The primary objective of this research article is to conduct a study and analysis of the prevailing frameworks used for sustainability reporting. Sustainability reporting has emerged as a critical tool for organizations to communicate their environmental, social, and governance (ESG) performance to various stakeholders, including investors, customers, employees, and regulators. The research aims to delineate the evolution and enhancement of these frameworks, providing a holistic understanding of the current benchmarks and methodologies in the field of sustainability reporting.

Literature Review

To achieve the objectives, a comprehensive examination of existing academic articles, industry reports, and white papers on sustainability reporting to understand the background and foundational concepts has been done. This also entails a closer look at prominent standards such as GRI, SASB, TCFD, IFRS Sustainability Disclosure Standards, and regional initiatives like SEBI’s BRSR and European Green Deal.

Methodology

Reports and publications from recognized global bodies and organizations, such as the World Economic Forum, United Nations, and regional regulatory entities, were delved into. An in-depth study was conducted on the guiding principles, methodologies, and criteria set by prominent standards such as GRI, SASB, TCFD, and IFRS Sustainability Disclosure Standards. This elucidated the primary goals and evaluation metrics that each framework championed.

Regional Initiatives

Regional forerunners in sustainability reporting were studied by exploring initiatives like SEBI’s BRSR in India and the European Green Deal. This offered insights into how different regions adapted global standards to their unique socio-economic contexts.

Based on above, the authors present below the global landscape of sustainability reporting ecosystem.

The inception of the Global Reporting Initiative (GRI) in 1997 marked the advent of structured sustainability reporting. Departing from mere prescriptive guidelines, GRI introduced comprehensive principles that spurred a global discourse on the essence of sustainability within corporate contexts, along with mechanisms for its quantification and explication.

The establishment of the Sustainability Accounting Standards Board (SASB) in 2011 underscored the acknowledgment that diverse industries, with their unique challenges and impacts, necessitated tailored reporting standards. For instance, concerns pertinent to a technology conglomerate, such as digital waste management and energy consumption, distinctly diverge from those pertinent to an agricultural entity, which may prioritize water conservation and soil health. Further broadening the purview, the International Integrated Reporting Council (IIRC) championed integrated reporting, highlighting the intricate operational nexus of businesses, enmeshing a spectrum of capital forms ranging from financial assets to human resources. The IIRC’s initiative ensured the preservation of financial metrics’ significance while preventing the overshadowing of far-reaching consequences on society and the environment.

Amid the proliferation of diverse standards, a resonant call for harmonization emerged. This aspiration materialized in the collaborative efforts of GRI and SASB in 2016, aiming to infuse greater consistency into the realm of sustainability reporting. Concurrently, as global dialogues on climate change garnered momentum, the establishment of the Task Force on Climate-related Financial Disclosures (TCFD) by the Financial Stability Board in 2015 illuminated the economic dimensions of environmental challenges, bridging the gap between fiscal stability and sustainable practices.

In parallel, the Carbon Disclosure Project (CDP) advanced the cause of corporate transparency concerning carbon emissions. Simultaneously, amidst the evolution of regulations, the hypothetical “Dodd - FrankWall Street reform” emerged, accentuating the intertwined nature of financial infrastructure and sustainability imperatives.

On the international stage, the United Nations Conference on Climate Change emerged as a potent catalyst, rallying nations and businesses to take resolute actions against impending environmental perils, accentuating the collective nature of global adversities and their resolutions.

The proactive stance of prominent stock exchanges, such as the London Stock Exchange and Nasdaq, stands as a noteworthy development. Their decision to integrate Environmental, Social, and Governance (ESG) disclosures into listing prerequisites signified a definitive paradigm shift within the business narrative. This strategic maneuver reinforced the notion that advocacy for sustainability transcends moral obligations and is, in fact, a sagacious business strategy.

Currently, there are several frameworks available for organizations to guide their sustainability reporting practices. These frameworks provide guidelines, principles, and indicators to help organizations measure, disclose, and communicate their environmental, social, and governance (ESG) performance. Some of the widely recognized frameworks of sustainability reporting include:

Global Reporting Initiative (GRI) Standards

“The GRI Standards facilitate the public disclosure of an organization's major influences on the economy, environment, and society, encompassing aspects such as human rights and the organization's management of these effects.”

GRI is a non-profit organization that develops sustainability reporting standards. The GRI Standards are one of the most widely used standards for sustainability reporting across the globe (more than 10,000 organisations use it). The GRI Standards facilitate the public disclosure of an organization’s major influences on the economy, environment, and society, encompassing aspects such as human rights and the organization’s management of these effects.

The Standards are a set of interconnected standards that are organized into three categories:

• Universal Standards: The Universal Standards are the foundation of the GRI Standards and apply to all organizations.
• Sector Standards: The Sector Standards are tailored to specific industries and provide additional guidance on how to report on sustainability impacts.
• Topic Standards: The Topic Standards focus on specific topics, such as human rights or environmental impact.

Sustainability Accounting Standards Board (SASB) Standards

The Sustainability Accounting Standards Board (SASB) is a non-profit organization in the United States that was founded in 2011. Its goal is to develop sustainability accounting standards for companies to disclose material information that is helpful for investor decision-making. Table 1 summarizes the five categories of SASB standards:

Table 1: Five Categories of SASB Standards

Category	Description
Environment	Focuses on the environmental impacts of a company’s operations, such as greenhouse gas emissions, water use, and waste disposal.
Social capital	Focuses on the social impacts of a company’s operations, such as employee relations, community engagement, and human rights.
Human capital	Focuses on the human resources of a company, such as workforce diversity, training and development, and employee compensation.
Business model and innovation	Focuses on the business model and innovation of a company, such as product sustainability, supply chain management, and risk management.
Leadership and governance	Focuses on the leadership and governance of a company, such as board composition, executive compensation, and internal controls.

The SASB Standards are created with the objective of identifying and establishing consistent disclosure requirements for the sustainability issues that have the greatest relevance to investors when making decisions. These standards are specifically tailored to each of the 77 industries, acknowledging that different sectors may have varying ESG considerations. The aim is to enable investors to obtain consistent and comparable ESG information across companies within the same industry.

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

The TCFD was launched in 2015. It is an international body that develops recommendations for climate-related financial disclosures. TCFD’s recommendations are designed to help companies disclose the financial risks and opportunities that are associated with climate change.

The TCFD provides a framework for companies and organizations to disclose climate-related information in their financial filings and reports. It recommends that organizations disclose information across four key areas:

• Governance
• Strategy
• Risk management
• Metrics and targets

The framework encourages organizations to consider both the physical risks associated with climate change, such as extreme weather events, as well as the transition risks arising from efforts to mitigate climate change, such as changing regulations and market shifts. This allows investors, lenders, insurers, and other stakeholders to make more informed decisions and allocate capital in a way that aligns with the goals of the Paris Agreement and the transition to a low-carbon economy.

The IFRS Sustainability Disclosure Standards

The International Sustainability Standards Board (ISSB) has been established by the International Financial Reporting Standards (IFRS) Foundation on 3 November 2021. The standards set up by ISSB builds on the foundation of other existing reporting frameworks such as SASB Standards, the Task Force on Climate-related Financial Disclosures (TCFD) etc. ISSB has recently issued 2 standards called as IFRS S1 and IFRS S2.

IFRS S1 is a standard targeting the incorporation of sustainability-related financial disclosures into the reporting landscape. Slated for application in annual reporting periods starting from 1 January 2024, it aims at intertwining financial and sustainability-related reporting. While early adoption is permitted, it’s contingent upon the concurrent application of IFRS S2, which centers on climate-related disclosures. Essentially, it aims to provide insights to users of general-purpose financial reports when they are considering investing in or allocating resources to a reporting entity. The standard mandates entities to divulge information regarding any sustainability-related risks and opportunities that bear a conceivable impact on various financial aspects. These aspects span an entity’s cash flows, its financing avenues, and its cost of capital, segmented across short, medium, or long-term horizons.

IFRS S1 necessitates entities to expound on several key elements related to their sustainability landscape:

• Governance: Entities need to shed light on the internal mechanisms – processes, controls, and oversight systems – they have instituted to supervise sustainability-associated risks and opportunities.
• Strategic Outlook: This involves articulating the entity’s strategic roadmap to navigate and manage the identified sustainability risks and opportunities.
• Identification & Assessment: IFRS S1 mandates a clear elucidation of the protocols an entity employs to pinpoint, evaluate, rank, and keep tabs on sustainability-centric risks and opportunities.
• Performance Metrics: Entities are required to report their performance metrics vis-à-vis sustainability-related risks and opportunities. This encompasses both the progress trajectory towards internally set benchmarks and compliance with any external legal or regulatory stipulations.

IFRS S2 requires entities to disclose pertinent information about climate-related risks and opportunities. This is to furnish insights that are instrumental for users of general-purpose financial reports when they make resource allocation or investment decisions concerning the entity. IFRS S2 comes into play for reporting periods starting on or after 1 January 2024. If adopted earlier, it necessitates simultaneous application of IFRS S1, which focuses on broader sustainability-related financial disclosures. The standard requires entities to present information on climate-related risks and opportunities that might foreseeably influence the entity’s financial positions. This incorporates implications on cash flows, avenues of financing, and the overall cost of capital across various time horizons - short, medium, and long-term.

IFRS S2 zeroes in on two primary domains of climate-related risks:

• Physical Risks: This pertains to tangible and direct threats posed by climatic changes to the entity.
• Transition Risks: These risks emerge from the broader transition to a low-carbon economy, encompassing regulatory, technological, and market shifts.

IFRS S2 requires disclosures around the following aspects:

• Governance Structure: Entities should elucidate the internal systems – encompassing processes, control mechanisms, and oversight procedures – set up to manage and oversee climate-centric risks and opportunities.
• Strategic Blueprint: Entities are expected to provide a comprehensive strategy outlining how they intend to navigate and leverage the identified climate risks and opportunities.
• Risk Management Integration: Entities need to elaborate on their methodologies for spotting, evaluating, ranking, and tracking climate-related risks and opportunities. Moreover, it’s pivotal to explain how these methodologies mesh with the broader risk management framework of the entity.
• Performance Assessment: A critical component entails entities sharing their achievement trajectory concerning climate-related matters. This not only covers progress towards self-imposed goals but also compliance with any external regulatory benchmarks.

The United Nations Conference on Trade and Development (UNCTAD)

UNCTAD is a long-standing intergovernmental organization that was established by the United Nations General Assembly in 1964. As a permanent body, it serves as a forum for member countries to discuss and coordinate policies related to trade, investment, development, and other economic issues. UNCTAD has a long history of working on sustainability issues, and its work in this area is guided by the 2030 Agenda for Sustainable Development.

UNCTAD’s work on sustainability is important because it helps to ensure that trade and development are carried out in a way that is compatible with the environment and social justice. UNCTAD’s work also helps to promote the implementation of the SDGs, which are a blueprint for sustainable development for the next decade.

UNCTAD’s work on sustainability is ongoing, and the organization is committed to helping developing countries to achieve sustainable development through trade. UNCTAD is the Secretariat of the Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR). Currently India holds ISAR 39th session chair.

To assist companies in reporting their efforts towards achieving the Sustainable Development Goals (SDGs), UNCTAD initiated a project in 2016 focused on developing a set of baseline core SDG indicators. As a result of this initiative, UNCTAD created Guidance on core SDG indicators, which serves as a practical resource for governments to evaluate the private sector’s contribution to the implementation of the SDGs.

The UNCTAD secretariat published a revised training manual on sustainability and SDGs impact reporting. The training manual contains 34 core indicators on the economic, environmental, social and institutional areas. It is a practical tool, intended for all kinds of users, particularly for preparers of reports by Small and Medium Sized Enterprises (SMEs) who want to start their sustainability reporting journey. The manual provides a definition, measurement methodology and potential sources of information for each indicator. It contains useful illustrative examples of indicator calculations and of how companies have provided disclosures on the indicators. It also includes self-assessment questions with solutions and a list of selected references to deepen understanding of these issues.

European Sustainability Reporting Standards (ESRS)

The European Commission (EC) acts as the executive force within the European Union (EU), steering legislation, policy execution, and oversight. Sustainability governance is a cornerstone of its mandate, shaping the EU’s strategies for environmental and social reform. The European Green Deal is a testament to this commitment, aiming to transition the EU to a sustainable, climate-neutral economy by 2050. This initiative encompasses sectoral changes from energy to agriculture.

Equally essential is the Commission’s role in melding sustainability into the financial landscape. The EU Taxonomy Regulation exemplifies this, establishing a framework to identify green economic activities, thereby directing investments to eco-friendly projects and supporting Paris Agreement objectives.

Financial reporting standardization is crucial for clarity and comparability. Instruments like the European Single Electronic Format (ESEF) and the European Single Reporting Format (ESRS) have been introduced to achieve this. Within the ESEF, the ESRS standardizes the presentation of financial data in XHTML, enhancing accessibility and analytical ease.

The Corporate Sustainability Reporting Directive (CSRD) and ESRS have introduced significant innovations:

• Double Materiality: It evaluates both an entity’s impact on, and the impact of, sustainability factors on the entity.
• Prospective Information: Offers a glimpse into future sustainability strategies and expected results.
• Value Chain Analysis: Insight into both upstream and downstream sustainability aspects.
• Sustainability Due Diligence: A proactive approach to sustainability, linked with the impending Corporate Sustainability Due Diligence Directive (CS3D) which promotes global value chain sustainability.
• Sustainability disclosures mandated by the directive are set to undergo third-party verification: Initially, a limited assurance model will be employed, which might elevate to a reasonable assurance framework, with an EU-specific assurance standard in the pipeline.

The ESRS seeks compatibility with existing standards, such as ISSB, TCFD, and GRI, aiming for global reporting cohesion. For instance, the ISSB’s IFRS Sustainability Disclosure Standards, although not mandatory in the EU, represent the global push for standardized disclosures.

The journey from draft to final ESRS saw several adaptations such as:

• Materiality Focus: Except for the “General disclosures” standard (ESRS 2), all standards will be materiality-centric.
• Phased Rollout: The EC added phase-ins to acclimate businesses to the new regime.
• Voluntary Disclosures: Some EFRAG-recommended data points became voluntary, providing a balance between obligation and flexibility.
• EU Legal Alignment: The ESRS was tweaked to resonate with EU directives.
• Global Synchronization: Changes ensured ESRS’s alignment with global standards, focusing on financial materiality definitions.

The Indian scenario

The Securities and Exchange Board of India (SEBI), the country’s market regulator, has played a pivotal role in championing the cause of sustainability reporting. SEBI introduced the Business Responsibility and Sustainability Reporting (BRSR) framework in 2021, superseding the BRRs. This was an effort to align with international disclosure standards, making Indian businesses more globally competitive in sustainability reporting.

The framework goes beyond mere regulatory compliance and emphasizes holistic engagement with stakeholders on environmental, social, and governance (ESG) parameters. With its comprehensive reporting format based on global standards, the BRSR framework provides companies with a detailed dual framework to measure, monitor, and disclose their performance in these areas.

The BRSR offers two formats for varying corporate profiles. The Comprehensive format, suited for larger companies and Listing Regulations-compliant firms, is divided into three sections and nine principles, scored out of 300 points. Effective from FY 2022-23, it’s mandatory for the top 1000 listed companies by market capitalization. The Lite format, for companies new to reporting, simplifies requirements, promoting broader participation and responsible practices via an accessible entry point with gradual expansion towards comprehensive reporting.

The mandatory reporting requirement for the top 1,000 listed companies by market capitalization from FY2022-23 is a pivotal moment in driving ESG-related disclosures in India. In its latest initiatives SEBI has unveiled a sophisticated evolution of the Business Responsibility and Sustainability Reporting (BRSR) guidelines. Central to this enhancement is the introduction of the BRSR Core. This focused subset of the overarching BRSR is embedded with meticulously curated Key Performance Indicators (KPIs), each falling under one of nine meticulously delineated ESG (Environmental, Social, and Governance) categories. These KPIs are architected with a keen sensitivity to nuances inherent in both Indian and broader emerging market contexts. International harmonization has been addressed by integrating intensity ratios that are adjusted leveraging the Purchasing Power Parity (PPP) concept, which is instrumental in achieving equivalency in economic indicators across regions with varying purchasing powers.

SEBI has taken another path breaking step of mandating reasonable assurance of BRSR Core in a phased manner starting with top 150 companies in FY 2023-24 and going upto 1,000 companies by FY 2026-27. Moreover, there’s a stringent firewall between the assurance function and any potential conflicts of interest, disallowing them from engaging in parallel commercial endeavors with the entity they are auditing.

Listed entities are mandated to align their Annual Reports with BRSR Core stipulations, encapsulating a significant 75% of their transactional volume, be it procurement or sales. This mandates a microscopic view into both upstream suppliers and downstream distributors. Transparency, again, is paramount, with firms required to delineate metrics germane to each cog in their value chain.

The sustainability reporting stands board of ICAI has already issued SSAE 3000 which is the first standard in the world for ESG assurance. Contribution of ICAI in sustainability has received appreciation from across the globe in various forums for its efforts on assurance standard, capacity building, issuing sustainability reporting maturity model, issuing social impact standards and many such initiatives.

Conclusion

The ever-growing importance of sustainability in the global business arena necessitates robust reporting frameworks. From the GRI Standards that emphasize wide-ranging impacts of organizations on society and environment, to the SASB Standards that specifically target investor-centric concerns, the ESG landscape is diverse in its approach. The TCFD further strengthens the foundation by prioritizing the financial implications of climate change. However, a significant leap has been the inception of the IFRS Sustainability Disclosure Standards, which emphasize intertwining financial and sustainability-related reporting. Both IFRS S1 and IFRS S2 underscore the need for clarity, specificity, and transparency in sustainability disclosures, with a particular emphasis on how these factors influence financial decision-making.

The global shift towards sustainability reporting highlights an increasing awareness of business impacts on society and the environment. SEBI’s BRSR framework in India underlines a deep commitment to holistic sustainability principles, propelling Indian enterprises towards greater transparency. Similarly, UNCTAD emphasizes sustainable development, especially in developing countries, providing practical tools for SMEs to report their sustainability efforts. Europe, too, with its European Green Deal and ESRS, showcases a commitment to integrate sustainability into the financial sphere, blending innovation with initiatives like double materiality and value chain analysis. These changes, from SEBI to the European Union and UNCTAD, represent a coordinated global effort to usher in a transparent, just, and sustainable business future. This new era prioritizes long-term sustainability, ensuring businesses contribute to a future beneficial for successive generations and in this journey India and ICAI is set to play a leading role and show the path to the world.

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Authors may be reached at: mehra.pragati@rediffmail.com and eboard@icai.in