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Guide for GEMBA Students: ESG Overview

Introduction

ESG & CSR, Sustainable Development, SDGs

Corporate Social Responsibility is a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. CSR is generally understood as being the way through which a company achieves a balance of economic, environmental and social imperatives (“Triple-Bottom-Line- Approach”), while at the same time addressing the expectations of shareholders and stakeholders.

The World Commission on Environment and Development: Our Common Future report(1987) is most often cited for its definition of sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

ESG stands for Environmental, Social and Governance, a framework that evaluates the environmental, social, and governance aspects of a business to help investors evaluate the long-term viability of the company's actions.

 To promote global human rights, reduce poverty, and improve social responsibility for climate and environmental protection, production, and consumption, the United Nations formulated 17 core sustainable development goals 2015 These are referred to as the "2030 Sustainable Development Goals."

MSCI ESG Rating Key Issue hierarchy

MSCI ESG Ratings Key Issue hierarchy (2023)

17 Core Sustainable Development Goals

Databases with ESG data

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ESG Disclosures: Frameworks and Standards

Global Non-Governmental ESG Frameworks

ISSB - International Sustainability Standards Board

The IFRS Foundation announced the formation of ISSB in 2021, completed the consolidation of CDSB (Climate Disclosure Standards Board) and VRF (Value Reporting Foundation) in 2022. The ISSB aims to develop a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs. The ISSB issued its first two IFRS Sustainability Disclosure Standards in 2023:

  • IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information
  • IFRS S2 Climate-related Disclosures

GRI - Global Reporting Initiative

The GRI Standards represent global best practice for reporting publicly on a range of economic, environmental and social impacts. Sustainability reporting based on the Standards provides information about an organization’s positive or negative contributions to sustainable development.

The GRI Standards is a modular system of interconnected standards. Three series of Standards support the reporting process: the GRI Universal Standards, which apply to all organizations; the GRI Sector Standards, applicable to specific sectors; and the GRI Topic Standards, each listing disclosures relevant to a particular topic. Using these Standards to determine what topics are material (relevant) helps organizations to achieve sustainable development.​​

SASB - Sustainability Accounting Standards Board

SASB Standards enable organisations to provide industry-based disclosures about sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, access to finance or cost of capital over the short, medium or long term. SASB currently offers 77 different industry-specific standards. 

TCFD - Task Force on Climate-related Financial Disclosures

The TCFD was created in 2015 by the Basel-based Financial Stability Board (FSB) whose role is to promote international financial stability. The TCFD’s focus is reporting on the impact an organisation has on the global climate. It seeks to make firms’ climate-related disclosures more consistent and therefore more comparable. Around 1,700 organisations worldwide, in the public and private sectors, as well as government entities, support the TCFD.

CDP

CDP is a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts. It is both an ESG Reporting Framework and an ESG Rating. CDP was established as the ‘Carbon Disclosure Project’ in 2000, asking companies to disclose their climate impact. Since then, they have broadened the scope of environmental disclosure, to incorporate deforestation and water security, while also building their reach to support cities, states and regions. 

ISO 26000:2010 Social responsibility 

ISO 26000 provides guidance rather than requirements.It helps clarify what social responsibility is, helps businesses and organizations translate principles into effective actions and shares best practices relating to social responsibility, globally. It is aimed at all types of organizations regardless of their activity, size or location.

SA8000

The SA8000 Standard (2014) is the world’s leading social certification program. The SA8000 Standard and Certification System provide a framework for organizations of all types, in any industry, and in any country to conduct business in a way that is fair and decent for workers and to demonstrate their adherence to the highest social standards. Created by SAI in 1997 as the first credible social certification, it has led the industry for over 20 years.

Elements of the Standard

  • Child Labor
  • Forced or Compulsory Labor
  • Health and Safety
  • Freedom of Association & Right to Collective Bargaining
  • Discrimination
  • Disciplinary Practices
  • Working Hours
  • Remuneration
  • Management System

Governmental ESG Frameworks

ESRSs - European Sustainability Reporting Standards

The ESRS (2023) will be mandatory for use by companies that are obliged by the Accounting Directive to report certain sustainability information. It is expected to help companies to reduce reporting costs in the medium and long term, by avoiding the use of multiple voluntary standards. The ESRSs set out detailed reporting requirements for companies in the scope of the CSRD. Two cross-cutting standards provide general reporting concepts and include overarching disclosure requirements including multiple datapoints. Ten topical standards complement these with detailed disclosure requirements across environmental, social and governance topics. 

SFDR - Sustainable Finance Disclosures Regulation 

The Sustainable Finance Disclosure Regulation (SFDR) imposes mandatory ESG disclosure obligations for asset managers and other financial markets participants with substantive provisions of the regulation effective from 10 March 2021. The SFDR was introduced by the European Commission alongside the Taxonomy Regulation and the Low Carbon Benchmarks Regulation as part of a package of legislative measures arising from the European Commission’s Action Plan on Sustainable Finance.

CSRD - Corporate Sustainability Reporting Directive

EU law requires all large companies and all listed companies (except listed micro-enterprises) to disclose information on what they see as the risks and opportunities arising from social and environmental issues, and on the impact of their activities on people and the environment.

On 5 January 2023, the CSRD entered into force. This new directive modernises and strengthens the rules concerning the social and environmental information that companies have to report. A broader set of large companies, as well as listed SMEs, will now be required to report on sustainability.