What to Expect When Working with Frameworks

Accounting standards (GHG Protocol), reporting frameworks (SASB, GRI, TCFD), disclosure questionnaires (CDP) and target guidelines (SBTi) are all components of a comprehensive sustainability portfolio. While each has some complexity associated with it, frameworks can be especially perplexing due to the sheer number of choices.

Absent any regulatory requirement, it is up to the organization to decide which frameworks are applicable to them. In this article, we go into a little more detail as to how a company would go about evaluating and working with a framework, using as examples two of the most commonly cited – GRI and SASB.

GRI Example

GRI standards are based on three key functionalities: determining impacts, figuring out the material topics and doing disclosures. GRI focuses on an organization’s impact on economy, environment and people, including human rights. While financial impacts can be important considerations for sustainability, they are not the main emphasis of GRI standards. 

When following the GRI framework, all material topics must be identified that have a significant impact on the economy, environment and people. As an example, a clothing company that sources its raw material and labor from lower income communities around the world will have significant impacts on the people living in those communities, the environment and the local economy. These include both positive and negative impacts. A systematic categorization of these impacts, as is done by following the GRI guidelines, will subsequently help the business to amplify its positive impact activities and remedy the negative ones. 

Currently, there are specific GRI standards for a few sectors: Oil & Gas; Coal; and, Agriculture, Aquaculture, and Fishing. (Sector standards for Mining are in the works.) Companies in these sectors follow the specified guidelines to determine the material topics and the disclosure information for each topic. Additionally, they also have to identify any other material topics that are relevant to them but may not be in their sector standard. 

For companies in all other sectors, such as the clothing company in our example, the material topics are determined via a self-directed process that involves expert assessment and stakeholder engagement. As part of this process, a company’s impacts from its activities and business relations are prioritized according to severity and scope, then a significance threshold is used to finalize the material topics to report on. 

Material topics are distributed across the three impact categories and each has its own standard:

  • Economic (7 standards): An organization’s economic impacts have to account for stakeholders as well as effects on local, national and global economic systems. Topics include: tax, procurement practices, anti-competitive behavior.
  • Environmental (8 standards): Environmental impacts pertain to effects on land, water, air and ecosystems. Some of the topics are: emissions, materials, waste, water & effluents, biodiversity. 
  • Social (18 standards): Socially relevant material topics form the largest set that includes: child labor, occupational health & safety, rights of indigenous peoples, diversity & equal opportunity.

Having determined the impacts and the material topics, the next step is to do the disclosures using the guidelines prescribed in all of the relevant topic standards. As an example, GRI 305 Emissions Standard details how to report the emissions of GHGs (Scope 1, 2, 3), ozone depleting substances and air pollutants. It also requires reporting on reduction of GHGs against a base year. The organization has to disclose methodologies, assumptions and calculation tools that it used to account for the emissions. 

SASB Example

SASB standards are geared towards reporting sustainability topics that are financially material with a focus on reporting to investors. Unless there are regulatory requirements for disclosure, reports can be disseminated in any manner of the company’s choosing, be it as part of annual reports to shareholders or on the website. 

SASB is now a part of ISSB and is in the process of being updated. These standards are also being incorporated into an Integrated Reporting Framework with the aim to make sustainability a part of the business’s financial reporting. 

SASB has 77 industry standards containing guidelines for reporting on environmental, social and governance matters that are financially relevant to the business, although some of the governance topics of ESG, such as board composition, have not been included. 

Each industry standard contains:

  • Disclosure topics that are material to the business and how they affect it in value creation; Material topics for each industry are identified within 5 groups: Environment, Social Capital, Human Capital, Business Model & Innovation, and Leadership & Governance.
  • Accounting metrics to measure performance of the disclosure topics; these can be either quantitative or discussion / analysis based. 
  • Technical protocols that provide guidance on definition, scope, implementation, collection and presentation for each accounting metric. 

The 77 industries are divided among 10 categories that include Consumer Goods, Services, Transportation, Food & Beverages, and Financials. As an example, let us consider the case of a technology hardware company. To find the applicable standard, we look for the Hardware industry under the category of Technology & Communications. The 5 disclosure topics in the Hardware Sustainability Accounting Standard are:

  1. Data Security (under Social Capital) 
  2. Employee Engagement, Diversity & Inclusion (under Human Capital) 
  3. Product Design & Lifecycle Management (under Business Model & Innovation) 
  4. Supply Chain Management (under Business Model & Innovation) 
  5. Materials Sourcing & Efficiency (under Business Model & Innovation)

Note that, for the Hardware industry, SASB has not identified any material topics in the Environment and Leadership & Governance categories. These were not deemed to be significant during the standard-setting process but that could change over time with market feedback. Also, some companies in the Hardware industry may determine a different set of topics to be more relevant to their specific situation instead of the one prescribed by the standard. 

The remaining step for the technology hardware company in our example would be to report on the accounting metrics listed in each of the 5 disclosure topics by following the technical protocols.

Although GRI and SASB are both sustainability reporting frameworks, they emphasize different aspects: GRI focuses on impacts to economy, environment and people, whereas SASB’s role is to appraise the financial implications with the explicit aim of keeping the company’s investors informed. With GRI, the company first identifies the impacts and the material topics. Its standards are based on the material topics. SASB, on the other hand, has already identified the material topics for various industries and standards exist for all of the unique industries. Both frameworks provide ample flexibility in selecting the material topics and are faithful to the central tenets of sustainability. It’s in the disclosure guidelines where the diverging intents of the two frameworks becomes evident, highlighting GRI’s focus on impacts versus SASB’s emphasis on financial implications.


Top image courtesy of environment.ec.europa.eu

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