5 The Sustainability Disclosure Ecosystem

Question 1

What are common terms that market participants use to describe the ecosystem of sustainability disclosure and why?

Answer 1

“Alphabet soup” where a large number of organizations - each with its own acronym - disjointedly work towards their own overlapping but individual goals

Question 2

What does the Frameworks and Standards piece of the Sustainability Disclosure Value Chain differentiate between or separate?

Answer 2

Information producers from Information users

Question 3

What are the information producers in order on the Sustainability Disclosure Value Chain?

Answer 3

1) Reporters - collect, validate, set up internal controls, involve audit and publish the information
2) Disclosure platforms and software providers - enable filers to collect and report information, also helping to build taxonomies and information validation pathways
3) Auditors - use standards as criteria against which they provide external assurance and other related services

Question 4

What are the information users in order on the Sustainability Disclosure Value Chain?

Answer 4

1) Data Providers - aggregate information and make it available through technology tools
2) Analytics Platforms - provide ratings and advanced analysis capability
3) End Users - investors and other stakeholders such as civil society, communities, senior executives, employees, customers, governments and suppliers who consume the available data and analysis
4) Regulators - increasingly interested in sustainability information

Question 5

Instead of “alphabet soup”, what is the reality of organizations in this space?

Answer 5

They exist to serve very important, distinct, mutually supportive functions within the broader value chain of sustainability disclosure.

Question 6

What are the three types of organizations that significantly influence the supply and demand of quality sustainability data for capital markets?

Answer 6

1) organizations that issue sustainability disclosure guidance
2) organizations that aggregate sustainability data
3) organizations that create sustainability ratings and/or analytics

Question 7

Name five organizations that issue sustainability standards and disclosure guidance

Answer 7

CDSB
GRI
IIRC
SASB
TCFD

Question 8

What type are the organizations that issue voluntary disclosure guidance?

Answer 8

Typically non-governmental, non-profit organizations

Question 9

What process is typical for Disclosure Guidance Issuers to have?

Answer 9

consultations and/or feedback loops from the market; such as from users of the guidance and from beneficiaries of the guidance to provide input to develop the guidance further.

Question 10

Frameworks and standards being free to download and all changes conducted publicly exemplifies what principle for Disclosure Guidance Issuers?

Answer 10

As they seek to promote transparency of information in the market, they also tend to conduct their own operations with a high degree of transparency

Question 11

Why can others in the sustainability disclosure ecosystem rely on sustainability frameworks and standards?

Answer 11

They help generate high-quality company-reported data

Question 12

What role in the disclosure value chain compiles and presents data making it possible for investors to access data from a variety of companies in one place rather than sourcing data directly from individual companies?

Answer 12

Data aggregators

Question 13

What are the two types of data that data aggregators tend to focus on?

Answer 13

1) structured data - largely quantitative, such as stock values and water use quantities that can be organized into a relational database
2) unstructured data - tends to be text-heavy, often including text files, news articles, call transcripts, reports or other information that cannot easily be stored in a relational database

Question 14

What do some data aggregators do to improve comparability and alignment with predetermined data fields?

Answer 14

Might adjust company-reported data

Question 15

What is a method that some structured data aggregators do to source data?

Answer 15

Request data directly from companies via voluntary surveys or data requests

Question 16

Name four prominent examples of survey-based data aggregators

Answer 16

1) B Analytics
2) CDP
3) The Global Real Estate Sustainability Benchmark (GRESB)
4) Standard & Poor’s (S&P) SAM Corporate Sustainability Assessment (CSA)

Question 17

What do unstructured data aggregators do differently than structured data aggregators?

Answer 17

Rather than using specific data fields, they determine the categories of information to be analyzed, which may be proprietary or may be based on independent frameworks

Question 18

Name two prominent examples of unstructured data aggregators

Answer 18

1) RepRisk
2) Truvalue Labs

Question 19

How are ESG ratings and analytics providers different from data aggregators?

Answer 19

Unlike data aggregators which primarily provide underlying data to clients, rating agencies each employ a unique methodology for scoring or ranking individual companies based upon comparative ESG assessments

Question 20

Name four prominent examples of ESG ratings and analytics providers

Answer 20

1) Institutional Shareholders Services (ISS) ESG
2) MSCI
3) Sustainalytics
4) Vigeo Eiris

Question 21

As investors employ increasingly sophisticated ESG integration practices, what are they looking to from the ESG ratings and analytics providers?

Answer 21

Provide access to the underlying data so that investment firms can develop their own ESG scoring models rather than rely solely on a rating / analytics providers analysis

Question 22

What type of organization are data aggregators and ratings / analytics providers typically?

Answer 22

For-profit companies, as shown by their catering to their investor and analyst clients to develop products and services shaped by client-focused feedback and without much input from reporting companies

Question 23

How much visibility do reporting companies and the public have into the ratings / analytics providers methodologies?

Answer 23

Minimal visibility into their proprietary “black box” methodologies and decision-making processes

Question 24

Why is limited transparency among data and ratings / analytics providers not inherently bad?

Answer 24

Independent data aggregation, ratings, and analytics methods allow insights to be generated independently of the organization producing the information to prevent them from gaming the system and influencing how their data is interpreted

Question 25

What happens where regulators mandate sustainability disclosure?

Answer 25

They help build more consistency in requirements for reporting and likely increase the number of companies that report (depending upon the details of the regulation). The free market alone cannot create global standardization

Question 26

Name eight additional organization types that influence ESG data quality

Answer 26

1) Software providers
2) Disclosure platforms
3) Sell-side analysts
4) Securities exchanges
5) Coalitions and alliance organizations shaping corporate and investor behavior
6) Industry Associations (e.g. International Petroleum Industry, EEI)
7) NGOs
8) Target Setting & Strategic Planning

Question 27

What do software providers also help do?

Answer 27

Build taxonomies and information validation pathways that support version control and data tracking

Question 28

How are sell-side analysts influential?

Answer 28

They work for investment brokerage firms, analyzing companies, or making buy / sell / hold recommendations on stocks and securities; they are increasingly integrating ESG data in their evaluation of investment opportunities and many companies are taking note of the growing reference to ESG by sell-side analysts

Question 29

What are two examples of securities exchanges influencing the reporting of sustainability?

Answer 29

1) Johannesburg Stock Exchange King IV Code of Corporate Governance requires companies to adhere to the sustainability-related codes in order to be listed on the exchange
2) Euronext offers “Guidelines to Issues for ESG Reporting which includes report preparation direction and references an array of existing guidance providers

Question 30

Name six examples of coalitions and alliance organizations shaping corporate and investor behavior

Answer 30

1) World Business Council for Sustainable Development (WBCSD)
2) We Mean Business
3) Climate Group
4) Principles for Responsible Investment
5) Climate Action 100+
6) International Corporate Governance Network

Question 31

Name three target setting and strategic planning organizations

Answer 31

1) Prince’s Accounting for Sustainability Project (A4S) - Prince of Wales aiming to transform traditional processes in finance
2) B-Lab - offering a certification program for companies to demonstrate how their business serves the needs of stakeholders (not just shareholders)
3) Science-Based Targets helps companies identify a path for reducing GHG emissions within a set timeline to meet global emissions reductions targets established by the Paris Climate Accord

Question 32

Name the six core organizations issuing framework and standards that are commonly used for sustainability reporting

Answer 32

1) CDP
2) Climate Disclosure Standards Board (CDSB)
3) Global Reporting Initiative (GRI)
4) International Integrated Reporting Council (IIRC)
5) Sustainability Accounting Standards Board (SASB)
6) Task Force on Climate-Related Financial Disclosure (TCFD)

Question 33

What is the CDP?

Answer 33

a voluntary questionnaire that supports companies, cities, states and regions in measuring and managing environmental risks and opportunities, including those related to climate change, water security, forest management and other issues. Due to its broad uptake, the survey functions as a de facto disclosure standard for environmental information

Question 34

What is the CDSB?

Answer 34

Climate Disclosure Standards Board offers companies a framework for reporting environmental information using the same rigor as is used to report financial information, and helps investors, analysts, companies, regulators, stock exchanges, and accounting firms consider the impacts of natural capital on corporate performance

Question 35

What is the GRI?

Answer 35

Global Reporting Initiative is an independent standard-setting organization that helps companies and other organizations report significant impacts on the economy, environment and surrounding society, including impacts on human rights

Question 36

What is the IIRC?

Answer 36

International Integrated Reporting Council issues the International Framework <IR> Framework, that helps companies connect sustainability disclosure to reporting on financial and other capitals using a set of guiding principles and recognizing six capitals: financial, manufactured, intellectual, human, social & relationship, natural</IR>

Question 37

What is SASB?

Answer 37

Sustainability Accounting Standards Board (SASB) is an independent standard-setting organization that provides sustainability disclosure standards that enable businesses to identify, manage and communicate financially material sustainability information to investors on ESG topics

Question 38

What is TCFD?

Answer 38

Task Force on Climate-Related Financial Disclosure (TCFD) offers a principles-based framework to provide information to investors, lenders, insurers and other stakeholders on a set of recommendations for companies to address climate risk in financial filings or other reports by disclosing information on governance, strategy, risk management, metrics and targets

Question 39

What are the seven characteristics to understand and categorize sustainability disclosure frameworks?

Answer 39

1) scope of information
2) type of guidance
3) primary audience
4) scope of materiality
5) industry agnostic or industry-specific
6) time horizon
7) governance model

Question 40

What are six examples and elements to consider under Scope of Information characteristic?

Answer 40

“Sustainability” is broad and can include:
1) environmental information
2) social information
3) operational governance information
4) economic information
5) physical assets
6) intellectual assets

Question 41

What are the two types of guidance in the characteristics?

Answer 41

1) Frameworks - which are a set of concepts and principles for how information is structured and prepared
2) Standards are a set of specific, replicable and detailed guidance for what should be disclosed

Question 42

How is the TCFD an example of both a framework and a standard?

Answer 42

TCFD recommendations outline the broad topics of “strategy” which is a principle that recommends discussion of risks and opportunities. While under the TCFD recommendation for metrics and targets, there is often relationship between TCFD and SASB, since SASB provides industry-specific metrics and examples as a standard

Question 43

What does the “primary audience” characteristic of frameworks and standards mean?

Answer 43

Depending upon whether the primary audience is investors and providers of capital versus broader stakeholders. When the audience is investors, the guidance is designed to help understand a company’s performance on a subset of topics (e.g. TCFD, SASB, CDSB). When the primary audience is broader range of stakeholders, the purpose is more on the significant impact on the economy, environment or people (e.g. GRI, CDP)

Question 44

What does “scope of materiality” characteristic of frameworks and standards mean? And what is it often called?

Answer 44

“Double materiality” - because there are two materiality concepts relevant to sustainability disclosure frameworks and standards:
1) materiality in the context of enterprise value creation
2) materiality in the context of significant impacts on the economy, environment and people

Question 45

Which audiences are typically connected to each type of materiality?

Answer 45

Investors and providers of capital to 1) materiality in the context of enterprise value creation

Various users and broader stakeholders are 2) materiality in the context of significant impacts on the economy, environment and people

Question 46

Map the six core organizations issuing framework and standards onto the two types of materiality

Answer 46

Materiality of enterprise value creation:
SASB, CDSB, <IR> Framework, TCFD</IR>

Materiality of significant impacts on the economy, environment, and people: GRI, CDP

Question 47

What does the characteristic “industry agnostic or industry-specific” refer to?

Answer 47

Does the disclosure guidance seek to capture performance on a set of criteria that can be applied to any company or does it establish criteria specific to the industry given companies with different business models and operating environments often face different sustainability opportunities and risks

Question 48

Map the six core organizations issuing framework and standards onto industry-agnostic or industry-specific

Answer 48

Industry agnostic:
CDSB, IIRC, GRI*

Industry Specific:
SASB

Industry Agnostic with sector-specific guidance:
CDP, TCFD

*GRI is emerging with a “sector program” recognizing specific sectors have different impacts

Question 49

What does the “time horizon” characteristic refer to?

Answer 49

based upon the time horizon on which sustainability topics and subsequent impacts are likely to materialize.

Question 50

What is notable about the “time horizon” characteristic across the six core organizations issuing framework and standards?

Answer 50

All have a taxonomy on “short”, “medium” and “long” term time horizons which means none are focused on short and medium term only, differentiating them from financial reporting guidance

Question 51

What does the “governance model” characteristic refer to?

Answer 51

The different objectives of each organization influence how standard-setting processes are designed, who has a voice, how loud that voice is in the standard-setting process, and how decisions are made during standard setting

Question 52

What sets forth the formal, systemized procedures and principles applied to the development of sustainability disclosure guidance?

Answer 52

Core governance documents

Question 53

Which two standards setting bodies have core governance documents and what are they called?

Answer 53

1) SASB’s process for standard setting is governed by the Conceptual Framework and formal Rules of Procedure (which mirrors those used by FASB and IASB)

2) GRI’s Global Sustainability Standards Board (GSSB) governs the development process using terms of reference and a formally defined due-process protocol

Question 54

Where do each of the six core organizations issuing framework and standards fall when it comes to public meetings?

Answer 54

Public decision meetings are held for SASB and GRI (GSSB)

Publishing publicly all meeting minutes, proposals and resolutions: IIRC

Hosting a roadshow of roundtable meetings to solicit input: TCFD

Public consultations: CDSB

No public meetings: CDP

Question 55

What is a framework and standard that goes beyond corporate performance?

Answer 55

UN Sustainable Development Goals since it includes governments, investors and non-profits. Some of the SDGs such as “implement nationally appropriate social protection systems to cover the poor and vulnerable” are not actionable for companies

Question 56

What are the five voluntary disclosure guidance issuers that published a joint “Statement of Intent to Work Together Towards Comprehensive Corporate Reporting” in 2020?

Answer 56

CDP, CDSB, GRI, IIRC, SASB

Question 57

As the range of information that matters to business performance and enterprise value creation broadens beyond that which is purely financial, what must standards developers and reporting companies grapple with?

Answer 57

the indistinct process of measuring performance on topics that are intrinsically difficult to measure; improved measurement of sustainability information takes time

Question 58

[CHECK FOR UNDERSTANDING] What role do frameworks and standards play in the sustainability disclosure value chain?

Answer 58

The sustainability disclosure value chain
consists of organizations that produce information and organizations that use information. Disclosure frameworks and standards connect these producers and users. The information yielded through disclosure standards and frameworks underpins the entire value chain. They not only influence what companies disclose and how to do so, but are also leveraged by end-users to structure ESG data. Organizations that issue sustainability disclosure guidance such as CDP, CDSB, GRI, IIRC, SASB, and TCFD exist to create frameworks and standards that companies can leverage to increase transparency surrounding sustainability issues. They also tend to utilize market feedback loops to shape their frameworks
and standards, uniquely considering the needs of reporting companies and the needs of end users.

Question 59

[CHECK FOR UNDERSTANDING] What three types of organizations strongly influence ESG data quality, and how are they different from one another?

Answer 59

The three organizations within the sustainability disclosure value chain that primarily influence ESG data quality include 1) organizations that issue sustainability disclosure guidance, 2) ESG data aggregators, and 3) third-parties that rate/rank company ESG performance. The organizations that develop guidance for sustainability disclosure (frameworks and
standards) promote transparency of information in the market and tend to conduct their own operations with a high degree of transparency. Typically, frameworks and standards are free to access and all decisions regarding changes to guidance are conducted in a public manner. Data aggregators compile and present publicly available data, making it possible for investors to access and analyze data from a variety of companies in one place. Third-party rating and ranking providers employ unique methodologies to assess the ESG performance of individual companies and often source data from both public and private sources. Both data aggregators and ratings providers typically provide their products and services for a fee, meaning their methodologies are often protected intellectual property and they operate
to serve customer needs. In this sense, these three types of organizations differ by their place within the value chain (data aggregators and ratings providers operate downstream from those that provide disclosure guidance), the products and services they provide, and their relationship with stakeholders and customers.

Question 60

[CHECK FOR UNDERSTANDING] What are some of the most common disclosure frameworks and standards? How do they differ? In what ways are they complementary?

Answer 60

Some of the most commonly used frameworks and standards include CDP, CDSB, GRI, IIRC, SASB, and the TCFD. They differ based on the scope of information covered in their disclosure guidance, the type of
guidance they provide (frameworks, standards, or other), the industry agnosticism or specificity of information produced through their guidance, target audience, approach to materiality, and the governance models employed to develop their guidance. Many often confuse the functionality of these organizations, however they each offer unique value propositions and can serve as complementary resources for corporate
disclosure. This complementarity can best understood by focusing on two of the above characteristics: type of guidance and approach to materiality. Frameworks and standards serve distinct functions. Frameworks such as those issued by CDSB, IIRC, and TCFD offer a set of
concepts and principles for how information is structured and prepared, and what broad topics are covered. Standards such as GRI and SASB offer a set of specific, replicable, and detailed guidance for what should be disclosed. By supplementing high-level disclosure principles with detailed and structured data, standards can make frameworks actionable.
The second relates to each organization’s approach to materiality – or how they define material information for the purposes of sustainability disclosure. Organizations such as CDP and GRI primarily define material information as that which is needed to
understand a company’s outward impact on the economy, environment, and people. Organizations such as CDSB, IIRC, SASB, and TCFD define material information as that which is needed to understand the
impact of sustainability issues on enterprise value. This dual definition of materiality – focused on impact versus enterprise value – exists because of companies’ need to
communicate to different audiences. The former serves multiple stakeholders, which may include communities, civil society, staff, and providers of capital. The latter serves providers of capital, or those concerned with
sustainability’s impact on financial condition, operating performance, investment risk, and return rates.