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In addition to the importance of the Sustainable Development Goals ^a(SDGs), this post will discuss an available linkage document between the SDGs and the Global Reporting Initiative (GRI) Standards.

The Sustainable Development Goals, also known as the Global Goals or SDGs, are the cornerstone for assessing the progress of the 2030 Agenda for Sustainable Development.

The 2030 Agenda, adopted by the United Nations in 2015, defines a plan of action for countries to protect the planet, to end poverty, foster peace, and ensure prosperity. The 17 SDGs provide a structure for countries to implement the 2030 Agenda. The Global Goals are integrated, meaning that action in one area will affect outcomes in others. Because they are interconnected, they need to be implemented with concern for creating balance among the goals. Tradeoffs have to be considered. For example, if a positive action such as installing solar farms removes land available for food, the development of solar energy must incorporate consideration of its social and economic impacts.

What is the progress on the achievement of the goals?

To date, progress on obtaining these goals at the country level is poor. In The Sustainable Development Goals Report 2024, the UN reported

“… that only 17 percent of the SDG targets are on track, nearly half are showing minimal or moderate progress, and progress on over one third has stalled or even regressed.”

There are many reasons for the lack of progress. The effects of the COVID-19 pandemic continues to take a toll on many countries’ human and economic resources. In addition, escalating armed conflicts and geopolitical disputes along with worsening effects of climate change are major impediments to progress. Assessing progress is also dependent on the availability and the quality of data. Good quality country data is not available for several reasons. Many countries lack the capacity to collect data. And although most countries have government agencies that compile and publish national government statistics, reporting on SDG indicators is often beyond the financial and technical capabilities of many countries’ statistical organizations.

What is the private sector’s role in meeting SDG targets?

The UN’s Sustainable Development Report 2024, The SDGs and the UN Summit of the Future, emphasizes the important role non-governmental entities will have in meeting SDG targets.

“The private sector must be a key driver for sustainable development, including leadership of technological transformations in energy, agriculture, climate resilience, digital economy and urban infrastructure essential for sustainable development. Profits must be the reward for contributions to the common good, not private gains achieved at the public’s expense. Ethical businesses should align with the SDGs and hold themselves accountable to these global goals.”

Although the UN calls for companies to support the SDGs in conducting business and creating products, there is no formal coordination between companies’ and countries’ SDG activities and reporting. This lack of coordination often leads to confusion about what companies should be doing with SDGs. The assumption is that if companies strive to contribute to sustainable development and in particular engage in business activities that support the SDGs, countries will benefit from these activities. Until there is a formal data collection system between companies and countries, direct analysis of how companies contribute to the SDGs in specific countries is difficult. To address this issue, the UN has called for the private sector to assist in developing national reporting systems. This will take time and resources.

There are many reasons that companies should in the meantime engage in and report on their SDG support. SDG reporting encourages companies to be transparent about their actions and impacts as they relate to supporting the SDGs. This transparency can help companies build trust and improve their reputations. An added benefit is that new opportunities and partnerships that support the SDGs can be identified. Along with external business opportunities, SDG reporting helps companies with internal management and decision making.

How can companies engage with the SDGs?

To help businesses operate more sustainably and contribute positively to sustainable development and the SDGS, the UN in 2023 developed The SDG Impact Standards. These standards are management standards designed as a guide for companies to embed sustainability and the SDGs at the heart of their internal management and decision-making practices. The framework supports organizations in deciding which impacts are important and relevant. Because this guidance is holistic in nature, it encourages organizations to reimagine their business models, explore new partnerships, and create solutions to achieve the SDGs.

Company SDG reporting, like all sustainability reporting, involves a comprehensive review of what the company does, how it could do it differently, and how these actions can be communicated internally and externally. Much like financial reporting, it can serve as a management tool for evaluating the company’s current and future state. Businesses that subscribe to the SDG goals must first address those activities where improvement is needed, e.g., reduce water consumption in their manufacturing processes, and then bolster those activities where they are already facilitating goal attainment, e.g., utilizing sustainable energy sources.

SDG reporting signals a company’s commitment to sustainability by measuring and tracking its progress toward achieving the SDGs that are most relevant to their business. Reporting can pinpoint a company’s helpful and harmful impacts. This can lead to developing product and process innovations that are less damaging and even beneficial.

Is the private sector responding to SDG reporting?

The answer is yes, mostly. Based on two surveys of sustainability reporting trends, companies are reporting on the SDGs. KPMG’s 2022 Big Shifts, Small Steps reports that 74% of the G250 companies (world’s 250 largest companies by revenue based on the 2021 Fortune 500 ranking) report on SDGs. Among the 900 companies of the Russell 1000 companies (1000 of the large cap US equities) that published sustainability reports in 2022, Governance & Accountability Institute, Inc., found that 52% of the 900 reports aligned with the SDGs.

In 2022, the GRI commissioned a study of a sample GRI reporting companies to evaluate how they communicate their support and actions regarding the SDGs. The analysis of the study, State of Progress: Business Contributions to the SDGs, revealed that 83% of the companies included a commitment in their sustainability reports to the Sustainable Development Goals (SDGs), but less than 50% set measurable targets with actions contributing to the Goals.

A clear majority of business in the research study support the SDGs, indicating that they believe the goals are valuable in developing their sustainability plans. Other studies have also supported these findings.

The most commonly supported goals include Decent Work and Economic Growth (#8), Responsible Consumption and Production (#12), and Climate Action (#13). Other studies have obtained similar results for these most commonly selected goals.

Most Commonly Selected Company Goals

Most research shows that Zero Hunger (#2) is the least often supported. Support for No Poverty (#1) and Life Below Water (#14) varies; other studies have not always shown them to be among the least supported goals.

Least Commonly Selected Company Goals

Even though most companies (69%) think that the goals are relevant to the operation of their business, only 40% have made measurable commitments to meeting the goals they think are important. One of the conclusions of this study demonstrates that companies need to improve their reporting.

“Although many businesses have set targets that are explicitly aligned with the SDGs, in this research, the majority have not. The overwhelming majority of businesses are also not yet reporting data on progress towards the SDGs.”

The State of Progress: Business Contributions to the SDGs report offers several recommendations on how companies can improve both their SDG performance and their SDG reporting. One in particular resonates with me.

“Make data on their SDG performance easily accessible by using internationally recognized frameworks, such as the GRI Standards.”

In my last post, I noted how there are a multitude of sustainability reporting standards and frameworks. One might go so far as to say that there is a plethora, i.e., “an uncomfortable fullness,” of them. Although these standards and frameworks are different and were created for different purposes and audiences, they often overlap. If, for example, your company reports using the GRI Standards, it will have already collected much of the data needed to address specific SDGs. I recommend this valuable document by the GRI, which links the GRI Standards with the SDGs. It contains a list of the existing disclosures in the GRI Standards mapped against the 17 UN Sustainable Development Goals at the target level.

Although all 17 SDGs are addressed in the GRI document, here are two examples which demonstrate the connection between two GRI Topic Standards and SDG Goals.

Setting aside the existence of kleptocracies and crony capitalist states, the purpose of taxes is to secure the well-being of persons living within the state. Countries do this more or less well, of course, and there are differing points of view on what taxes should buy and how much they should buy. Nonetheless, when the public realm is improved, poverty is usually reduced. Better infrastructure allows goods to reach markets more easily. A reliable electrical network facilitates education, health, and other services. Taxes provide a base of funding for a variety of social goods. When a company pays taxes within a country, it is helping that country reduce its poverty. A company that avoids paying taxes is not helping. Thus, your company wants to document the taxes that it pays and how they are relevant to reducing poverty.

GRI 207 Tax 2019 supports SDG Goal 1 No Poverty Target 1.1. A company’s approach to taxes in various countries can have a significant effect on the resources that governments have to reduce poverty. Companies using the GRI Sustainability Standards can readily document their commitment to SDG 1 No Poverty Target.

GRI 404 Training and Education supports SDG Goal 4 Quality Education. There is little doubt that better educated workers are more productive, more flexible in the work setting, and better able to contribute to the company’s and country’s well-being. A company that helps train its workers is directly addressing the SDG Quality Education target and, indirectly, the SDG No Poverty target. A company that reports on its commitment to training and education in its GRI report can also easily note how it supports the SDG Quality Education target.

SDG reporting is a worthwhile endeavor for companies. As discussed above, companies that already publish GRI reports can readily make the connection to the SDGs. Better reporting can perhaps lead to better assessment of progress on how companies are supporting the SDGs and a better world. In a future post, I will discuss how some investors are using companies’ SDG reporting as an assessment tool for potential investments.

Footnote

^aI support the United Nations’ Sustainable Development Goals.

“Interoperability” has been a buzz word for the last several years among those concerned with sustainability reporting.  What does it mean? In simple terms, it means the ability of these standards to work together, for them to be connected. 

This is clearly an important idea given that the sustainability reporting has many reporting standards, frameworks, and questionnaires, which often overlap in their content and methods. There are, for example, the GRI Standards, European Sustainability Reporting Standards (ESRS), CDP environmental questionnaires, TCFD Recommended Disclosures, SASB Industry Standards, and International Financial Reporting Standards (IFRS) Foundation IFRS S1 and IFRS S2.

The reporting “burden” is a real one. Companies are under pressure to disclosure more and more information using many different standards and frameworks. It is important that the standards can work together because many companies report using all of them.

Let’s look at what is available to facilitate interoperability among the standards and frameworks.

GRI and ESRS

If your company has been using Global Reporting Initiative (GRI) Standards and will be required to use ESRS, there are two documents that will be quite useful to you. The GRI ESRS Mapping Document (November 2023) maps the commonalities between the two sustainability reporting standards with regard to impacts. GRI defines impacts as an effect that an organization has on the economy, environment, and people including human rights.  ESRS defines “impacts” as positive and negative sustainability-related impacts that relate to the undertaking’s business, as identified through an impact materiality assessment process. In an earlier post, I explained the difference between impact and financial materiality. GRI Standards focus on impact materiality and not financial materiality.

Another mapping document called the ESRS-GRI Standards data point mapping guide shows the connection from ESRS disclosures to the GRI disclosures. This may seem redundant, but it is not.  It is useful because it lists the ESRS disclosures first and how they map to GRI disclosures. With both mapping documents, reporters have the reporting requirements from two directions. 

CDP and ESRS

CDP prepared a CDP-ESRS Mapping document that lists the ESRS standard disclosures that connect to the relevant CDP 2023 Climate Change Questionnaire question numbers. This links specific ESRS 2 General Disclosures and the topic standard ESRS E1 Climate Change to specific questions in the CDP Climate Change questionnaire.  The alignment guidance for the CDP 2024 Questionnaire is being constructed.

ESRS and IFRS

Interoperability guidance between ESRS and the International Sustainability Standards Board (ISSB) Standards was created in August 2023. This guide shows how ESRS 2 General Disclosures and ESRS EI Climate works with International Financial Reporting Standards (IFRS) S1 General Requirements for Disclosure of Sustainability-related Financial Information and S2 Climate-related Disclosures. The mapping table lists the IFRS S2 disclosures to the relevant ESRS disclosures.

GRI and IFRS

The connection between GRI 305: Emission 2016 and IFRS S2 Climate-related Disclosures  can be found in a guide that compares greenhouse gas (GHG) emissions disclosures  between the two standards. This includes things that companies should consider when measuring and disclosing Scope 1, Scope 2 and Scope 3 GHG emissions in accordance with both Standards.

In my future posts, I will feature other interoperability documents.

What are the IFRS Sustainability Disclosure Standards IFRS S1 and IFRS S2? 

Simply put, these sustainability-related financial reporting standards are intended to provide a comprehensive approach to sustainability reporting. 

Why is another sustainability framework/standard needed?

The sustainability reporting landscape has many general reporting standards/frameworks/questionnaires such as GRI Standards, CDP environmental questionnaires, TCFD Recommended Disclosures, SASB Industry Standards, and other, sector-specific benchmarks such as the GRESB Real Estate Assessment. 

Yet with the existing range of sustainability reporting standards/frameworks, the reporting landscape can sometimes seem fragmented. This has led to an increase in calls for standardization and specific connections to financial statements. The result has been the creation of, ironically perhaps, even more standards and frameworks. 

Because most of these reporting standards are voluntary, companies can select to report using as many or few as they want. What they choose to use is influenced by what is needed to assess their sustainability impacts and risks, what peer companies do, and what investors ask for.  

What are investors asking for?

According to the Chartered Financial Analyst (CFA) Institute, 

“…investors are demanding high-quality, comparable sustainability information for investment and voting decision making, which issuers are providing under their own or third-party reporting frameworks.” 

CFA Institute

The CFA Institute, as an advocate for investment industry and investment management professionals, has promoted the development of high-quality sustainability reporting standards over the last decade. CFA plays an important role in the investment industry, promoting the need for high-quality investment financial reports and independent audits. It has advocated for the creation of the International Sustainability Standards Board (ISSB).

What is in the IFRS Sustainability Disclosure Standards? In July 2021, the International Financial Reporting Standards (IFRS) Foundation created the International Sustainability Standards Board (ISSB) to develop and issue comprehensive sustainability reporting standards for consistent, comparable and high-quality sustainability reporting with investors’ needs in mind. The two standards, IFRS S1 and IFRS S2, are based on the Taskforce on Climate-related Financial Disclosures Framework, which I discussed in my last post. The four core elements of governance, strategy, risk management, and metrics and targets set the stage for the IFRS Sustainability Disclosure Standards.

IFRS S1 lays out the general requirements for how a company is to disclose sustainability-related information, and specific requirements involving a complete set of sustainability-related financial disclosures. This information is intended for users of general-purpose financial reports in making decisions relating to providing resources to the entity. As you can see below, the required disclosures are based on the four core elements from TCFD.

• governance processes, controls and procedures the entity uses to monitor, manage and oversee sustainability-related risks and opportunities;
• the entity’s strategy for managing sustainability-related risks and opportunities;
• processes the entity uses to identify, assess, prioritize and monitor sustainability-related risks and opportunities; and
• the entity’s performance in relation to sustainability-related risks and opportunities, including progress towards any targets the entity has set or is required to meet by law or regulation.

IFRS S2 involves requirements that cover climate-related risks and opportunities and are most directly related to TCFD Recommended disclosures. 

There are, however, some differences between the core content requirements in IFRS S2 and TCFD’s core recommendations. These differences are explained in detail in Comparison IFRS S2 Climate-Related Disclosures with the TCFD Recommendations, a document prepared by IFRS Foundation staff.

These differences take three forms. Specifically, IFRS S2:

• Uses different wording but requires the same information and is considered “broadly consistent with” the TCFD Recommended Disclosures. 
• Requires more detailed information that is in line with the TCFD recommendations.
• Is different from TCFD guidance by providing some additional requirements and guidance than TCFD.

Here is an example of the differences from the comparison document.

Formatted text is used in the right-hand column of the table to indicate the differences between IFRS S2 and the TCFD recommendations:

black bold text: Additional specificity in IFRS S2 that is in line with TCFD recommendations;

red bold text: Requirements in IFRS S2 that are not in the TCFD recommendations.

This comparison document is useful for companies that are using TCFD and want to advance their reporting with IFRS Sustainability Disclosures. The IFRS Foundation provides helpful information about making the Transition from TCFD to ISSB.

There are some important things to keep in mind about using the IFRS Standards. They are voluntary unless your company is in a jurisdiction (i.e., country) that requires it. If this is the case, you should recognize that the country can modify the reporting requirements to fit the needs of the country. The IFRS Foundation posts the global adoption progress on its website. The other important thing to note is what it means to comply with the IFRS Sustainability Standards. Unlike the GRI Standards that provide for “in accordance” and “referenced” reporting options, you must apply both IFRS S1 and IFRS S2 to state that you comply with IFRS standards. This may change in time in order that more companies can work their way up to full compliance in stages.