Navigating the UK & EU ESG reporting landscape

A guide to frameworks and governing bodies

Environmental, Social, and Governance (ESG) reporting is rapidly becoming a cornerstone of responsible business practices in Europe and the United Kingdom. Companies are increasingly recognising the value of demonstrating their commitment to sustainability and ethical operations, not just to investors, but to a wider range of stakeholders. For companies embarking on this journey, here’s a practical guide to the key European frameworks and governing bodies shaping the ESG reporting landscape, as well as the technology that is streamlining ESG reporting.

Understanding ESG

ESG stands for Environmental, Social, and Governance. ESG frameworks are used to assess a company’s impact on the planet, its employees and society, and its internal systems of accountability. Investors, customers, and other stakeholders are increasingly using ESG criteria to evaluate a company’s long-term viability and its commitment to responsible practices. Strong ESG performance is often seen as a mark of a well-managed company positioned for success.

The European regulatory landscape

While state-led legislation determines mandatory compliance, several key frameworks are also influencing ESG reporting in the European Union (EU) and the United Kingdom (UK). Frameworks can be broadly categorised as mandatory or voluntary.

Mandatory reporting frameworks

Task Force on Climate-related Financial Disclosures (TCFD):

• Who: The TCFD was established by the Financial Stability Board (FSB) in 2015 and completed its work in 2023.
• What: The Task Force on Climate-related Financial Disclosures (TCFD) helps businesses and investors understand the financial impact of climate change. Their recommendations guide companies on disclosing climate-related risks and opportunities, allowing them to be factored into financial decisions.
• When: While not mandatory in the EU yet, TCFD reporting will be required under the upcoming Corporate Sustainability Reporting Directive (CSRD). Some EU member states have already introduced national TCFD-aligned regulations.
• How: The TCFD framework includes 11 questions that set a baseline for climate disclosures and other ESG reports. It also outlines recommended disclosures across four key areas: governance, strategy, risk management, and metrics and targets.
• Why: TCFD helps companies better manage climate-related financial risks and identify opportunities arising from the transition to a low-carbon economy.

Corporate Sustainability Reporting Directive (CSRD):

• Who: The CSRD was proposed by the European Commission in 2021.
• What: Aims to standardise ESG reporting across the EU, building on the existing Non-Financial Reporting Directive (NFRD) and increasing the number of businesses subject to EU sustainability reporting requirements to around 49,000.
• When: This came into effect on 5 January 2023 with phased-in reporting requirements over the following 2 to 4 years. Find out more here.
• How: The CSRD requires companies to report on a comprehensive range of sustainability factors, including environmental, social, and governance issues, and requires the audit (assurance) of reported information.
• Why: CSRD will create a more level playing field for ESG reporting in Europe, providing greater transparency for investors and other stakeholders.

Read our full #CSRD blog article here.

EU Taxonomy:

• Who: Developed by the European Commission.
• What: Establishes a classification system for environmentally sustainable economic activities (if a financial product or investment is environmentally sustainable).
• When: This came into effect in July 2020 and evolved to include additional disclosure requirements in 2023 (circular economy transition, pollution prevention, biodiversity protections, and sustainable use of water and marine resources).
• How: Defines six environmental objectives that align with the goal of net zero by 2050 and the economic activities that substantially contribute to them. Companies can use the Taxonomy to disclose the extent to which their activities are aligned with these objectives.
• Why: The Taxonomy aims to support sustainable investment in the EU by providing clarity on what constitutes a truly sustainable economic activity.

Streamlined Energy and Carbon Reporting (SECR):

• Who: Implemented by the UK Department for Business, Energy & Industrial Strategy (BEIS) to take over from the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme.
• What: Requires large companies (including LLPs and charitable companies) to report on their energy use, GHG emissions, and efforts to improve energy efficiency.
• When: In effect since April 2019, with annual reporting requirements.
• How: Companies must report on their energy consumption from various sources and their associated greenhouse gas emissions. By requiring companies to disclose energy use and carbon emissions, these policies not only encourage cost-cutting and productivity improvements, but also align with the recommendations of the G20 Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) for climate risk transparency.
• Why: SECR helps to track progress on decarbonisation goals in the UK and provides a baseline for further climate-related disclosures.

Voluntary reporting frameworks

Alongside mandatory frameworks, several influential voluntary frameworks provide companies with crucial guidance on ESG reporting. These include:

Carbon Disclosure Project (CDP):

• Who: A global non-profit organisation.
• What: Provides a platform for companies to disclose environmental data on climate change, water security, and deforestation.
• How: Companies submit questionnaires on their environmental performance against specific criteria. CDP then scores and ranks companies based on their responses.
• Why: Participating in CDP demonstrates a company’s commitment to environmental transparency and allows them to benchmark their performance against peers.

Science Based Targets initiative (SBTi):

• Who: A joint initiative of the CDP, World Resources Institute (WRI), World Business Council for Sustainable Development (WBCSD), and the Global Compact of the United Nations (UN Global Compact).
• What: Helps companies set ambitious emissions reduction targets aligned with climate science and based on the Paris Agreement goals (limiting global warming to 1.5°C above pre-industrial levels).
• How: Currently, over 5,000 companies from all sectors collaborate with SBTi to set science-based targets for greenhouse gas reductions.
• Why: Setting science-based targets demonstrates a company’s leadership in climate action and positions them for a low-carbon future.

Global Reporting Initiative (GRI):

• Who: An independent international organisation.
• What: Provides the world’s most widely used sustainability reporting standards.
• How: GRI offers a comprehensive framework covering a wide range of ESG topics, with specific reporting standards for 40 different sectors, including mining, textiles, banking, renewable energy, utilities, forestry, and agriculture.
• Why: Reporting under GRI standards ensures transparency and comparability of a company’s ESG performance across industries.

Sustainability Accounting Standards Board (SASB):

• Who: A non-profit organisation that sets industry-specific ESG disclosure standards.
• What: Focuses on financially material ESG information that investors need to assess company performance.
• Why: SASB reporting helps companies communicate ESG information that is most relevant to investors’ decision-making.

Why do some businesses report to multiple frameworks?

While navigating the complexities of multiple ESG frameworks might seem daunting, companies are increasingly recognising the strategic advantages of doing so. Here’s why:

1. Painting a complete picture of sustainability

Different ESG frameworks excel in addressing specific aspects of a company’s sustainability efforts. For instance, the GRI offers a comprehensive set of standards encompassing environmental, social, and governance topics. However, the SASB digs deeper, focusing on industry-specific, financially material ESG information that’s crucial for investor decision-making.

By reporting to both frameworks, a company tells a richer story – one that demonstrates a commitment to broader sustainability goals while also addressing investor concerns about financially relevant ESG risks and opportunities.

2. Engaging every stakeholder

Stakeholders come in all shapes and sizes, each with unique information needs. Investors might prioritise climate change disclosures aligned with TCFD recommendations. Employees might be more interested in diversity, equity, and inclusion (DE&I) data reported under the GRI standards. Customers might value a company’s commitment to ethical sourcing practices, which could be highlighted through a CDP response.

Reporting to multiple frameworks allows companies to tailor their ESG communication to resonate with each stakeholder group. This targeted approach builds trust and fosters deeper engagement with the entities that matter most to a company’s long-term success.

3. Benchmarking against the competition

Several frameworks like CDP, function as platforms for companies to disclose and compare their ESG performance. This allows companies to see how they stack up against industry peers. For instance, a company participating in CDP can benchmark its water security practices against other companies in its sector.

This competitive intelligence is invaluable for identifying areas for improvement and setting ambitious ESG goals that position the company as a leader in its field.

4. Adapting to evolving regulations

The regulatory landscape surrounding ESG reporting is constantly evolving. Voluntary frameworks often serve as a testing ground for future mandatory regulations. Companies that actively report under these frameworks gain valuable experience and establish a foundation for compliance when new regulations come into effect.

This proactive approach ensures a smoother transition and avoids potential disruptions when mandatory reporting requirements are implemented.

5. Building credibility

By demonstrating a commitment to multiple frameworks, companies signal their dedication to transparency and accountability on a broad range of ESG issues. This consistency across different reporting platforms strengthens a company’s credibility as a responsible and sustainable organisation.

In today’s environment where consumers and investors are increasingly making decisions based on ESG factors, this level of transparency can be a significant competitive advantage.

6. Managing risk and identifying opportunities

ESG issues are not isolated; they often intersect and influence each other. Reporting across various frameworks can help companies identify these interlinkages and develop a holistic understanding of their ESG risks and opportunities. For instance, a company reporting under the GRI might discover a link between its water management practices and employee health.

This insight, potentially missed through a narrower reporting focus, can inform the development of strategies that address both environmental and social concerns simultaneously.

Streamlining the process – how to leverage tech for efficiency

While reporting to multiple frameworks can offer significant advantages, managing the complexity can be a challenge. Fortunately, technology is here to simplify the journey. ESG data platforms (EDP) can streamline the process by offering features like centralised data management, automated report generation, and gap analysis tools.

These platforms can help companies compile data efficiently, ensure consistency across reports, and meet the specific requirements of different frameworks with greater ease.

1. Centralised data hub

One of the biggest challenges in ESG reporting lies in data management. ESG data often resides in disparate sources across various departments, hindering accessibility and consistency. EDPs act as a centralised data repository, allowing companies to consolidate information from various sources – internal databases, sustainability initiatives, external ESG rating agencies – into a single, secure platform. This eliminates the need for manual data entry across multiple frameworks, minimising errors and saving valuable time and resources.

2. Automated reporting

Gone are the days of piecing together reports from scratch for each framework. EDPs offer a library of pre-built templates specifically designed to meet the reporting requirements of various frameworks, like GRI, SASB, and TCFD. These templates come pre-populated with relevant data points from the centralised hub, allowing companies to customise and tailor their narratives with minimal effort.

Furthermore, some platforms offer advanced automation features that can automatically generate reports based on predefined parameters, further streamlining the process and saving you hours of time and resources.

3. Gap analysis

EDPs go beyond data storage and report generation. They act as intelligent partners, actively identifying inconsistencies or missing data points across different reporting requirements. This gap analysis capability is crucial for ensuring complete and accurate disclosure across all frameworks. The platform can then guide users towards relevant data sources, helping them fill in the gaps and achieve full compliance with each framework’s specifications.

4. Scenario modelling

ESG reporting isn’t just about reflecting on past performance; it’s also about charting a sustainable course for the future. Advanced EDPs offer scenario modelling capabilities, allowing companies to simulate the potential impact of different ESG strategies on future reporting requirements. For example, a company can model the impact of implementing new energy-efficient technologies on its carbon footprint data, as reported under the CDP framework.

This foresight empowers companies to make informed decisions that not only mitigate risks but also identify opportunities to improve their overall ESG performance.

5. Collaboration and communication

EDPs aren’t just individual tools; they can act as communication hubs, facilitating collaboration across various departments involved in ESG data collection and reporting. Team members can access the centralised data platform to share information, track progress, and ensure consistency across different reporting initiatives.

This fosters an environment of transparency and accountability within the organisation, ultimately leading to a more robust and well-rounded ESG strategy.

6. Enhancing transparency and building trust

The benefits of utilising EDPs extend far beyond streamlining the reporting process. By ensuring data accuracy, consistency, and completeness across frameworks, these platforms enhance transparency in a company’s ESG reporting. This fosters trust with stakeholders, including investors, customers, and regulatory bodies.

Stakeholders can be confident in the veracity of a company’s ESG claims, knowing the data has been compiled and reported through a rigorous and centralised system.

In conclusion:

The European ESG reporting landscape is evolving rapidly. Understanding the key frameworks and governing bodies is crucial for companies seeking to demonstrate a commitment to sustainability and responsible business practices.

By adopting a strategic approach to ESG reporting, your company can not only fulfil regulatory requirements but can also enhance stakeholder confidence, attract investment, and build a stronger brand reputation in today’s sustainability-conscious marketplace.

That’s where ESG Optimiser from Ikano Insight steps in. This comprehensive data platform streamlines the ESG reporting process, offering features like centralised data management, automated reporting, and gap analysis tools.

By leveraging ESG Optimiser, you can simplify compliance across multiple frameworks and gain valuable insights to enhance your sustainability efforts and achieve your ESG goals. In today’s world, where responsible business practices are increasingly valued, ESG Optimiser can be your trusted partner on the path to a more sustainable future.

Book a FREE demo today.