Principles of Sustainability and ESG: ESG Fundamentals Key ESG Frameworks GRI SASB TCFD ISSB CDP

Key ESG Frameworks (GRI, SASB, TCFD, ISSB, CDP)

What This Is

A framework is a set‑by‑step “menu” that tells companies what ESG information to collect, how to calculate it, and how to present it to investors, regulators, and other stakeholders. Using a recognized framework makes disclosures comparable, credible, and audit‑ready. Example: Unilever uses the GRI standards to report its Scope 3 emissions from raw‑material sourcing, while HSBC follows the TCFD recommendations to disclose climate‑related risks across its loan portfolio.

Key Terms & Standards

• GRI (Global Reporting Initiative) – The most widely adopted sustainability reporting standards; organized by “Universal Standards” plus topic‑specific modules (e.g., GRI 302 Energy). Issued by the GRI Foundation; latest version 2021, updates ongoing.
• SASB (Sustainability Accounting Standards Board) – Industry‑specific “accountability” standards that map ESG topics to financial statements. Issued by the Value Reporting Foundation (now part of ISSB); 2023‑2024 standards are the final version.
• TCFD (Task Force on Climate‑Related Financial Disclosures) – A voluntary framework that guides companies to disclose governance, strategy, risk management, and metrics/targets for climate‑related risks. Launched by the Financial Stability Board (FSB) in 2017; 2023 “TCFD‑aligned” guidance adds transition‑risk metrics.
• ISSB (International Sustainability Standards Board) – The IFRS‑backed global board that consolidates GRI, SASB, and other inputs into the IFRS S1 (General Requirements) and IFRS S2 (Climate‑related Disclosures) standards. Effective for reporting periods starting 1 January 2024.
• CDP (Carbon Disclosure Project) – A questionnaire‑based disclosure platform that collects climate, water, and forest‑risk data; scores companies on a “A‑D” scale. Managed by CDP, Inc.; annual submission deadline is 31 October.
• GHG Protocol (Greenhouse Gas Protocol) – The de‑facto global method for measuring carbon footprints; defines Scope 1 (direct), Scope 2 (indirect energy), and Scope 3 (value‑chain) emissions. Developed by the World Resources Institute (WRI) & World Business Council for Sustainable Development (WBCSD); 2015 corporate standard is the current version.
• Double Materiality – The EU‑CSRD concept that requires reporting on (1) how ESG issues affect the company’s financial performance and (2) how the company’s activities impact the environment and society. Enshrined in the EU Corporate Sustainability Reporting Directive (CSRD), effective 1 January 2024 for large firms.
• Scope 2 Location‑Based vs. Market‑Based – Two calculation methods for indirect electricity emissions: location‑based uses the average grid emission factor of the physical site; market‑based uses contractual instruments (e.g., renewable energy certificates). Required by GHG Protocol and reflected in TCFD metrics.
• Science‑Based Targets (SBTi) – A methodology that aligns corporate emission‑reduction goals with the Paris Agreement’s 1.5 °C pathway. Not a reporting standard, but many frameworks (GRI 302‑1, ISSB S2) ask companies to disclose SBTi validation status.

Step‑by‑Step / Process Flow

Goal: Produce a combined GRI‑SASB‑TCFD‑ISSB disclosure package for FY 2024.

1. Define Scope & Materiality
2. Run a materiality matrix (financial materiality on the X‑axis, impact materiality on the Y‑axis).

3. Use stakeholder interviews, ESG risk registers, and the EU CSRD double‑materiality checklist to select topics.

4. Collect Data & Calculate Emissions

5. Gather Scope 1 fuel‑combustion data (e.g., diesel = 2.68 tCO₂e/L).
6. Pull electricity bills for Scope 2; apply both location‑based (grid factor = 0.45 tCO₂e/MWh) and market‑based (certificate factor = 0.00 tCO₂e/MWh) calculations.
7. For Scope 3, use the GHG Protocol Category 15 (use of sold products) formula:
   
   [
   \text{Scope 3}{15}= \sum_i
   ] } \text{Units Sold}_i \times \text{Emission Factor

8. Validate numbers against SBTi baseline (e.g., 2020 = 10 MtCO₂e).

9. Map Data to Frameworks

10. Align each ESG topic to GRI (e.g., GRI 302‑1 Energy Consumption), SASB (e.g., “GHG Emissions” for the “Industrial Machinery” sector), and TCFD (Metrics & Targets).

11. Populate ISSB S2 tables: climate‑related governance, strategy, risk management, and metrics.

12. Draft Narrative & Controls

13. Write the TCFD governance section: board oversight, climate‑risk committee charter.

14. Document internal control procedures (e.g., data‑quality checks, third‑party verification) required by GRI 103 (Management Approach).

15. External Review & Assurance

16. Submit the draft to an external ESG assurance provider (e.g., EY, PwC) for limited assurance on GRI S1‑S4 and ISSB S1 compliance.
17. Incorporate feedback, finalize the CDP questionnaire, and upload the full report to the corporate website by the EU CSRD deadline (31 December 2024).

Common Mistakes

ESG Interview / Exam Tips

1. Distinguish CSR vs. ESG – CSR is a voluntary, often philanthropic activity; ESG is material, investor‑focused and tied to measurable performance. Expect interviewers to ask for examples of each.
2. Scope 2 location‑based vs. market‑based – Be ready to explain why both are disclosed (regulatory compliance + demonstration of renewable procurement).
3. Materiality vs. Double Materiality – Know that materiality (single) looks at financial impact only, while double materiality adds the company’s external impact; the latter is required under EU CSRD.
4. TCFD “Metrics & Targets” vs. “Risk Management” – TCFD separates quantitative performance (e.g., carbon intensity) from the processes used to identify and mitigate climate risk. Exams often test you on which disclosure belongs where.

Quick Check Questions

1. Scenario: A European automotive supplier must file its FY 2024 sustainability report under the CSRD. Which set of standards should it primarily use?
   Answer: ISSB S1 & S2 (IFRS S1/S2) together with GRI for detailed topic coverage.
   Explanation: CSRD adopts the ISSB standards as the baseline, but many companies supplement with GRI for broader ESG topics.

2. Scenario: A bank wants to disclose climate‑related financial risks on its loan book. Which framework gives the most appropriate structure?
   Answer: TCFD.
   Explanation: TCFD is designed specifically for financial institutions to disclose governance, strategy, risk management, and metrics related to climate risk.

3. Scenario: A mining company has a verified Science‑Based Target for a 30 % reduction in Scope 1 + 2 emissions by 2030. Which disclosure element should it highlight in an ISSB‑aligned report?
   Answer: ISSB S2 – Metrics & Targets (climate‑related KPIs).
   Explanation: ISSB S2 requires reporting of climate‑related targets, their baseline, and progress, making the SBTi validation a key KPI.

Last‑Minute Cram Sheet (10 one‑liners)

1. ⚠️ TCFD = Task Force on Climate‑Related Financial Disclosures – a framework, not a standard.
2. GRI focuses on impact (environmental & social) and is topic‑based; SASB is financial‑materiality and industry‑specific.
3. ISSB (IFRS S1/S2) became effective 1 Jan 2024 for FY 2024 reporting.
4. GHG Protocol defines Scope 1, 2, 3; Scope 3 has 15 categories, the biggest for most firms.
5. Double Materiality = financial materiality + external impact; required by EU CSRD.
6. Scope 2 location‑based uses grid emission factor; market‑based uses renewable certificates.
7. CDP submission deadline: 31 Oct each year; scores range A‑D.
8. SASB sector codes (e.g., FSC‑01) map to IFRS S2 climate‑related disclosures.
9. Science‑Based Targets must be validated by SBTi and disclosed under ISSB S2 or GRI 302‑1.
10. Materiality matrix: X‑axis = financial impact; Y‑axis = societal/environmental impact – the core of double materiality.

Use this guide to build a compliant, investor‑ready ESG report and to ace any interview or exam that tests your knowledge of the major ESG frameworks.