Companies are now expected to report their ESG performance and risks. Basic ESG reporting will soon be mandatory in the EU, and for publicly listed companies in the US under the SEC. Failure to disclose ESG information could result in fines, shareholder action and divestment.

With ESG reporting and compliance are now becoming increasingly critical, largely in response to investor interest, understanding and navigating the reporting and regulatory landscape is now crucial for business.

The different frameworks focus on different areas and metrics. To decide which framework is relevant to a company’s activities, one must first consider the ESG ‘stakeholders’ (investors, employees, governments, insurers, boards, etc). Who are your key stakeholders and what do they want to see reported? Based on this, you will find several frameworks that are aimed at investors primarily, while others are relevant to a broader audience.

Below are some of the major ESG Initiatives and Frameworks that are relevant to financial businesses and fund managers.

United Nations Initiatives

The United Nations initiatives have played a critical role in responsible investing and advancement of sustainability. In particular, the three initiatives below are of great interest in the context of ESG:

1. 

Established in 2000 as a collaboration between the UN and leading companies. It is now the largest sustainability initiative in the world with over 8000 corporate signatories, who have agreed to observe ten principles of the initiative covering human rights, environment, anti-corruption, and labour.

2. 

Established in 1992, this initiative is a partnership between UNEP and the global financial sector and aims to incorporate sustainability principles into activities of private sector financial organisations. It currently has over 300 signatories (banks, insurers, and investors) and consists of three frameworks:

a. Principles for Responsible Investment (UNPRI)

The PRI has developed six principles, providing guidance on incorporating ESG principles into investment practices. A PRI membership has become a mark of being a responsible investor. It requires members to report annually on their investment practices.

b. Principles for Sustainable Insurance (UNPSI)

Established in 2012 and applied by more than a quarter of the world’s insurers. Learn about its four principles.

c. Principles for Responsible Banking (UNPRB)

Established in 2021, with more than 220 banks as signatories, representing more than one third of the global banking sector in total assets.


3. United Nations Sustainable Development Goals (SDG)

SDGs represent key global challenges in the areas of inequality, poverty, environment, climate change and peace and justice and were agreed on by all UN members in 2015. Even though the 17 SDG goals are aimed primarily at governments, many businesses and investors are reporting on their impacts on SDGs.


Conclusion

The ESG market is rapidly expanding. Acute investor interest in this area of reporting will push financial businesses and fund managers towards disclosure under a framework if they wish to stay ahead of their competitors. How they choose to do that is a company specific decision based on stakeholder requirements, key focus areas and required metrics.