective when the same item is reported across all time periods. Measuring the same metrics over time period is a key to track progress. Disclosure of GHG emissions, for example, could include data on the organization’s previous GHG emissions levels, the amount of GHG emissions in the organization’s current reporting period – including an indication of progress against GHG-specific targets – and a forward-looking range for future GHG emissions.

For the second one, contextual and supporting narrative can help to create effective disclosure of climate-related metrics in general. Climate-related metrics, and associated narrative should be integrated with an organization’s other disclosures to provide a coherent set of information on the organization’s climate-related risk and opportunities and actual and potential financial impact. Organizations should also consider presenting climate-related metrics and associated contextual information with ranges or qualitative categories including confidence associated with the value of metrics. The first consideration is types of measurements used that include whether information comes from direct measurement, estimates, proxy indicators, or financial and management accounting processes. Methodologies and definitions used is another consideration, which include the scope of application, data sources, critical factors or parameters, assumptions, and limitations of the methodology. For example, the GHG protocol suggests that organizations discuss GHG emission factors, scope, and boundaries etc. For metrics informed by scenario analysis, organizations should include information on which climate scenarios were used and their assumptions and limitations as elaborate in Table 1. Organization should also provide context if they adjust the methodology or definition of particular metrics. Thirdly, trend data is another consideration for considering of how metrics have changed in absolute and relative amounts over time, including whether acquisitions, divestments or policies have affected results. The fourth consideration is how results are connected with business units, company strategy, and financial performance and position. Where it helps understanding, organizations should consider disaggregating information by categories such as geographical area, business unit, asset, type, upstream and downstream activities, source, and vulnerability of area. The fifth consideration is how value chains will be affected over time by climate-related transition and physical risks, including life cycle GHG emission reporting. The final consideration for disclosing climate-related metrics is reconciliation with financial accounting standard, if needed. If climate-related metrics are presented in financial terms, disclosures should clarify how such metrics reconcile with financial accounting standards and explain any differences.

Importance of Disclosing Details on Climate-Related Scenario Analysis

Disclosure CategoryPurpose
Governance – Board oversight of strategy and scenario process• Indicate and awareness and understanding of climate-related issues; level of expertise on or available to the Board on climate issues; reporting relationships to the Board regarding scenario analysis.
Risk Management• Including the risks and uncertainties evaluated through scenario analysis; how the company believes these risks may develop over time based on scenario analysis; how the company plans to manage or address their risks.
Strategy – Scenario analysis process• Describe processes used for scenario analysis; the range and assumptions of scenarios used; key finding, whether it is a standalone analysis or integrated with company’s risk management and strategy processes.
Strategy -Strategy resilience• Indicate awareness and planning for the potential physical climate and transitional changes indicated by scenario analysis; indicate adjustments made to strategy in light of scenario analysis.
• Indicate whether financial plans are aligned with strategic plans related to climate risks and opportunities (e.g., capital expenditure, investments, R&D, etc.)
Target and Metrics• Indicate whether useful metrics have been identified related to strategy, strategy resilience, and scenario signposting; how these metrics are connected to the organization’s strategy and scenario analysis; and how they are being used

Table 1 (TCFD, 2020, 45)

Remark: Using a common set of scenarios and inputs (e.g., parameters, timelines, industry-specific metrics, methodologies) increases comparability across companies, provides greater reliability and relevance, and can help reduce the resources required by preparers to develop scenarios in- house. On the other hand, using a common set of scenarios across organizations may reduce their ability to assess their individual situations and how climate-related risks may uniquely affect them, and thus could increase concentration of risk.

                  Driving toward comparability is the third connective tissue that help the disclosure get aligned with global trend. Climate-related metrics can be generally categorized into 2 groups – those that apply to all organizations (cross-industry) and those that are specific to an industry (industry specific). These 2 types of climate-related metrics can be referred to the International Sustainability Standards Board (ISSB) that established by the IFSC Foundation. The Task Force recommends that preparers disclose metrics consistent with the cross- industry, climate-related metric categories for the current, historical, and forward-looking periods. It is also important to note that the recommended disclosures within both the Strategy and Metrics and Targets recommendations are subject to materiality, except for the disclosure of Scope 1 and Scope 2 GHG emissions. Organizations typically use a wide variety of information internally and externally to manage their operations. These cross-industry, climate-related metric categories are not meant to supplant or replace other information that organizations track as part of their business planning or that industries converge on to track climate-related risks or opportunities specific to their industry or organization. 7 Cross-Industry, Climate-Related Metric categories and examples are described in Table 2. (TCFD, 2021)

Metric CategoryExample Unit of MeasureExample Metrics
GHG Emissions
Absolute Scope 1, Scope 2, and Scope 3, emission intensity  		MT of CO2e• Absolute Scope 1, Scope 2, and Scope 3 GHG emission
• Financed emissions by asset class
• Weighted average carbon intensity
• GHG emission per MWh of electric produced
• Gross global Scope 1 GHG emissions covered under emission-limiting regulations
Transition Risks
Amount and extent of assets or business activities vulnerable to transition risks*		Amount or percentage• Volume of real estate collaterals highly exposed to transition risk (General industry)
• Concentration of credit exposure to carbon-related assets (General industry)
• Percent of revenue from coal mining (Energy industry)
• Percent of revenue passenger kilometers not covered by Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) (Aviation industry)
Physical Risks
Amount and extent of assets or business activities valuable to physical risks*		Amount or Percentage• Number and value of mortgage loans in 100-year flood zones
• Wastewater treatment capacity located in 100-year flood zones
• Revenue associated with water withdrawn and consumed in regions of high or extremely high baseline water stress
• Proportion of property, infrastructure, or other alternative asset portfolios in an area subject to flooding, heat stress, or water stress
• Proportion of real assets exposed to 1:100 or 1:200 climate-related hazards
Climate-Related Opportunities Proportion of revenue, assets, or other business activities aligned with climate-related opportunitiesAmount or percentage• Net premiums written related to energy efficiency and low-carbon technology
• Number of 1) zero-emissions vehicles (ZEV), 2) hybrid vehicles, and 3) plug-in hybrid vehicles sold (PHEV)
• Revenues from products or services that support the transition to a low-carbon economy
• Proportion of homes delivered certified to a third-party, or multi-attribute green building standard
Capital Deployment
Amount of capital expenditure, financing, or investment deployed toward climate-related risks and opportunities		Reporting currency• Percentage of annual revenue invested in R&D of low-carbon products/services
• Investment in climate adaptation measures (e.g., soil health, irrigation, technology)
Internal Carbon Prices
Price on each ton of GHG emissions used internally by an organization		Price in reporting currency, per MT of CO2e• Internal carbon price
• Shadow carbon price, by geography
Remuneration
Proportion of executive management remuneration linked to climate consideration**  		Percentage, weighting, description, or amount in reporting currency  • Portion of employee’s annual discretionary bonus linked to investments in climate-related products or services
• Weighting of climate goals on long-term incentive scorecards for Executive Directors
• Weighting of performance against operational emissions’ targets for remuneration scorecards

Table 2 (TCFD, 2021, 16-17)

*Transition and physical risks: Due to challenges related to portfolio aggregation and sourcing data from companies or third-party fund managers, financial organizations may find it more difficult to quantify exposure to climate-related risks. The Task Force suggests that financial organizations provide qualitative and quantitative information, when available.

**Remuneration: While the Task Force encourages quantitative disclosure, organizations may include descriptive language on remuneration policies and practices, such as how climate change issues are included in balanced scorecards for executive remuneration.

References:
  1. FSB (2020) About the FAB. [online] Basel: Financial Sustainability Board. Available from: https://www.fsb.org/about/ [Access 28 May 2023].
  2. FSB (2023) Members of the FSB. [online] Basel: Financial Sustainability Board. Available from: https://www.fsb.org/about/organisation-and-governance/members-of-the-financial-stability-board/ [Access 28 May 2023].
  3. TCFD (2020) Task Force on Climate-related Financial Disclosures: Guidance on Scenario Analysis for Non-Financial Companies. [online] New York: Task Force on Climate-related Financial Disclosures. Available from: https://www.fsb-tcfd.org/publications/ [Access 29 May 2023].
  4. TCFD (2021) Task Force on Climate-related Financial Disclosures: Guidance on Metrics, Targets, and Transition Plans. [online] New York: Task Force on Climate-related Financial Disclosures. Available from: https://www.fsb-tcfd.org/publications/ [Access 28 May 2023].
  5. TCFD (2022) Task Force on Climate-related Financial Disclosures: Overview. [online] New York: Task Force on Climate-related Financial Disclosures. Available from: https://www.fsb-tcfd.org/publications/ [Access 28 May 2023].

An Overview of ESG reporting

What is ESG reporting?

ESG reporting stands for Environment, Social, and Governance which are three components of sustainability that determine an organization’ success in the long-term. ESG reporting reveal measurable activities that how well organizations integrate environmental impact, social responsibility, and governance practices. ESG reporting includes strategies and operations to create tangible value which benefit the company and stakeholders. ESG reporting, therefore, is a key area of focus for business looking to improve their sustainability credentials (Emerick, D., No Clue). In present, management teams at listed and public-interest companies are increasingly being required (by stock markets and government bodies) to provide ESG disclosure with their quarterly and annual reporting. Moreover, it is a communication tool that play an important role in convincing skeptical stakeholders such as investors, creditors, employees, consumers, etc. by showing transparent organization’s actions, risks, and opportunities. In contrast, Ineffective or mislead ESG reports may be considered greenwashing (Peterdy, K., 2023), which occurs when the management team within organization makes false, unsubstantiated, or outright misleading statements or claims about the sustainability of a product or service without a verifiability principle, or even about business operations more broadly. However, some greenwashing is unintentional, due to a lack of knowledge or understanding on the part of management, but sometimes greenwashing is also carried out intentionally through marketing efforts (Peterdy, K., 2022).

Scoring an ESG

As for an ESG score is an objective measurement or evaluation of a given organization, fund, or security’s performance under ESG issues. ESG scoring could be either industry-specific or industry-agnostic. Industry-specific scoring system evaluates issues that regard as material to the industry at large like substances of material, context of materials, or acquiring process of material, while industry-agnostic corporate broadly accepted factors that are meaningful across industries like climate change, human rights, or Diversity, Equity and Inclusion (DEI) (Miller, N. 2022). Courtnell, J. (2022) from Green Business Bureau (GBB) described ESG reporting in two types as 1) ESG Framework and 2) ESG Standard. ESG Framework is a framework is broad in its scope, giving a set of principles to guide and shape understanding of certain ESG topic. ESG frameworks will guide the direction of ESG reporting, but will not provide a methodology for the collection of information, data, or the reporting itself. Framework are useful to use alongside ESG standard, or when a well-defined standard does not exist. On the other side, ESG Standards are more specific in their focus. They contain detailed criteria explaining what needs to be reported. In the context of ESG, this means standards dedicate how information and data are collected, and how a report needs to be produced such as what topics and areas to include. Standards make frameworks more actionable by ensuring comparable, consistent, and reliable disclosure that appear in a report.

Standards and frameworks for ESG Reporting

 While, Byrne, D. (2023) from Corporate Governance Institute (CGI) stated ESG reporting frameworks are more about principles and focus on grater questions, such as how information is structured, what information is collected, etc. and ESG reporting standards are more technical. They give specific requirements, like precise metrics for reporting each topic. Standards and frameworks should be used together for ensuring reliability of the reports. In addition, Letta, A. T. (2022) from esg.tech supported that the frameworks provide an overview of the structure and topic to be addressed. Standards provide detailed structures, including specific metrics and detail criteria. Frameworks are sometimes put into practice in absence of well-defined standards and/or allow flexibility in setting direction for reporting without prescribing a specific methodology. In more detail, Courtnell, J. (2022) divided ESG Frameworks into 3 categories including 1) Voluntary Disclosure Framework, 2) Guidance Framework, and 3) Third-Party Aggregators. Under voluntary disclosure frameworks, an organization actively discloses its sustainability-related policies, practice, performance data, and information related to ESG criteria, which includes checklist 25 steps of GBB. Popular voluntary disclosure frameworks are 1) Carbon Disclosure Project (CDP) 2) Global Real Estate Industry Benchmark (GRESB) 3) Dow Jones Sustainability Indices (DJSI). In terms of the guidance frameworks, they provide recommended methodologies and guidance to help companies identify, manage, and report on their ESG performance. The most popular guidance frameworks are 1) Sustainability Accounting Standards Board (SASB) 2) Global Reporting Initiative (GRI) 3) Task Force on Climate-Related Financial Disclosure (TCFD) 4) Carbon Disclosure Standard Board (CDSB) 5) International Integrated Reporting Council (IIRC). Finally, Third-Party Aggregators refer to framework that assess an organization’s performance based on aggregated, and publicly available data. The Data is collected from company-sourced filings, publications, company websites, annual reports, and/or sustainability or CSR reports. The main third-party aggregators are 1) Bloomberg Terminal ESG Analysis 2) Institutional Shareholder Service (ISS E&S) Quality Score (ISS) 3) Morgan Stanley Capital International (MSCI) 4) Sustainalytic. On the other hand, there are only 2 ESG reporting standards showed, which are 1) European Financial Reporting Advisory Group (EFRAG) and 2) International Sustainability Standard Board (ISSB). When, Byrne, D. (2023) mentioned only 4 common ESG report frameworks, which falls under the guidance frameworks, comparing with data from Courtnell, J. (2022), including 1) Task Force on Climate-Related Financial Disclosure (TCFD) 2) International Integrated Reporting Council (IIRC) 3) Global Reporting Initiative (GRI) 4) Carbon Disclosure Standard Board (CDSB). And common ESG reporting standard are 1) European Financial Reporting Advisory Group (EFRAG) 2) International Sustainability Standard Board (ISSB) and 3) The sustainability Accounting Standard Board (SASB), which Courtnell J. identified it as a guidance framework. On the other hand, Letta, A. T. (2022) only stated 1) Task Force on Climate-Related Financial Disclosure (TCFD) as an example of ESG report frameworks and 2 global recognized ESG report standards including 1) Global Reporting Initiative (GRI), which both Courtnell, J. and Byrne, D. identified as a guidance framework, and 2) Sustainability Accounting Standards Board (SASB), which Courtnell, J. identified as a guidance framework, but D. argued it is a standard as well as Letta, A. T.

ESG in Thailand

In Thailand, we are at the starting point to surf on ESG flow. The Stock Exchange of Thailand (SET) revealed Sustainability Reporting Guide for listed companies together with ESG metrics for each industry group in 2022. The guide line for sustainability reporting also complied with the 56-1 One Report form and can be used as a vital checklist for sustainable business development and investment (SET, 2022). Apisak Kiewkarnka, deputy manager and head of finance for the SET, said the bourse had developed a SET-ESG framework focused on fulfilling 4 specific sustainable development goals: 1) industry innovation and infrastructure ()SDG-9, 2) responsible consumption and production (SDG-12), 3) reduce inequity (SDG-10), and 4) climate action (SDG-13) (Kiewkarnka, A., 2022), while Anantananon, R. (2022) assistant manager and head of sustainable business for the SET added there are 2 platforms are under development 1) SET ESG Data Platform to make ESG-related data disclosure mandatory for companies 2) SET ESG Academy to rise awareness regarding ESG among companies and universities. An intimate partner to stock exchange sector as the bank industry in Thailand also announced ESG declaration in 2022 in order to set the banking industry’s clear common direction in addressing ESG agenda. The Thai Bankers’ Association (TBA) outlined action priorities in addressing ESG risks and opportunities regard to climate change (SDG-13), diversity and human rights (SDG-5), financial inclusion (SDG-8), and reduced inequities (SDG-5), while fully supporting Thailand toward UN SDGs and commitment to the Paris Agreement. All TBA members agreed on 6 shared action priorities including 1) Governance 2) Strategy 3) ESG Risk Management 4) Financial Product 5) Communication 6) Disclosure (BOT & TBA, 2022). Assoc. Prof. Phd. Nattavud Pimpa Assistant Dean Sustainability, College of Management, Mahidol University stated that Thai businesses are still leaning to fully comprehend the need to integrate ESG factors into their operations. Great obstacles in adopting ESG are the lack of consensus and consistency in ESG reporting and measurements, lack of the manpower or technology to devote to the extension effort required to collect and analyze ESG data, and lack of transparency in formal systems (Pimpa, N., 2023).

Current ESG Situations

It is obviously seen that there are many commotions in the ESG overview at the moment either in global or local notion in terms of reporting framework and standard, which there is no absolute for any countries. At the end of the day, all of these tangible evidences expose significant trend and transition toward sustainability from capital sector around the world. Organizations both government and Private, therefore, should start to adjust their operating mindset and monitor about related ESG issues from different fields in order to create their own ESG strategies, action plans, and clear, consistent, and align reporting frameworks, which suite for each organization and get on with their stakeholders. Each organization from different backgrounds and industries may requires different necessary resource and expertise to manage, collect, and analyze reliable ESG data, in some organization will consume higher cost and time for accomplished goals though (Pimpa, N., 2023). However, Thailand is a leader in 6 Asean countries (Singapore, Malaysia, Thailand, Vietnam, Indonesia, and Philippines) in terms of average ESG performance. The sustainability disclosure performance ranking in 2019 by Corporate Knights, a research firm, the Stock Exchange of Thailand ranked 9th of 47 stock exchanges worldwide, which is the highest of all of the APAC region. Following by The Singapore Exchange, Philippine Stock Exchange and Indonesia Stock Exchange rake 24, 30, and 36, respectively. Vietnam and Indonesia show higher unmanaged ESG risk due to lower managed score and higher exposure to high ESG risk industries such as mining, oil and gas, steel, i.e. (Pan, F., 2021) and (Walker, R., 2021).

ASEAN ESG performance comparison 2019

Source from: Sustainalytics https://www.sustainalytics.com/esg-research/resource/investors-esg-blog/esg-disclosure-and-performance-in-southeast-asia

References:
  1. Byrne, Dan (2023) What’s the difference between ESG reporting standards and frameworks. [online] London: Corporate Governance Institute (CGI). Available from: https://www.thecorporategovernanceinstitute.com/insights/guides/whats-the-difference-between-esg-reporting-standards-and-frameworks/ [Access 12 May 2023].
  2. Courtnell, Jane (2022) ESG Reporting Frameworks, Standards, and Requirements. [online] Texas: Green Business Bureau. Available from https://greenbusinessbureau.com/esg/esg-reporting-esg-frameworks/ [Access 9 May 2023].
  3. Emerick, Dean (No clue) What is ESG Reporting? [online] Ontario: ESG/ The Report. Available from: https://www.esgthereport.com/what-is-esg-reporting/ [Access 12 May 2023].
  4. Letta Anamim Tesfaye (2022) What is the difference between ESG framworks and standards? [online] Paris: esg.tech. Available from: https://esg.tech/how-to/esg-frameworks-and-standards/ [Access 12 May 2023].
  5. Miller, Noah (2022) ESG Score. [Online] Vancouver: Corporate Finance Institute (CFI). Available from https://corporatefinanceinstitute.com/resources/esg/esg-score/ [Access 12 May 2023].
  6. Pan, Frank (2021) ESG Disclosure and Performance in Southeast Asia. [online] London: Sustainalytics. Available from: https://www.sustainalytics.com/esg-research/resource/investors-esg-blog/esg-disclosure-and-performance-in-southeast-asia [Access 13 May 2023].
  7. Peterdy, Kyle (2022) Greenwashing. [online] Vancouver: Corporate Finance Institute (CFI). Available from: https://corporatefinanceinstitute.com/resources/esg/greenwashing/ [Access 12 May 2023].
  8. Peterdy, Kyle (2023) ESG Disclosure. [online] Vancouver: Corporate Finance Institute (CFI). Available from https://corporatefinanceinstitute.com/resources/esg/esg-disclosure/ [Access: 12 May 2023].
  9. Walker, Rupert (2021) Thailand leads ESG disclosure in Southeast Asia. [online] London: MA Financial Media. Available from: https://fundselectorasia.com/thailand-leads-esg-disclosure-in-southeast-asia/ [Access 13 May 2023].
  10. Anantananon, Ratwalee (2022) Set launches platforms to promote ESG Practices. [online] Bangkok: Bangkok Post. Available from: https://www.bangkokpost.com/business/2303434/set-launches-platforms-to-promote-esg-practices [Access 13 May 2023].
  11. Bank of Thailand (BOT) and The Thai Bankers’ Association (TBA) (2022) Joint Press Release: TBA launches ESG Declaration, a strong collective commitment to expediting sustainable development toward better and greener economy. [online] Bank of Thailand (BOT). Available from: https://www.bot.or.th/landscape/en/news/2022/08/29/esg-declaration/ [Access 13 May 2023].
  12. Kiewkarnka, Apisak (2022) Set launches platforms to promote ESG Practices. [online] Bangkok: Bangkok Post. Available from: https://www.bangkokpost.com/business/2303434/set-launches-platforms-to-promote-esg-practices [Access 13 May 2023].
  13. Pimpa, Nattavud (2023) ESG: Poison or Panacea for Thai Business? [online] Bangkok: The Nation (Thailand). Available from: https://www.nationthailand.com/blogs/special-edition/esg/40026137 [Access 13 May 2023].
  14. SET (2022) ESG The Stock Exchange of Thailand (SET) introduces Sustainability Reporting Guide. [online] Bangkok: Thailand Business News. Available from: https://www.thailand-business-news.com/set/89984-the-stock-exchange-of-thailand-set-introduces-sustainability-reporting-guide [Access 13 May 2023].

Significant of ESG for business transformation

In global perspective, Environmental, Social, and Governance (ESG) have become the language of capital markets, expanding market value by maintaining value for future generation. Climate change, biodiversity, carbon emission, human right, customer relation, supply chain, board management practices, data, tax transparency, and security are examples fall under ESG heading. The increase in investor attention comes alongside an ideological shift in business sustainability and citizenship are no longer seen as philanthropic activities, but rather, vital for business success (Courtnell, J., 2022).

Impact of sustainability to corporate

The Fintech Time states ESG reports disclose data and explain the impact and added value of an organization containing summaries of activities which provides stakeholders and investors with an insight into the goals, achievement, and the impact of those organization. In addition, it shows a number of ESG Link Loans in Europe obtained quadrupled from 27 billion Euro in 2017 to 102 billion Euro in 2019. The ESG report is not being yet mandatory in all counties, an increase amounts of organizations disclose this information voluntary and use it as a proof for gain more investment though since they have recognized the importance of communicating their business strategy and the impact of their business (The Fintech Times, 2022). From 2023 onwards, more organizations will actual be obligated to publish sustainability information and degree of obligations depend on discretion of each country. For instance, the European Commission presented a new proposal for a Corporate Sustainability Reporting Directive (CSRD), which is a regulation for listed and public-interest companies reveals non-financial report (Bureau Veritas, 2023). The CSRD would be an EU sustainability reporting standard improving the existing requirement of the current Non-Financial Reporting Directive (NFRD). Under this new directive, up to 50,000 large public-interest European entities, as well as all listed companies on EU regulated market, will be required to report on ESG related factors (The Fintech Times, 2022).

How does ESG impact Thai company?

In Thailand, SET (Stock Exchange of Thailand) initially has concerned about good governance concept like in The Principles of Good Corporate Governance for Listed Company 2012, which including 1) Right of Shareholders 2) Equity Treatment of Shareholders 3) Role of Stakeholders 4) Disclosure and Transparency (SET, 2012). Afterward, the Checklist for sustainable SME Business (Antong, P.and Ekachaiphaiboon, S., 2016), which is a handbook for sustainable development of SME business, was published in 2016 and SEC (The office of the Securities and Exchange Commission) consecutively launched CG Code (Corporate Governance Code) in 2017 that mandates role and responsibility of a board of an organization on behalf of leader through determining targets of business (CG Thailand, 2017). It comprises of 8 categories such as Establish Clear Leadership Role and Responsibility of the Board, Define Objective that Promote Sustainable Value Creation, Strengthen Effective Risk Management and Internal Control etc. Lastly, the Corporate Sustainability Guide for Listed Companies was launched in 2020 by SET (Santhayati, N. et al., 2020).

Collaboration among organizations

In terms of risk management, SET adopted COSO-ERM 2017, which is an enterprise risk management guideline from collaboration between COSO (the Committee of Sponsoring Organization of the Treadway Commission), which composed of  5 big professional commissions 1) The American Institute of Certified Public Accountants or AICPA 2) The Institute of Internal Auditor or IIA 3) The Financial Executives Institute or FEI 4) The American Accounting Association or AAA 5) Institute of Management Accountants or IMA) (Kamhaengpol, T, 2016) and WBCSD (World Business Council for Sustainable Development), as ESG Risk for Thai companies (Chayaviwattanawong, C., 2018). It obvious that SET and SEC continuously strive to enhance sustainability issue for a decade and sustainability guideline and regulation gradually strong as global trend.

Understanding the importance of ESG report

Understanding the importance of ESG reporting requires a mindset shift, one that does not consider ESG regulation as a burden, but perceives reporting as a means of transparency. This transparency entails capital and create solutions for the major global challenges such as climate change, equity, and security, which correlate with Sustainable Development Goals (SDGs) of the United Nation. The transparent, moreover, also encourages essential accountability for collaboration with other stakeholder and developing actionable solutions.                Especially, investors and lenders will increasingly use the transparence given by a ESG report to evaluate a company’s risk exposure and determine its possible future financial performance. Despite of investors, customers are also demanding products and/or services from responsible brands (Courtnell, J., 2022). The First Insight (2023) shows customers, particularly Gen Z, are more willing to support brand with effective ESG strategy with 62% of Gen Z prefer to buy from a sustainable brand, and 73% of them are willing to spend up to 10% more for a more sustainable product/service. On the other hand, 79% of Millennial employees consider the sustainability agenda of an employer before making their career choices. This means reporting ESG will boost an organization’s chances of attracting new talent (Cone, C., 2022). While MSCI (2021) argues sustainable investment goes beyond Gen z and millennials, but becoming requirements for key industry participants, such as institutional investors and listed company. In order to use ESG reporting to plot an effective ESG strategy, Organizations need to set clear targets to reduce environmental, social, and governance risk, then evidently measure their progress and annually report in a transparent manner. Moreover, organizations had better set actionable initiatives that will support ESG compliance and their ESG strategy (Courtnell, J., 2022). Korn Ferry, which is a global organizational consulting firm, also defines ESG as a sustainable strategy that you have to change rather than inevitable. An organization requires to define a purpose, then develop the skills, talent, leaders and culture that it needs to achieve. For the purpose, one should start with “Set the tone of the top” by setting commitments, then bringing them to everyday life and behavior of leaders across the organization. After the leaders can perform the change, it is the starting point for infuse purpose and ESG objectives into organization culture, and empower employees to devote in purpose, and be active part of change, for good. However, A Set of targets should be established and regularly measured outcomes of ESG Driven strategy and actions by qualitative or quantitative metrics (Korn Ferry, 2023). In more detail, each organization should get an overview of all ESG-related information that is available across different departments and stakeholders and decide which ones are most relevant for you. This is the so-called materiality assessment. In addition, technology and software can already simplify the data collection process immensely today and give you guidance in the jungle of reporting requirements. Then, decide on the reporting framework you want to use and ensure reliability and transparency in your reporting – that is the key. Lastly, communication is a highlight that shows how your ESG report aligns with your business strategy for both to the public and the stakeholders (The Fintech Times, 2022).

All of these evidences exhibit endeavors from capital sector around the world for enhancing sustainability concept together with other industrial sectors. Initially, it seems hit-and-miss according to wideness and deepness of sustainability realm and its contrary idea from Industrialization. However, the sustainability and climate change are unavoidable issues and effect to human life directly. These concepts have been seriously developed over two decades in many ways either scientific or social since the Kyoto Protocol in 1997 until the United Nations Framework Convention on Climate Change Conference of the Parties: UNFCCC (COP) 27 in 2022. Those developments conduce significant transformation in our world in many ways of life, especially in economic system. Therefore, ESG will play an important role for mandating business operating activities of such organizations either government sector or private sector, even though it is only voluntary requirement from stock exchange in some countries at the moment. Mandatory ESG reporting soon becoming a necessary measure, companies need to familiarize themselves with the latest ESG criteria and obligations. There is a forecast from Deloitte Center for Financial Services (DCFS) that client demands to drive ESG-mandated assets to consist half of all professionally managed investments in the United States by 2025. Technologies enable better-quality ESG data and the regulatory landscape becomes clearer. Institutional, and retail investors are expected to more demand that ESG factor be applied to greater percentage of their portfolio. ESG assets should constantly grow at a 16% Compound Annual Growth Rate (CARG) in 2025 (Collins, Sean, 2020). However, mandatory ESG reporting regulations are more likely to be adopted by countries with common law origins and higher per capita carbon emissions rather than other intangible identifications such as social perception or well-being. According to this trend, the simplest solution is to dedicate staff and resources to checking ESG requirements and recommended frameworks in any country where a company wishes to conduct business as soon as possible because some change in an organization may require a period of time. Moreover, this can be a complicated, costly, and error-ridden process (Abigali Y., 2022).

References:
  1. Abigali Yu (2022) The Global State of Mandatory ESG
  2. Collin, Sean (2020) Advancing Environmental, Social, and Governance Investing: A Holistic Approach for Investment Management Firm
  3. Cone, Coral (2022) Engaging Employees at the Intersection of Purpose and Philanthropy. [Online] Massachusetts: 3BL CSR Wire
  4. Courtnell, Jane (2022) ESG Reporting Preparation Guide: What is ESG Reporting? [Online] Texas: Green Business Bureau
  5. Korn Ferry (2023) Critical ESG & Sustainability Question: Purpose
  6. The Fintech Times (2022) Planetly: What is ESG Reporting and Why is it Vital for Business. [Online] London: The Fintech Times
  7. The First Insight (2023) The Stage of Consumer Spending: Gen Z Shoppers Demand Sustainable Retail. [Online] Pennsylvania: The First Insight. Available https://www.firstinsight.com/white-papers-posts/gen-z-shoppers-demand-sustainability [Access 9 May 2023].
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