In the past few years, many abbreviations such as CSRD, ESRS, SDGs, ESG, GRI, IIRC, TCFD, and more have been used in the sustainability community, making it difficult to understand not only for those in charge at companies but also in general. We called them “ABC Soup”.
Some believe this phenomenon may pose a crisis in resolving socio-economic and environmental issues, which is what we should focus on.
We need to sort out these abbreviations and vocabulary once and for all.
Also, we organize our approach and objectives toward the original solutions.
Sustainability Reporting Standards and Framework
First, vocabulary and organization are categorized in two directions.
| Classification | Contents | Actual condition (Example) |
| The organization issuing the standard Criteria | Quality requirements to be met by the reporting organization. Specific criteria and indicators of “what” should be reported on each topic are organized. | GRI, EFRAG(ESRS), IFRS(IIRC, SASB)… |
| The organizations issuing framework and guidelines | Framework: it provides the “frame” for contextualizing information. In the absence of a clear definition, it is practiced. However, it cannot define the practice itself. It also guides how to think about a given subject/topic. But no defined reporting obligation. | TCFD, TNFD, UNGC, CDP, SDGs, WBCSD, PRI, UNEP FI, NFRD/CSRD….. |
However, some organizations engage in both activities and cannot necessarily be categorized. Both the standards and framework are required by law or endorsed by most stakeholders. Or they gain their authority through requests from their industry and investors.
Deloitte’s global corporate reporting leader said, “To be effective, the standards will need to be brought into regulation around the world, together with associated enforcement, monitoring, governance and controls, assurance, and training.”
Compared with the standards and framework, the standards are more rigid and thorough. The global reporting standards are GRI and SASB, each with a different audience and reporting scope.
EU corporate sustainability reporting standards and ISSB Standards for Disclosure of Financial Information
Sustainability reporting standards will majorly change in the coming years.
In April 2021, the European Commission adopted the Corporate Sustainability Reporting Directive (CSRD), which amends the applicable Non-Financial Reporting Directive (NFRD).
Suppose the European Sustainability Reporting Standard (ESRS) developed by the European Financial Reporting Advisory Group (EFRAG) is adopted soon (the first set of draft standards is scheduled in November 2022). In that case, European and non-EU companies with European branch offices will be required to apply this standard.
This ESRS will be structured on a double materiality basis for a multi-stakeholder audience, including investors. GRI and EFRAG are leading the joint work right now, and the first version will be published by June 30, 2023.
On the other hand, the International Financial Reporting Standards (IFRS) Foundation is drafting disclosure standards for sustainability-related financial information in the newly formed International Sustainability Standards Board (ISSB), which will be based on financial materiality for investors only.
We believe the IFRS and EU ESRS approaches are complementary, not competitive. Different standards are intended for different audiences and have other objectives.
Traditionally, standards designed solely to provide information to investors are built on a different concept than impact standards that provide information to a broader set of stakeholders.
Therefore, the collaboration between GRI, the only global standard dedicated to corporate impact reporting for multi-stakeholder audiences, and the ESRS and ISSB can create a standard double materiality structure for financial and non-financial (sustainability) standards.
If we proceed with disclosure reporting by this conceptual structure, there may be a need in the future to question the future of reporting and corporate management itself.
We will provide details of CSRD and ESRS separately, but first, you can understand how the current standards and frameworks relate to the definitions and actual conditions.
Then, we recommend that you organize a series of disclosure tasks and create the structure with a view to the future organization of the framework.