The Sustainability Framework: A Brief Overview
a overview of ESG reporting frameworks
a overview of ESG reporting frameworks
Corporations make sustainability pledges to show their environmental, social, and governance (ESG) commitments. Commitments allow investors and public to know the firm’s stance on public and social values. This relationship of transparency allow investments to resonate with personal beliefs and the industry’s values. Standards allow tracking of current ESG progress toward goals, and provides comparable metrics. However, the abundance of industry-tailored reporting creates difficulties as it lack a ranking system; especially the incomparability between frameworks, metrics, and rating systems. A resolutions involves a singular framework to enforce transparency and add comparability.
Climate change and environmental degradation has become a problem. The environmental situation is overwhelming - enforcing a sense of loss, and inability for action when action is a must. Those stagnant or unwilling to change are subject to social criticism and downfall. ESG initiatives are a way for consumers, corporations, and investors to grasp and regain control on the environmental situation through reflecting personal values in their investment decisions. The rise of activist investors reflect their hope and ambition for a the next generation while effectively supporting sustainability pledges and their industry of choice.
Following these emerging markets, ESG reports proliferated within the last decade. The most common frameworks are:
Value Reporting Foundation:
Frameworks are customized to the needs of a specific company, client, stakeholder, and industry. These frameworks are general guidelines meant for the purpose of reporting. The abundance and industry-focused frameworks have created a lack of standardization. Resulting in non-comparable and incomplete data as differing guidelines require different values. Incomplete data enforces uncertainty and investment risks as influencing sides are disregarded. The lack of general overview and abundance of uncomprehensive data arises the question of company competence. Investors do not know who to trust.
A rating system was released alongside frameworks to establish a rough standard. A rating system will allow for cross-framework comparability, which current frameworks lack as some are industry-specific. Not only does the rating methodology differ between frameworks, [but](https://www.msci.com/our-solutions/esg-investing/esg-ratings#:~:text=An MSCI ESG Rating is,those risks relative to peers.) professional rating services also differ from each other. Creates a lack of overview and mistrust in firm rankings as investors sift through non-comparable reports - jeopardizing investor decisions.
The first step is merging multiple existing frameworks to create one standardized with no customization per industry, while considering flexibility, target values, and paced action. Secondly, actionable goals to achievable targets according to credible comparable metrics. Lastly, framework should only be refined to reflect progressive climate research for stricter goals. A clear concise image for consumers, investors, and industries to benefit as core values synergizes with sustainability pledges and ESG reports.
Firms reflect public and social values through their ESG initiatives as they adhere to ESG frameworks. Each framework offering various reporting and insights, tailoring to each industry. The abundance of framework created a lack of standard, causing incomparability issues and a lack of transparency to investors. One framework enforces paced action, comparable metrics, and aligns investor values to industry pledges.
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