Why ESG Reporting Feels Confusing
The world today is asking businesses to grow in ways that are fair, safe, and sustainable. This is where ESG comes in. ESG stands for Environmental, Social, and Governance. It shows how companies treat the planet and people and how they are run.
But there is one big challenge. Unlike financial reporting, which has global rules, ESG does not have one single worldwide standard. Every country or region follows its own method. Imagine trying to compare temperatures when one country uses Celsius, another uses Fahrenheit, and another uses Kelvin. You would struggle to compare them fairly. The same problem exists with ESG reports. Investors, governments, and the public want clear information, but the lack of uniform rules creates confusion.
This patchwork system makes it hard for businesses that operate in many countries. What counts as an ESG requirement in one place may not be the same in another. This is why many people and organizations are pushing for greater standardization.
Key Frameworks Companies Use
Even without a single global rulebook, several major international frameworks have emerged. These are guidelines that many businesses follow when they prepare their ESG reports. Let’s look at the most widely used ones:
Global Reporting Initiative (GRI)
This is the most popular framework worldwide. More than 80% of the biggest companies use it. GRI is broad and flexible. It looks at sustainability, ethics, and the impact businesses have on communities. It helps companies explain not only how much money they make but also how their activities affect people and the environment.
Sustainability Accounting Standards Board (SASB)
SASB is industry-specific. This means it adjusts depending on the type of company. For example, a technology company will not be measured the same way as an oil company. It focuses on financial materiality—what is most important to investors and the financial health of the business.
U.S. veteran detained by immigration officers in California over identity despite valid ID
Task Force on Climate-related Financial Disclosures (TCFD)
TCFD is all about climate risk. It helps companies explain how climate change could affect their operations, supply chains, and long-term survival. Many governments and regulators have adopted TCFD as a legal requirement because climate impact is now seen as a business risk, not just an environmental one.
United Nations Sustainable Development Goals (UN SDGs)
While not a strict framework, the UN’s 17 Sustainable Development Goals are widely used by companies. They cover big issues like gender equality, clean energy, quality education, and zero hunger. Businesses use them to align with global social and environmental priorities.
Together, these frameworks provide the foundation for most ESG reports. But because they are different, companies often struggle to choose which one to follow, or they may try to combine multiple frameworks.
ESG Rules Around the World
Different regions and countries have created their own ESG rules. Some are voluntary, while others are mandatory. Here’s how some of the world’s largest economies regulate ESG reporting:
- United Kingdom: Listed companies must disclose information on greenhouse gases, diversity, human rights, and other ESG factors. It is mandatory and detailed.
- European Union: The EU has some of the strictest ESG laws. All large companies must report their environmental and social impact. Financial firms also have to follow the Sustainable Finance Disclosure Regulation (SFDR), which demands extra transparency.
- United States: The approach is different. The Securities and Exchange Commission (SEC) requires companies to disclose ESG details only if they are material, meaning important to investors. Stock exchanges like NASDAQ and NYSE also demand reporting on board diversity and ethics.
- China: Publicly listed firms are required to share environmental data such as carbon emissions and waste. In recent years, China has tightened its ESG rules, pushing for stronger compliance.
- Japan: ESG reporting is mandatory for large companies, especially in areas like gender equality and climate action. Japan also makes TCFD disclosures a legal requirement, showing its focus on climate risk.
- India: Listed companies must use the Business Responsibility and Sustainability Report (BRSR) format. This sets a standard method for reporting across the country.
With so many variations, businesses often have to juggle multiple systems if they work internationally. This increases costs and complexity but also shows how seriously ESG is being taken across the globe.
In 2021, an important step was taken toward harmonization. The IFRS Foundation, known for creating global accounting standards, proposed a single ESG reporting system. It was backed by groups like GRI, SASB, and the CDP. The aim is to make ESG reporting as clear and comparable as financial reporting. If this effort succeeds, businesses, investors, and the public will finally be able to look at ESG data with the same clarity as financial numbers.
