APPENDIX 4.3:
STREAM A3 ASSESSMENT REPORT
CONCEPTUAL
FRAMEWORK FOR
NONFINANCIAL
INFORMATION
STANDARD
SETTING
February 2021
22
DISCLAIMER
This appendix forms part of a series of seven documents, comprising the report and its appendices prepared by the European
Lab Project Task Force on preparatory work for the elaboration of possible EU non-financial reporting standards (PTF-NFRS),
for submission to the European Commission in response to a mandate including a request for technical advice dated 25 June
2020.
The contents of the PTF-NFRS report and its appendices are the sole responsibility of the PTF-NFRS. The European Lab
Steering Group Chair has assessed that appropriate quality control and due process had been observed to the extent possible
within the context of the relevant mandate and the timeframe allowed, and has approved the publication of the PTF-NFRS
report and its appendices. The PTF-NFRS report and its appendices do not represent the ocial views of EFRAG and are not
subject to approval by the EFRAG governance bodies: EFRAG General Assembly and the EFRAG Board; or the European Lab
Steering Group.
As regards the views expressed in the PTF-NFRS report and its appendices the following observations and clarifications
should be noted:
• the PTF-NFRS report taken as a whole reflects a very large consensus;
• it is understood that members of the PTF-NFRS are not expected to endorse each and every one of the 54 detailed
proposals in the PTF-NFRS report and may have dierent views on some of them;
• in addition the views expressed may not reflect the views of the organisations or entities to which individual PTF-NFRS
members may belong;
• the assessment work for the dierent project focus areas, presented in Appendices 4.1 to 4.6 to the PTF-NFRS report,
was the result of separate sub-groups of the PTF-NFRS, for which only peer review within the PTF-NFRS was performed.
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© 2021 European Financial Reporting Advisory Group.
33
1 Based on the workplan that was presented and adopted by the PTF during its kick-o meeting on September 11, 2020
Stream A3 focused on the following assessment objectives:
a) review existing (explicit or implicit) frameworks and standards and summarise possible technical qualities expected
from NFI standards,
b) consider the organisation of the current non-financial topics (Environmental, Social and Governance (ESG) and Human
Rights matters) in light of the NFRD and its revision, and alignment with other EU legislative acts (environmental
objectives of the taxonomy for instance),
c) assess the scope of reporting of existing frameworks and standards and identify perspectives on reporting of impacts
of the whole value chain,
d) address the dierent materiality perspectives and identify approaches based on existing methodologies to assess
materiality,
e) consider NFI more forward-looking rather than retrospective, documentation of objectives and scenario to report on
the company’s transition towards sustainable business model,
f) consider a standard structure composed of generic, sector and company specific issues and metrics,
g) analyse the range of metrics between absolute values, performance indicators and intensity ratios,
h) consider linkage with global policy priorities.
2 The assessment of each objective is structured as follows:
a) Definition and relevance of the topic;
b) Analysis; and
c) Key considerations for a potential EU NF Reporting Standards.
EXECUTIVE SUMMARY
44
TABLE OF CONTENTS
EXECUTIVE SUMMARY
INTRODUCTION AND OBJECTIVES
DETAILED ANALYSIS OF THE CURRENT STATE OF PLAY
CATEGORISATION AND TAXONOMY
MATERIALITY
SCOPE OF REPORTING
FORWARDLOOKING INFORMATION AND TIME HORIZON
LEVEL OF APPLICATION
TYPES OF INFORMATION
REPORTING PRINCIPLES
LINK TO GLOBAL POLICY PRIORITIES
SALIENT ASSESSMENT POINTS
55
3 Based on the workplan that was presented and adopted by the PTF during its kick-o meeting on September 11, 2020
Stream A3 focused on the following assessment objectives:
a) review existing (explicit or implicit) frameworks and standards and summarise possible technical qualities expected
from NFI standards,
b) consider the organisation of the current non-financial topics (Environmental, Social and Governance (ESG) and Human
Rights matters) in light of the NFRD and its revision, and alignment with other EU legislative acts (environmental
objectives of the taxonomy for instance),
c) assess the scope of reporting of existing frameworks and standards and identify perspectives on reporting of impacts
of the whole value chain,
d) address the dierent materiality perspectives and identify approaches based on existing methodologies to assess
materiality,
e) consider NFI more forward-looking rather than retrospective, documentation of objectives and scenario to report on
the company’s transition towards sustainable business model,
f) consider a standard structure composed of generic, sector and company specific issues and metrics,
g) analyse the range of metrics between absolute values, performance indicators and intensity ratios,
h) consider linkage with global policy priorities.
4 The assessment of each objective is structured as follows:
a) Definition and relevance of the topic;
b) Analysis; and
c) Key considerations for a potential EU NF Reporting Standards.
5 In the analysis phase, stream A3 developed questions that together paint a picture of the current state of play of non-
financial reporting related to the assessment objectives.
6 For each assessment objective, stream A3 assessed the NFRD and the following six existing frameworks and standards:
a) GRI Standards;
b) IIRC and the <IR> Framework;
c) SASB Standards;
d) United Nations Guiding Principles Reporting Framework;
e) EU Taxonomy; and
f) the TCFD recommendations.
7 These six frameworks and standards are considered by the European Commission (as evidenced by the reference in the
current NFRD itself and/or in the consultation document on its revision, as well as the mandate of the PTF) and the PTF
itself to be leading in non-financial reporting and are therefore included as core resources in the assessment.
INTRODUCTION AND OBJECTIVES
66
8 Stream A3 has assessed additional frameworks, standards and guides when these resources deemed to be providing
additional insight in the specific question raised. For example, when addressing the assessment objective ‘linkage with
global policy priorities’, resources reflecting on these global policy priorities, such as the Sustainable Development
Goals (SDGs), were included in the assessment.
9 The additional resources assessed include, but are not limited to, the GHG Protocol, the Eco-Management and Audit
Scheme (EMAS), the Science Based Target initiative, the SDGs and the Future Fit Business Benchmark.
10 A summary of the key considerations for all the topics can be found at the end of the document as salient assessment
points.
77
CATEGORISATION AND TAXONOMY
Definition and relevance
11 Current non-financial information addresses a varied and (over time potentially) dynamic set of topics and sub-topics.
Certain categories of information may be prescribed per topic (e.g., policies, risks, targets, metrics).
12 The manner in which topics are defined and organised is relevant for how reporting entities structure and present
information and may influence how their materiality may be assessed in particular sectors and companies.
13 Article 19a) of the NFRD requires that non-financial statements contain information “relating to, as a minimum,
environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters, including:
a) a brief description of the undertaking’s business model;
b) a description of the policies pursued by the undertaking in relation to those matters, including due diligence processes
implemented;
c) the outcome of those policies;
d) the principal risks related to those matters linked to the undertaking’s operations including, where relevant and
proportionate, its business relationships, products or services which are likely to cause adverse impacts in those
areas, and how the undertaking manages those risks;
e) non-financial key performance indicators relevant to the particular business.”
14 For each non-financial matter specified in the NFRD (i.e., environment, social and employee issues, human rights, anti-
corruption and bribery), the EC 2017 Non-Binding Guidelines on Non-Financial Reporting explain what kind of relevant
information a company is expected to disclose.
15 In addition, for each category of non-financial information specified in the NFRD (i.e. business model, policies, outcomes,
risks and key performance indicators), the EC 2017 Non-Binding Guidelines on Non-Financial Reporting provide
additional elements explaining what information companies should disclose.
16 The consultation on the NFRD revision asked whether companies should be required to disclose information about any
non-financial matters in addition to those already specified in the NFRD (i.e. environment, social and employee issues,
human rights, and anti-corruption and bribery). Approximately 50 dierent non-financial matters were mentioned. The
most frequent responses to this question were the Taxonomy Regulation, governance, and the supply chain; other
responses make reference to lobbying, animal welfare, and consumer matters, amongst many others
1
.
17 Given the demands of users following on from the NFRD consultation, there is a strong need for categorisation. Without
proper categorisation, a report containing the numerous non-financial matters identified may be unstructured and
dicult to read.
18 Some of the respondents such as users and preparers stressed the need for more concrete and detailed definitions of
what non-financial information should be disclosed. Some national standards setters even propose to make a description
of the content to be included in each category (environment, social and employee issues, human rights, anti-corruption
and bribery).
1 Summary Report of the Public Consultation on the Review of the Non-Financial Reporting Directive (2020)
DETAILED ANALYSIS OF
THE CURRENT STATE OF PLAY
88
19 Moreover, some preparers state that governance matters could be treated more broadly, without being limited to bribery
and anti-corruption matters only. The scope of the governance matters could cover other topics relevant to business
ethics and business conduct.
20 In addition, the consultation asked if companies should be required to disclose information about additional categories of
non-financial information in addition to those already specified in the NFRD (i.e. business model, policies, outcomes, risks
and key performance indicators). Approximately 240 dierent categories were mentioned. The most frequent category
submitted by respondents is targets and companies’ progress towards them. Other frequently mentioned categories
were climate scenario analysis, forward-looking information, contribution to the UN Sustainable Development Goals,
sustainability strategy, materiality assessment, the link between board remuneration and sustainability performance,
and information aligned with the Taxonomy Regulation and the Sustainable Finance Disclosure Regulation.
21 However, some preparers are concerned about a possible expansion of non-financial reporting when additional topics
are included. They prefer not to expand the amount of requested information but to harmonise the existing requirements
among Member States and stop the fragmentation of dierent frameworks.
22 Key question in PTF’s analysis of the categorisation and taxonomy is: What are the dierent ways in which non-financial
information can be organised and categorised and how can this be captured in a conceptual framework?
Analysis
What high level categories do existing initiatives use and based on what rationale (if that is expressed)?
23 High-level categorisations (may be dubbed ‘themes’, ‘series’, ‘pillars’, ‘capitals’ etc.) are generally variations of E, S and
G (the broader concepts of sustainability) and are regularly expanded with areas that may well be part of ESG but are
often separately presented as main categorisations: such as climate change, human rights, strategy, business model,
tax, corruption, or general ‘economics’.
24 Some key standards/frameworks address one dimension of sustainability reporting (e.g. UNGP Reporting Framework
for human rights, EU Taxonomy for the environment, TCFD for climate) but still with category-specific subdivisions.
25 Within the main analysed frameworks and standards:
a) NFRD requires disclosure for each of the topics: Environmental, Social and employee matters, Respect for human
rights, Anti-corruption and bribery matters. In particular,
(i) Environmental matters should contain details of the current and foreseeable impacts of the undertaking’s
operations on the environment, and, as appropriate, on health and safety, the use of renewable and/or non-
renewable energy, greenhouse gas emissions, water use and air pollution;
(ii) As regards Social and employee-related matters, the information provided in the statement may concern
the actions taken to ensure gender equality, implementation of fundamental conventions of the ILO, working
conditions, social dialogue, respect for the right of workers to be informed and consulted, respect for trade
union rights, health and safety at work and dialogue with local communities, and/or the actions taken to ensure
protection and development of those communities;
(iii) Concerning Respect for human rights, non-financial statement could include information on the prevention of
human rights abuses;
(iv) With regards to Anti-corruption and bribery matters, non-financial statements could include a description of the
instruments in place to fight corruption and bribery.
99
b) The GRI Standards are divided into Topics, 200, 300, and 400 series
2
, which include numerous topic-specific
Standards, that guide companies in reporting information on impacts related to economic, environmental, and social
topics. However, to prepare a sustainability report in accordance with the GRI Standards, an organisation has to apply
also GRI 102: General Disclosures that require companies to disclose specific information about their business model,
strategy, governance and risk management.
c) The <IR> Framework
3
aims to provide insight about the resources and relationships used and aected by an
organisation – these are collectively referred to as the capitals. The capitals are stocks of value that are increased,
decreased or transformed through the activities and outputs of the organisation. They are categorised in this
Framework as: financial, manufactured, intellectual, human, social and relationship, and natural capital, although
organisations preparing an integrated report are not required to adopt this categorisation or to structure their report
along the lines of the capitals. Concerning the definition of capitals:
(i) Financial capital is described as the pool of funds that is available to an organisation for use in the production
of goods and services, and obtained through financing (such as debt, equity or grants) or generated through
operations or investments.
(ii) Manufactured capital is the set of manufactured physical objects that are available to an organisation for use in
the production of goods and services (buildings, equipment, infrastructure).
(iii) Intellectual capital includes intellectual property and the so-called organisational capital.
(iv) Human capital is represented by people’s competencies, capabilities and experience, and their motivations to
innovate.
(v) Social and relationship capital is the set of institutions and relationships within and between communities, groups
of stakeholders and other networks, and the ability to share information to enhance individual and collective
well-being.
(vi) Natural capital represents all the environmental resources and processes that provide goods or services that
support the past, current or future prosperity of an organisation.
d) SASB sustainability topics
4
are organised under five broad sustainability dimensions: Environment, Social Capital,
Human Capital, Business Model and Innovation, Leadership and Governance.
(i) The Environment dimension includes environmental impacts.
(ii) The Social dimension relates to the expectation that a business will contribute to society in return for a social
license to operate.
(iii) The Human dimension addresses the management of a company’s human resources as key assets to delivering
long-term value.
(iv) The dimension of Business Model and Innovation addresses the integration of environmental, human, and social
issues in a company’s value-creation process.
(v) The dimension Leadership and Governance involves the management of issues that are inherent to the business
model or common practice in the industry and that are in potential conflict with the interest of broader stakeholder
groups, and therefore create a potential liability or a limitation or removal of a license to operate.
(vi) These 5 sustainability dimensions are divided into 30 General Issue Categories (that represent broad
sustainability-related business issues). General Issue Categories allow for cross-industry comparisons of closely
2 The GRI 200, 300 and 400 series include topic-specific standards. To prepare a sustainability report in accordance with the GRI Standards, an organisation
applies the Reporting Principles for defining report content from GRI 101: Foundation to identify its material economic, environmental, and/or social topics.
These material topics determine which topic-specific Standards the organisation uses to prepare its sustainability report (GRI 101: Foundation 2016)
3 IIRC, The International <IR> Framework (2013)
4 SASB Conceptual Framework (2017)
1010
related industry-specific Disclosure Topics. The disclosure topics included in SASB’s industry-specific standards
are a sub-set of this universe of sustainability issues, tailored to the industry’s specific context.
e) TCFD
5
addresses one dimension of sustainability reporting but does include category-specific subdivisions, which
are discussed in key question 2. At the moment, the EU Taxonomy also addresses one dimension, although in future
Regulatory Technical Standards, other ecological and social issues will be addressed.
Moreover, within the additional resources analysed:
f) The WEF IBC Measuring Stakeholder Capitalism Report (2020) tries to overcome fragmentation and to drive global
alignment, and guides companies to report in a consistent and more comparable way on key dimensions of sustainable
value. The initiative is divided into four pillars: Principles of Governance, Planet, People and Prosperity. Under each
one of the four pillars several main themes can be found, which include the core metrics and disclosures derived from
various existing frameworks;
g) ISO 26000 is divided in 7 core subjects: organisational governance, human rights, labour practices, environment, fair
operating practices, consumer issues and community involvement and development. Moreover subjects 2-7 include
in total 36 sub-issues
26 Most of the standards and frameworks require also specific key reporting elements (e.g. policy, outcomes, impacts, risks,
targets and progress against targets) per category.
Framework/
standard
Sustainability dimensions mentioned
by the framework/standard Information required
Division
Environment
Social/ People
Governance
Economics
(including Profit)
Anti- corruption
Business model
Risks
Strategy/Policy
Performance
Main analysed frameworks/standards
GRI 3 Topics
6
IIRC 6 Capitals
7
SASB 5 Dimensions
8
UNGP RF
9
-
Taxonomy Regulation 6 objectives
10
TCFD
11
-
Additional resources considered
ISO 26000 7 core subjects
12
WEF IBC 4 Pillars
13
5 Final Report – Recommendations of the Task Force on Climate-related Financial Disclosures (2017)
6 https://www.globalreporting.org/how-to-use-the-gri-standards/gri-standards-english-language/
7 IIRC, The International <IR> Framework (2013)
8 SASB Conceptual Framework (2017)
9 UN Guiding Principles Reporting Framework (2015)
10 Regulation (EU) 2020/852, article 9
11 Final Report – Recommendations of the Task Force on Climate-related Financial Disclosures (2017)
12 ISO 26000:2010 Guidance on social responsibility
13 WEF “Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation White Paper” (2020), p.12
1111
27 Rationale in terms of categorisation is generally not made explicit, most of the frameworks/standards adopt the
widespread categorisation that refers to the ESG dimensions but without a clear explanation of the reason behind this
choice. From the examples below it becomes clear the rationale usually covers the ‘why’ of sustainability reporting
rather than the rationale for specific categorisations within a standard or framework
28 Within the main analysed frameworks/standards:
a) GRI sees sustainability reporting as an organisation’s practice of reporting publicly on its economic, environmental, and/
or social impacts, and hence its contributions – positive or negative – towards the goal of sustainable development.
Through this process, an organisation identifies its significant impacts on the economy, the environment, and/or
society and discloses them in accordance with a globally accepted standard. The underlying question of sustainability
reporting is how an organisation contributes, or aims to contribute in the future, to the improvement or deterioration
of economic, environmental, and social conditions at the local, regional, or global level. Therefore, the aim is to
present the organisation’s performance in relation to broader concepts of sustainability. This involves examining its
performance in the context of the limits and demands placed on economic, environmental or social resources, at the
sectoral, local, regional, or global level. This concept is often articulated with respect to the environment, in terms of
global limits on resources and pollution levels. But it is also relevant with respect to social and economic objectives,
such as national or international socioeconomic and sustainable development goals.
b) IIRC, through Integrated Reporting, wants to promote a more cohesive and ecient approach to corporate reporting
and aims to improve the quality of information available to providers of financial capital to enable a more ecient and
productive allocation of capital. The primary purpose of an integrated report is to explain to providers of financial
capital how an organisation creates value over time. The primary reasons for including the capitals in this Framework
are to serve as part of the theoretical underpinning for the concept of value creation and as a guideline for ensuring
organisations consider all the forms of capital they use or aect
14
.
29 Moreover, within the additional resources analysed the following rationales are mentioned:
a) For WEF IBC Measuring Stakeholder Capitalism Report, pillars are aligned with essential elements of SDGs; themes
are derived from a review of existing standards and considered to be most important to society, planet and economy;
five criteria are used for metric prioritisation
15
.
b) German Sustainability Code is an entry point to sustainability reporting, its rational is to act as an easily implementable
and structured framework for NFRD and UNGP.
c) For EMAS, the rationale is to provide the public and other interested parties with information on compliance and
environmental performance and ensure relevance and comparability of reported data.
d) For the Sustainable Development Goals Disclosure (SDGD) Recommendations, no specific rationale is given, other
than convergence with existing standards and frameworks (the SDGD-recommendations attempt to take exiting
reporting along IR, GRI and TCFD-lines to the level of SDG risks and opportunities; for ease of application / adoption
it builds on existing reporting practices).
30 The connection of main categories to financial reporting is often left implicit (e.g. NFRD or GRI 100). The Economic series
of GRI is fairly general, with a focus on economic impact (inside-out perspective), and appears to have some diculty
positioning the information suggested compared to information in other reports (such as the management report, that
has an outside-in perspective, and is focus on financial implications).
14 The Background Paper for <IR> explain how financial and manufactured capitals are the ones organisations most commonly report on. IR takes a broader
view by also considering intellectual, social and relationship, and human capitals (all of which are linked to the activities of humans) and natural capital (which
provides the environment in which the other capitals sit).
15 The following criteria were used to filter and prioritise all themes and metrics: 1. Consistency with existing frameworks and standards 2. Materiality to long-
term value creation 3. Extent of actionability 4. Universality across industries and business models 5. Monitoring feasibility of reporting
1212
Where are sub issues/topics allocated within categories?
31 High-level categories are usually subdivided into more granular sub-topics, with varying degrees of granularity.
32 Frameworks can refer to other frameworks for a more granular subdivision, as in the case of IIRC that refers to GRI
Standards, or the SDGs Recommendations that assume the application of GRI, UNGC and the work of the Impact
Management Project.
16 GRI 101, Foundation, p. 3
17 Capitals Bankground paper for <IR>, p.17
18 SASB Conceptual Framework (2017), p.2-3
Framework/
standard Allocation of topics/sub-issues within categories
Main analysed frameworks/standards
GRI The GRI disclosures are divided into sub-topics under the main topics (Economic, Environment, Social)
with a high level of granularity of sub-topics.
• Economics – GRI 200 series. GRI 201: Economic Performance, GRI 202 Market presence, GRI 203
Indirect economic impact, GRI 204 Procurement practices, GRI 205 Anti-corruption, GRI 206 Anti-
competitive behaviour, GRI 207 TAX (new)
• Environment – GRI 301: Materials, GRI 302: Energy, GRI 303: Water and euents, GRI 304:
Biodiversity, GRI 305: Emissions, GRI 306: Waste, GRI 307: Environmental compliance, GRI 308:
Supplier environmental assessment
• Social – GRI 401: Employment, GRI 402 Labour management relations, GRI 403 Occupational health
and safety, GRI 404 Training and education, GRI 405 Diversity and equal opportunity, GRI 406 Non-
discrimination, GRI 407 Freedom of association and collective bargaining, GRI 408 Child labour, GRI
409 Forced or compulsory labour, GRI 410 Security practices, GRI 411 Rights of indigenous peoples,
GRI 412 Human rights assessment, GRI 413 Local communities, GRI 414 Supplier social assessment,
GRI 415 Public policy, GRI 416 Customer health and safety, GRI 417 Marketing and labelling, GRI 418
Customer privacy, GRI 419 Socioeconomic compliance
16
IIRC <IR> Framework does not foresee specific KPIs to disclose on the six capitals, but only provides their
content element. In the document “CAPITALS. Background paper for <IR>”, a correlation table is
present-ed crossing GRI sustainability topics with a selection of the <IR> Framework capitals (natural,
social and relationship, human).
17
SASB The 5 broad sustainability dimensions are divided into the following sub-topics (26 sustainability-
related business issues/general issue cate-gories):
• Environment. This dimension includes 6 general issue categories: GHG Emissions, Air Quality,
Energy Management, Water & Wastewater Management, Waste & Hazardous Materials
Management, Ecological Impacts.
• Social Capital. This dimension includes 7 general issue categories: Human Rights & Community
Relations, Data Security, Customer Privacy, Product Quality and Safety, Customer Welfare, Selling
Practices & Product Labelling.
• Human Capital. This dimension includes 3 general issue categories: Labour practices, Employee
Health and Safety, Employee En-gagement, Diversity & Inclusion
• Business Model and Innovation. This dimension includes 5 general issue categories: Product
Design & Lifecycle Management, Busi-ness Model Resilience, Supply Chain Management, Materials
Sourcing & Eciency, Physical Impacts of Climate Change.
• Leadership and Governance. This dimension includes 5 general issue categories: Business Ethics,
Competitive Behaviour, Management of Legal & Regulatory Environment, Critical Incident Risk
Management, Systemic Risk Management
18
1313
19 UN Guiding Principles Reporting Framework
20 Regulation (EU) 2020/852, article 9
21 www.nachhaltigkeitsrat.de/en/projects/the-sustainability-code
22 Greenhouse Gas Protocol, A Corporate Accounting and Reporting Standard Revised edition
23 Natural Capital Coalition, Nature Capital Protocol (2016)
24 Sustainable Development Goals Dislcosure (SDGD) Recommendations (2020)
Framework/
standard Allocation of topics/sub-issues within categories
UNGP RF The UN Guiding Principles Reporting Framework focuses companies’ reporting on their salient human
rights issues. Companies need to address 8 overarching questions and 4 information requirements
about the definition of the focus of the reporting (i.e. Statement of salient issues, Determination of
salient issues, Choice of focal geographies, Additional severe impacts) in order to meet the minimum
threshold to say that it has applied the UN Guiding Principles Reporting Framework.
Contents falls in three parts:
• Governance – policy commitment and embedding of respect of hu-man rights
• Defining the focus of reporting (salient issues/severe impacts)
• Management of salient human rights issues (specific policies, stakeholder engagement, assessing
impact, integrating findings and taking action, tracking performance, remediation)
19
Taxonomy
Regulation
The EU taxonomy identifies the following 6 environmental objectives on which needs to be reported
(article 9):
• climate change mitigation;
• climate change adaptation;
• the sustainable use and protection of water and marine resources;
• the transition to a circular economy;
• pollution prevention and control;
• the protection and restoration of biodiversity and ecosystems
For each objective, core reporting elements are turnover and CAPEX and OPEX (article 8).
The Taxonomy will be further developed to incorporate also Social objectives, in addition to
environmental objectives, to identify substantial contributions in addition to minimum safeguards.
20
Additional resources
German
Sustainability
Code
20 reporting criteria in four categories. Each of the 20 reporting criteria is supported by a checklist of
specific disclosures requirements, also including KPIs from GRI or EFFAS. For some criteria additional
(voluntarily applicable) disclosures that aim for compatibility with the NFRD and UNGP.
• Strategy: strategic analysis and action, materiality, objectives, depth of value chain;
• Process management: responsibility, rules and processes, control, incentive schemes, stakeholder
engagement, innovation and product management
• Environment: Usage of natural resources, resource management, climate-relevant emissions
• Society: employment rights, equal opportunities, qualifications, human rights, corporate citizenship,
political influence, compliance with regulations and policies
21
GHG Protocol GHG Protocol applies to greenhouse gas emissions which are usually attributed to the “E” pillar. GHG
emissions are attributed to 3 scopes (top categorisation level), and emissions within scope 3 are
attributed to 15 categories (8 for upstream sources and 7 for downstream sources). The categorisation
is one-dimensional.
22
Natural Capital
Protocol
Content is focused on natural capital, broadly defined as the stock of renewable and non-renewable
natural resources on earth (e.g., plants, animals, air, water, soils, minerals) that combine to yield a flow
of benefits or “services” to people. Impact drivers can be classified along the lines of main categories,
such as water use, ecosystem use, GHG emissions, pollutants, or waste. These categories are not
prescribed.
23
SDGD
Recommendations
Not specified. With regard to specific indicators etc. the SDGD recom-mendations assume application
of GRI, UNGC and the work of the Im-pact Management Project.
24
1414
Summary of sub allocations:
First level Second level Third level
Main analysed frameworks/standards
GRI 3 Topics 34 Topic Specific Disclosures
IIRC 6 Capitals Reference to GRI
for 3 Capitals
-
SASB 5 Dimensions 26 Sustainability-Related
Business Issues
77 Industries with
specific metrics
UNGP Reporting
Framework
- 8 Overarching
Questions and 23
Supporting Questions
Suggestions for
relevant information
for each Question
Taxonomy Regulation - 6 Objectives 3 KPIs
Additional resources
German SC 4 Categories 20 Reporting Criteria Specific Disclosures
Requirements
GHG Protocol - 3 Scopes For Scope 3, 15 Categories
SDG - Reference to GRI
and UNGC
-
WEF 4 Pillars 21 Core Metrics
and 34 Expanded
Universal Metrics
-
33 Categorisation can be also divided in another dimension, based on the sector. Some frameworks/standards adopt both
dimensions (over-arching issues divided into a more granular subdivision and sector specific) while other consider only
one. Within the frameworks and standards analysed there is also the possibility of using a specific taxonomy for sector
specific reporting (NACE, SICS)
26
. Within the core analysed frameworks/standards:
a) SASB’s Sustainable Industry Classification System™ (SICS™) groups industries with similar business models and
sustainability impacts. The SASB focuses on 11 sectors divided to 77 industries).
25 WEF, Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation White Paper (2020)
26 Other industry classifications that are available on the market are the Global Industry Classification Standard (GICS®) and the Industry Classification
Benchmark (ICB).
Framework/
standard Allocation of topics/sub-issues within categories
WEF IBC
Measuring
Stakeholder
Capitalism Report
(2020)
Up to seven sub-themes under each pillar, high granularity:
• Governance: purpose, governance body, stakeholder engage-ment, ethical behaviour, risk and
opportunity oversight
• Planet: climate change, nature loss, freshwater availability, air pollu-tion, water pollution, solid waste,
resource availability
• People: Dignity and equality, health and well-being, skills for the future
• Prosperity: employment and wealth generation, innovation for products and services, community
and social vitality
Two ambition levels: 21 core metrics and 34 expanded universal metrics
No dierentiation between content elements (strategy, risks, targets etc.) and ESG-related KPI
25
1515
b) Concerning the EU Taxonomy, the TEG recommendations are structured around the EU’s NACE
27
(Statistical
classification of economic activities in the European Community) industry classification system, and the TEG has
set technical screening criteria for economic activities within priority macro-sectors. This classification system was
selected for its compatibility with EU Member State and international statistical frameworks and for its broad coverage
of the economy.
34 Moreover, within additional resources analysed:
a) Organisations that comply with EMAS-requirements are publicly registered. Classification system used is NACE.
b) nFIS (Polish Non-Financial Information Standard) Annex 2 uses sector and macro sector classification used by the
Warsaw Stock Exchange, which is in turn a variation of NACE.
Key considerations for a potential EU Sustainable Standard
35 The categorisation, both in terms of high-level topics and of subdivisions, has the potential to be an important structuring
element, guiding how reporting entities structure and present information.
36 Reporting standard benefits from a clear structure, with a high-level definition of overarching categories able to cover
the broader sustainability themes. The high-level categorisation might, in fact, serve as an umbrella for a more granular
subdivision, where dierent topics can be allocated and, eventually, progressively updated in line with the evolving
scenario and the consequent emerging issues. A clear and well-defined structure can ease the application of a sectoral
approach and/or various types of information (e.g. strategy, risks, performance) to each category. Moreover, it can
support the future development of a data taxonomy for the necessary digitisation of sustainability information.
37 This current assessment tends to prove that common practice of E, S and G high-level categorisation could provide
a certain consensus, being recognised as a clear and eective division for some users and preparers. This type of
categorisation is often used by financial market participants, although it resembles the categorisation of people, planet,
profit, also often used for sustainability reporting. One potential drawback is that the ESG categorisation might be
too narrow and not able to include a wider range of cross-cutting issues (e.g., bribery, anti-corruption, tax, corporate
advocacy).
38 How to reflect the interrelation of dierent topics is a key item in order to obtain a relevant positioning of all topics. (i.e.,
categorisation should take into consideration the fact that some topics residing clearly within the broad sustainability
field are overarching and cannot be easily contained in one high-level area) For example, climate change issues are
clearly part of the environmental topic, but also have relevance for society, human rights and governance topics.
39 The analysis demonstrates that a clarification of labels or definitions used for each category is needed and on which
topics these categories are based. Changing the vocabulary can help facilitate a change in focus and priority.
40 Specifically, clarity is needed that human rights encompasses all forms of impacts on people that rise to the level of
undermining their basic dignity and equality. It includes categories such as health & safety and diversity & inclusion.
41 Much attention has to be brought to the key term social. The language of social tends to dehumanize by aggregating
issues into a broader category where attention to vulnerable people can be easily lost or traded o against benefits
for others. Often social is also used to reflect positive philanthropic contributions by the company to communities (e.g.,
donations or volunteering) to the exclusion of impacts on people. Comparative analysis between the terms social and
people is to be considered. In this context it is also relevant to note that GRI’s draft revised Universal Standards social
has been replaced by people.
42 From the analysis of the main frameworks/standards it also appears that the categorisations adopted by the frameworks
seem to lack a covering of economic aspects closely related to their impact on society and the planet (for example Tax
responsibility or avoidance, anti-corruption and bribery, public subsidies) and do not fully consider the interrelation
between financial information already provided by companies and sustainability information.
27 NACE stands for Nomenclature des Activités Économiques dans la Communauté Européenne
1616
43 For environmental issues, the EU taxonomy is commonly accepted and is a logical choice to structure environmental
subdivisions across the six environmental objectives identified.
MATERIALITY
Definition and relevance
44 The concept of materiality has been considered by the Workstream as the approach for inclusion and prioritisation of
specific information in financial, non-financial or sustainability reporting, considering the needs of and expectations from
the stakeholders of an organisation. The International Federation of Accountants observes that ‘materiality works as a
filter through which management sifts information.’ Materiality is therefore key for ensuring the relevance of reported
information, not only to direct report users but also to a broader set of stakeholders.
45 Art. 2 (16) of the Accounting Directive
28
defines materiality from a financial standpoint, that is the ‘status of information
where its omission or misstatement could reasonably be expected to influence decisions that users make on the basis
of the financial statements of the undertaking’.
46 Art. 19a (1) of the NFRD requires, ‘information to the extent necessary for an understanding of the undertaking’s
development, performance, position and impact of its activity […]’.
47 The 2019 Non-Binding Guidelines on non-financial reporting: Supplement on reporting climate-related information
highlight that, as indicated in the Commission’s 2017 Non-Binding Guidelines on Non-Financial Reporting, the reference
to the ‘impact of [the company’s] activities’ introduced a new element to be taken into account when assessing the
materiality of non-financial information. In fact, the Non-Financial Reporting Directive has a ‘double materiality’
perspective:
a) The reference to the company’s ‘development, performance [and] position’ indicates financial materiality (inside-out),
in the broad sense of aecting the value of the company as it relates to ESG issues. This perspective is typically of
most interest to shareholder and other investors
29
.
b) the reference to ‘impact of [the company’s] activities’ indicates environmental and people materiality (outside-in, or
‘impact materiality’). This perspective is typically of most interest to those who are concerned with the impacts of
companies on environment, people and communities, including citizens, consumers, employees, business partners,
ethical investors, communities and civil society organisations
30
.
48 The materiality perspective of the Non-Financial Reporting Directive thus covers both ‘financial materiality’ and ‘impact
materiality’.
28 The Accounting Directive was amended by the NFRD, inserting article 19a).
29 Please note that there are many dierent categories of investors who have complex motivations (e.g. profitability, shareholders’ return, human rights and
environmental performance).
30 EC 2019 Non-Binding Guidelines on non-financial reporting: Supplement on reporting climate-related information, pages 4 and 5
1717
49 This double materiality perspective means that as it concerns the NFRD, stakeholders should be provided with
information on the outside-in and inside-out impacts.
50 The consultation on the NFRD revision shows that many respondents (e.g. preparers, financial authorities, national
standard setters) supported the concept of double materiality as introduced in the EC June 2019 non-binding guidelines
on climate-related non-financial information, however they considered that such a concept should be further clarified
and explicitly included in the revised NFRD.
51 A vast majority of respondents expect that any future standard should leads for report preparers to disclose more
information about the materiality assessment process and about the resulting material issues
31
.
52 Key question in the PTF’s analysis of the Materiality is: ‘How can the approach to materiality in the future European non-
financial reporting standard lead to reporting organisations disclosing more relevant non-financial information?’
Analysis
Concepts and definitions of materiality
53 Materiality is an important concept in most existing financial information and non-financial information reporting standards
and frameworks. However, definitions, perspectives and the level at which the materiality approach is applied dier
significantly.
54 The definition of materiality varies depending on the report users and objectives of the framework or standard. The
definitions for materiality or related concepts to include and/or prioritise report content are either based on:
a) the influence of the reported information on decision-making of the user (IFRS, SASB, GRI, Sustainable Development
Goals Disclosure (SDGD)), and/or
b) the organisation’s ability to create (or destroy) value (IIRC, WEF/IBC, SDGD); and/or
c) the relevance of impacts on people and environment (GRI, UNGP RF, EMAS).
55 Three dierent materiality perspectives are recognised amongst the existing frameworks and standards:
a) financial materiality;
b) environmental and people materiality or impact materiality; and
c) double materiality that covers both perspectives, recognising they in part overlap.
56 Materiality is often explicitly connected to risks and impacts (NFRD, IIRC, TCFD, UNGP RF). Depending on the
abovementioned perspectives, existing frameworks and standards either refer to risks and impacts of non-financial
issues on the organisation (outside-in) or the risks and impacts of the organisation on dierent non-financial issues
(inside-out). When a risk or actual impact surpasses a certain threshold, it may qualify to be relevant or important enough
to be included in the reported and hence classified as material information. For example, the NFRD explains that ‘a
number of factors may be taken into account when assessing the materiality of information.’ Among these ‘(...) principal
risks are relevant considerations’
32
. The IIRC Framework provides that ‘the process to determine materiality applies to
both positive and negative matters, including risks and opportunities and favourable and unfavourable performance or
prospects’
33
.
57 Determination of material topics and subtopics diers in existing frameworks and standards. Some leave it to the report
preparer to determine material topics and sub-topics (e.g. GRI); in other standards material topics are predefined (e.g.
SASB). The materiality assessment process (and its disclosure) has more importance in standards that leave more
31 Summary Report of the Public Consultation on the Review of the Non-Financial Reporting Directive (2020)
32 European Commission Guidelines on non-financial reporting, 2017, p. 6
33 IIRC, The International <IR> Framework (2013), p. 18
1818
discretion to the report preparer because it will help the report user to comprehend the choices made by the preparer
(e.g. IIRC).
58 The definition of materiality included in the standards and frameworks (consisting of core frameworks and standards
analysed and additional sources), the objective, the user, the materiality approach and the level of prescription of
materiality information is reported in the following table:
34 Information provided by GRI in response to PTF questionnaire.
35 GRI 101 – Foundation (2016), p. 10
36 According to GRI, its standard, “focuses on environmental and social materiality, a sub-set of this information will also be financially material at any given
moment in time. GRI has always highlighted that all sustainability issues have the potential to become financially material – and the point in time when this
occurs for an individual entity depends on time horizon, business model, context. The GRI Standards center around the company’s conduct and activities,
and how these impact environment and society and eventually the company itself. The GRI Standards do not cover external risks to the company, which are
unrelated to the company’s conduct.” [Information provided by GRI in response to PTF questionnaire]
37 Information provided by IIRC in response to PTF questionnaire.
38 In the IIRC Framework, reference to the creation of value: a) includes instances when value is preserved and when it is diminished, and b) relates to value
creation over time (i.e., over the short, medium and long-term).
39 IIRC, The <IR> Framework (2013), p. 18
Core framework/
standard Mission/objective Audience Materiality definition
Materiality
perspective/
approach
Material topics
determined by
GRI “GRI envisions
a sustainable
future enabled by
transparency and open
dialogue about impacts.
This is a future in which
reporting on impacts is
common practice by all
organisations around
the world. As provider of
the world’s most widely
used sustainability
reporting standards,
we are a catalyst for
that change.”
34
All
stakeholders
“Relevant topics, which
potentially merit inclusion in
the report, are those that can
reasonably be considered
important for reflecting the
organisation’s economic,
environmental, and people
impacts, or influencing the
decisions of stakeholders”
35
People and
environmental/
Impact
materiality*
36
Reporting
Entity (based
on extensive
guidance)
IIRC “The IIRC’s purpose is
to promote prosperity
for all and to protect
our planet. The IIRC’s
mission is to establish
integrated reporting
and thinking within
mainstream business
practice as the norm
in the public and
private sectors.”
37
Financial
capital
providers
“An integrated report should
disclose information about
matters that substantively aect
the organisation’s ability to
create value
38
over the short,
medium and long-term.”
39
Financial
Materiality
Reporting
Entity (limited
guidance)
1919
40 Information provided by SASB in response to PTF questionnaire.
41 SASB Conceptual Framework, p. 9
42 SASB Exposure Draft on Conceptual Framework, p. 7
43 Information provided by Mazars Shift in response to PTF questionnaire
44 UN GP Reporting Framework, p. 22-24
45 EU Taxonomy Regulation 2020/852
46 Final Report – Recommendations of the Task Force on Climate-related Financial Disclosures (2017)
Core framework/
standard Mission/objective Audience Materiality definition
Materiality
perspective/
approach
Material topics
determined by
SASB “The mission of the
SASB is to establish
and improve industry
specific disclosure
standards across
financially material
environmental, social
and governance
topics that facilitate
communication
between companies
and investors about
decision-useful
information.”
40
Financial
capital
providers
“Information is material if there is
a substantial likelihood that the
disclosure of the omitted fact
would have been viewed by the
reasonable investor as having
significantly altered the ‘total mix’
of information made available.”
41
“A topic is financially material
if omitting, misstating, or
obscuring it could reasonably
be expected to influence
investment or lending decisions
that users make on the basis
of their assessments of short-
, medium-, and long-term
financial performance and
enterprise value (new proposal
of definition included in the
SASB Exposure Draft on
Conceptual Framework)”
42
Financial
Materiality
Determined by
standard setter
on a sector
basis (based
on historical
evidence)
UN Guiding
Principles
Reporting
Framework
“Building a world
where business gets
done with respect for
people’s dignity”
43
All
stakeholders
Companies should report on
their salient human rights issues:
those human rights that stand
out because they are at risk of
the most severe negative impact
through the company’s activities
or business relationships.
44
People and
environmental/
Impact
materiality
Reporting
Entity (with
detailed
materiality
process
requirements)
Taxonomy
Regulation
Providing a classification
system to drive towards
environmental and
sustainability activities
45
Financial
capital
providers
People and
environmental/
Impact
materiality*
Level 2
legislation
TCFD Increase transparency
on material climate-
related business risks;
help organisations
assess whether climate-
risks are material for
their financial filings
46
Financial
capital
providers
Financial
Materiality
Standard setter
2020
47 EU Regulation No 1221/2009, Recital 17, p. 2
48 EU Regulation No 1221/2009, Art. 2 (Definitions), p. 4
49 https://futurefitbusiness.org/
50 https://www.nachhaltigkeitsrat.de/en/projects/the-sustainability-code
51 Information provided by German Council for Sustainable Development in response to PTF questionnaire.
52 Natural Capital Protocol, p. 2
53 Natural Capital Protocol, p. 43
Core framework/
standard Mission/objective Audience Materiality definition
Materiality
perspective/
approach
Material topics
determined by
Additional sources
EMAS Inform the “public”
and interested parties
of an organisation
of compliance with
environmental
legal requirements
and environmental
performance of an
organisation
47
All
stakeholders
environmental statement
shall include information
on an organisation’s
significant environmental
aspects and impacts
48
People and
environmental/
Impact
materiality*
Standard setter
Future Fit
Business
Benchmark
Strategic management
tool for companies
and investors to
assess, measure and
management the impact
of their activities
49
Financial
capital
providers
and other
stakeholders
Double
Materiality*
Standard setter
German
Sustainability
Code
Entry point to
sustainability
reporting, act as easy
implementable and
structured framework
for NFRD and UNGP
50
All
stakeholders
“Sustainability topics are
considered material if they
fall into one or more of the
following categories:
• Sustainability topics entailing
opportunities or risks for the
course of the business, the
annual financial statements
or the company’s situation
(outside-in perspective),
• Sustainability topics which
are either positively or
negatively aected by
the company’s business
activities, business relations
or products and services
(inside-out perspective);
• Sustainability topics which
are defined as material
by key stakeholders
(stakeholder perspective)”
51
Double
Materiality
Standard setter
Natural Capital
Protocol
Identify, measure, value
and disclose impact
and dependency
on natural capital to
include it in business
decision making
52
Undefined “An impact or dependency
on natural capital is material if
consideration of its value, as part
of the set of information used
for decision making, has the
potential to alter that decision”
53
Double
Materiality
Reporting
entity
2121
59 The table shows that there are dierent approaches to materiality in existing frameworks and standards. A considerable
number of standards prescribe material topics or specific metrics for reporting (e.g. SASB or German Sustainability
Code). For standards and frameworks that do not prescribe material topics, the materiality definition and guidance for its
application by reporting organisations has naturally more prominence and importance. The materiality perspectives and
determination applied or mandated by standards and frameworks are often closely connected to their target audience,
as well as their related missions and objectives.
Materiality assessment process
60 The materiality assessment process is most often presented as ‘guidance’ and involves the identification, evaluation and
prioritisation of topics and a decision on how and what to disclose for dierent sustainability topics or sub-topics.
61 In most cases, specific factors/criteria are provided (and usually not prescribed) that can be applied in the assessment
process. Inputs in assessing the factors and criteria can be quantitative (or even monetary) thresholds as well as
qualitative criteria (like stakeholder importance or severity of impact). Reporting standards/frameworks focused on a
single sustainability topic use comparable approaches to identify issues an organisation needs to act and report upon:
a) The UNGP Reporting Framework (UNGP RF) requires identification of ‘salient human rights issues,’ which reflect the
reporting entities’ connection to the most severe impacts on people’s human rights;
b) The EU Eco-Management and Audit Scheme (EMAS)
56
requires the identification of all direct and indirect environmental
aspects with a significant impact on the environment, assessing the potential to cause environmental harm, the fragility
of local/regional/global environment, the size, number, frequency and reversibility of the aspect/impact, the existence
and requirement of relevant environmental legislation and the importance to the stakeholders and employees of the
organisation.
62 Where material topics are prescribed, the materiality assessment processes are conducted by the standard setter
instead of the reporting entity. For example, SASB identifies sustainability issues that are likely to aect the financial
54 Sustainable Development Goals Disclosure Recommendations, p. 6
55 Sustainable Development Goals Disclosure Recommendations, p. 9
56 EMAS does not use the “materiality” but a comparable concept of “significance”. The environmental statement includes information on an organisation’s
significant environmental aspects and impacts. The environmental aspects are element of an organisation’s activities, products or services that has or can
have an impact on the environment” (inside-out perspective). The environmental impacts are changes to the environment, whether adverse or beneficial,
wholly or partially resulting from an organisation’s activities, products or services.
Core framework/
standard Mission/objective Audience Materiality definition
Materiality
perspective/
approach
Material topics
determined by
SDGD
Recommendations
“Identification of
material sustainable
development risks and
opportunities relevant to
long-term value creation
for organisations
and society”
54
Financial
capital
providers
and other
stakeholders
“Material sustainable
development information is any
information that is reasonably
capable of mak-ing a dierence
to the conclusions drawn by:
(a) stakeholders concerning
the positive and negative
impacts of the organisation
on global achievement
of the SDGs, and;
(b) providers of finance
concerning the ability of
the organisation to create
long-term value for the
organisation and society”.
55
Double
Materiality
Reporting
entity
* Materiality is not an explicit concept
2222
condition or operating performance of companies within an industry, and therefore are most important to investors.
Instead, GRI or IIRC do not prescribe material topics to disclose, leaving the reporting entity to conduct that process.
63 Some standards require reporting on the materiality assessment process for defining report content, notably GRI, UNGP
RF and EMAS and explicit stakeholder inclusion in the materiality assessment is common practice in sustainability
reporting (GRI, IIRC, UNGP RF, EMAS, German Sustainability Code, NFRD guidance).
64 GRI explains that a process of stakeholder engagement can serve as a tool for understanding the reasonable
expectations and interests of stakeholders, as well as their information needs. It is important for the organisation to
document its approach to identifying stakeholders; deciding which stakeholders to engage with, and how and when to
engage with them; and how engagement has influenced the report content.
65 According to IIRC, stakeholder engagement is needed to identify relevant matters, consider topics or issues that are
important to key stakeholders. IIRC explains also that an understanding of the perspectives of key stakeholders is critical
to identifying relevant matters.
66 The UN GP Reporting Framework explains that companies may use a “traditional” materiality process for their broader
annual, sustainability or integrated report that involves feedback from external stakeholders. If so, they can benefit
from that process to explain to stakeholders how they identified their salient human rights issues, including any inputs
from those who may be directly aected, and the conclusions they reached. They can then seek these stakeholders’
feedback on their conclusions and whether any key considerations have been overlooked. In the event that a company
applies a definition of materiality to its broader annual, sustainability or integrated report that sets narrower criteria for
the inclusion of issues, this may exclude certain salient human rights issues or certain information about how such issues
are managed. If so, the reporting company should provide a clear reference to where that additional information can be
found, for example, in a separate report or a specific location on its website.
Key considerations for a potential EU Sustainable Standard
67 Most non-financial reporting standards and frameworks oer definitions and concepts for materiality supported by
operational guidance. However, taken all together this has not led to suciently relevant information being disclosed
from a double materiality perspective. This is due in part to a number of challenges in the operational implementation of
double materiality, including:
a) that in practice the materiality assessment related to people and the environment is often carried out with an implicit
financial materiality lens, i.e. a focus on the risks to the company. In such cases, the applied methods do not accurately
ascertain the needs, expectations and priorities of key stakeholder groups, and limit an assessment related to the
(actual or potential) impacts that the reporting entity can have on people, communities and the environment;
b) there is a lack of clarity on how reporting entities should include perspectives of aected and other relevant
stakeholders in their assessment of impacts and prioritisation (for action and reporting);
c) the insucient alignment between what companies are expected to prioritise for reporting and what they are
expected to prioritise for action (this will become especially relevant in the context of new legislation on mandatory
human rights and environmental due diligence, at national and EU level).
68 Existing non-financial standards and frameworks (researched in this report) apply dierent approaches for identifying
material topics and information. What is material is in some cases defined by the standard setter, in others by the
reporting entity or in a third variant by a mix of both. While higher levels of prescription may help in some cases to the
comparability and reliability/assurability of information, it may come at the cost of becoming a tick-the-box exercise by
report preparers and failing to provide a comprehensive picture of a company’s development, performance and impact.
The NFRD revision and a future European reporting standard will need to find a smart mix of prescription and flexibility
for determining report content.
69 Where a NFRD revision would suggest any change in current established approaches, the above analysis suggests
that it will be critical for the ESS to consider why current guidance and approaches have not led to suciently relevant
2323
information being disclosed from a double materiality perspective and to consider what it would need to highlight
through the standards it sets and communicates to support and enable the necessary changes to happen..
SCOPE OF REPORTING
Definition and relevance
70 The ‘scope of reporting’ refers to the scope of what a company should report on regarding its activities, products and
services and associated risks and impacts (positive and negative). The scope of reporting is closely related to the topic
of materiality, as well as strategy and governance.
71 In financial reporting frameworks, the scope of the entity is defined based on the concept of control and dominant
influence (scope of consolidation). In non-financial reporting (NFR), however, the sustainability impacts, risks and
opportunities of the reporting entity typically extend beyond the legal scope of the reporting entity and may include:
a) suppliers and the supply chain (upstream);
b) customers, end users (downstream);
c) subsidiaries that are outside the scope of consolidation and/or group companies over which the reporting entity does
not have legal control (midstream).
72 In order to understand the impacts and risks, threats and opportunities of the reporting entity from a double materiality
perspective, it is necessary for NFR to extend beyond the entity’s ‘scope of control’
57
. Specifically, there is a need to
go beyond ‘company, group or control’ and extend non-financial information on topics considered material to impacts
concerning, for example, ‘business relationships’ (in this context, companies not fully consolidated) and the ‘value chain’,
where relevant. In any case, it is necessary to consult stakeholders about the impact of the ‘organisation’ in the relevant
areas.
73 The consultation on the NFRD revision shows that the supply chain is one of the most frequently mentioned non-
financial matters respondents would like companies to be required to report on, in addition to the non-financial matters
already specified in the NFRD.
58
74 The current NFRD does not include clear requirements about this topic. For example, the supply chain and the value
chain are only included insofar as it is deemed relevant and proportionate by the company when reporting on due
diligence processes and principal risks:
a) Recital 6 of the NFRD states that ‘The non-financial statement should also include information on the due diligence
processes implemented by the undertaking, also regarding, where relevant and proportionate, its supply and
subcontracting chains, in order to identify, prevent and mitigate existing and potential adverse impacts.’
b) Recital 8 of the NFRD indicates that The undertakings which are subject to this Directive should provide adequate
information in relation to matters that stand out as being most likely to bring about the dematerialisation of principal
risks of severe impacts, along with those that have already dematerialised. (…) The risks of adverse impact may stem
57 Article 2 of the Accounting Directive defines the following concepts:
• ‘parent undertaking’ means an undertaking which controls one or more subsidiary undertakings;
• ‘subsidiary undertaking’ means an undertaking controlled by a parent undertaking, including any subsidiary undertaking of an ultimate parent undertaking;
• ‘group’ means a parent undertaking and all its subsidiary undertakings;
• ‘aliated undertakings’ means any two or more undertakings within a group;
• ‘associated undertaking’ means an undertaking in which another undertaking has a participating interest, and over whose operating and financial policies
that other undertaking exercises significant influence. An undertaking is presumed to exercise a significant influence over another undertaking where it
has 20% or more of the shareholders’ or members’ voting rights in that other undertaking.
• Article 21 of the Accounting Directive explains the scope of consolidated financial statements and reports and article 22 provides the requirement to
prepare consolidated financial statements.
58 Summary Report of the Public Consultation on the Review of the Non-Financial Reporting Directive (2020), p.9.
2424
from the undertaking’s own activities or may be linked to its operations, and, where relevant and proportionate, its
products, services and business relationships, including its supply and subcontracting chains.
c) Article 19a) of the NFRD provides that non-financial statement contains information including the principal risks related
to those matters linked to the undertaking’s operations including, where relevant and proportionate, its business
relationships, products or services which are likely to cause adverse impacts in those areas, and how the undertaking
manages those risks.
59
75 An expanded ‘scope of reporting’ beyond the scope of control of the reporting entity is referenced in the EC’s 2017 Non-
Binding Guidelines on Non-Financial Reporting, specifically regarding materiality and the business model:
a) ‘Materiality is a concept already commonly used by preparers, auditors and users of financial information. A company’s
thorough understanding of the key components of its value chain helps identify key issues and assess what makes
information material.’
b) ‘A number of factors may be taken into account when assessing the materiality of information. These include:
(i) Business model, strategy and principal risks: a company’s goals, strategies, management approach and systems,
values, tangible and intangible assets, value chain and principal risks are relevant considerations.
(…)
(ii) Impact of the activities: companies are expected to consider the actual and potential severity and frequency
of impacts. This includes impacts of their products, services, and their business relationships (including supply
chain aspects).’
c) ‘The following items constitute a non-exhaustive list of thematic aspects that companies are expected to consider
when disclosing non-financial information:
(…)
(iii) Respect for human rights – Companies are expected to disclose material information on potential and actual
impacts of their operations on right-holders. … The information may explain whose rights the commitment
addresses, for instance … the rights of workers, including those working under temporary contracts, workers in
the supply chains or sub-contractors, migrant workers, and their families. Companies should consider making
material disclosures on human rights due diligence, and on processes and arrangements implemented to
prevent human rights abuses. This may include, for instance, how a company’s contracts with businesses in its
supply chain deal with human rights issues, and how a company mitigates potential negative impacts on human
rights and provides adequate remedy if human rights have been violated.
(…)
(iv) Others – Supply chains – Companies, where relevant and proportionate, are expected to disclose material
information on supply chain matters that have significant implications for their development, performance,
position or impact. This would include information needed for a general understanding of a company’s supply
chain and of how relevant non-financial matters are considered in managing the supply chain.’
d) ‘Key performance indicators – … Disclosing high quality, broadly recognised KPIs (for instance, metrics widely used in
a sector or for specific thematic issues) could also improve comparability, in particular for companies within the same
sector or value chain.’
60
59 Article 19a) (1)(d) of the Non-financial Reporting Directive.
60 EC 2017 Non-Binding Guidelines on Non-Financial Reporting, p. 5, 6, 13, 16, 17.
2525
76 Furthermore, the value/supply chain and the life-cycle concept are referenced in the EC’s 2019 Non-Binding Guidelines
on Non-Financial Reporting: Supplement on reporting climate-related information:
a) ‘When assessing the materiality of climate-related information, companies should consider their whole value chain,
both upstream in the supply-chain and downstream.’
b) ‘Both of these kinds of risk – risks of negative impacts on the company and risks of negative impacts on the climate
– may arise from the companies own operations and may occur throughout the value chain, both upstream in the
supply-chain and downstream.’
c) ‘When reporting on their climate-related risks, dependencies and opportunities, companies should, where relevant
and proportionate, consider their whole value chain, both upstream and downstream. For companies involved in
manufacturing activities this means following a product life cycle approach that takes account of climate issues in the
supply chain and the sourcing of raw material, as well as during the use of the product and when the product reaches
end-of-life. Companies providing services, including financial services, will also need to consider the climate impacts
of the activities that they support or facilitate. When SMEs are part of the value chain, companies are encouraged to
support them in providing the required information.’
61
77 However, relatively few reporting entities report that they apply the NFRD reporting guidelines; the Alliance for Corporate
Transparency 2020 report indicates that only 5% of the top 1000 listed companies in the EU reference these guidelines
62
.
78 There is the concern among some that expanding the scope could lead to greater costs and administrative burdens,
including from preparers responding to the Commission’s 2020 consultation on the revision of the NFRD. They stressed
the need to ensure sucient time for collection and analyses of data from the supply chain companies as well as
subsidiaries and argued for a dierence between the deadline for financial and non-financial reports. Regarding the
expansion of the scope, it is necessary to focus on prioritisation in terms of impacts and risks.
63
79 The question that the PTF considered in its analysis related to Scope of reporting is: ‘How can a future standard setter
provide clarification and guidance on how companies can meet the expectations related to an expanded scope for
reporting (especially as compared to financial reporting), while providing equally robust guidance on how inevitable
prioritisation of impacts, topics and issues to report on can take shape?’
Analysis
To what extent do the existing frameworks and standards provide a minimum scope? If the scope is specified, does it go
beyond the first tier (and this optional or not)?
80 The frameworks and standards reviewed show that there are very dierent approaches regarding the scope of
reporting. Most frameworks and standards reviewed go beyond the first tier and include specific approaches to this type
of reporting (e.g. GRI, SASB, IIRC, UNGP Reporting Framework (UNGP RF), the Eco-Management and Audit Scheme
(EMAS)).
81 Some standards/frameworks require that the scope of the reporting also includes the value chain (e.g. GRI and SASB
(if material), GHG Protocol, UNGP RF). Other standards/frameworks allow reporting to go beyond own operations on a
voluntary basis.
Main analysed frameworks and standards
82 The GRI Standards enable companies to disclose their significant impacts on the economy, environment, and society
(‘inside-out’). This includes both impacts a company causes and contributes to, as well as impacts that are directly linked
61 EC 2019 2019 Non-Binding Guidelines on Non-Financial Reporting: Supplement on reporting climate-related information, p. 8, 11.
62 This finding may be caused by the European Commission statement in 2017 Non-Binding Guidelines on Non-Financial Reporting and therefore may not be
reflective of the actual use of the Guidelines: “This document does not constitute a technical standard, and neither preparers of non-financial statements
nor any party, whether acting on behalf on a preparer or otherwise, should claim that non-financial statements are in conformity with this document.” (page
4 of the Guidelines).
63 Summary Report of the Public Consultation on the Review of the Non-Financial Reporting Directive (2020), p. 65.
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to its activities, products or services through a business relationship, including relationships with entities in its value
chain. The GRI Standards thus cover the significant impacts of a company throughout the entire value chain. For some
organisations, their most significant impacts may take place upstream or downstream in their value chain, instead of
within their own operations. The GRI topic-specific Standards are designed to cover the entire value chain, and where
relevant, include specific disclosures about the value chain.
83 The GRI Sector Standards highlight the business relationships that are relevant to the sector and the sector’s reporting,
in particular those where evidence exists of a contribution to a significant impact of the sector, those that pose a risk of
significant impacts occurring and those that have consistently been identified as relevant or inadequately considered
in examples of reporting by the sector. This is intended to further encourage organisations to consider any business
relationships in their value chain, or that are otherwise relevant, when identifying their material topics and preparing their
reporting.
84 The <IR> Framework
64
encourages organisations to look beyond traditional financial reporting boundaries to identify
the range of factors that materially aect value creation, preservation or erosion. The extended reporting boundary,
therefore, looks beyond the scope of control and significant influence to consider the risks, opportunities and outcomes
arising from joint arrangements, subsidiaries and other forms of investment. In determining the reporting boundary, the
organisation also considers the perspectives of its key stakeholders and relationships, employees, customers, suppliers,
business partners, communities and other individuals/entities.
85 The reporting boundaries for disclosures that conform with the SASB standards
65
shall include all parent and
subordinate entities that are consolidated for financial reporting purposes. The entity should disclose information about
unconsolidated entities to the extent that the entity considers such information necessary to understand the eect of
one or more SASB disclosure topics on the entity’s financial condition or operating performance.
86 Companies are not expected to report on its entire value chain, but there are relevant SASB Standards for the suppliers
and customers for nearly every company, so those suppliers and customers across the value chain would provide a
complete picture of the value chain by reporting on their own operations.
87 In line with the UN Guiding Principles, the UNGP Reporting Framework
66
expects companies to prioritise for reporting
(just as they do for action) the most severe potential impacts on people, whether they be in their own operations, in the
first tier of their value chain or in their extended value chain. Proximity to the company is not relevant when identifying the
relative severity of human rights risks and therefore not a criterion for determining their inclusion in company reporting.
88 The EU Taxonomy
67
puts emphasis on life-cycle considerations rather than supply chain / value chain. Life-cycle
considerations are mainly mentioned in:
a) article 2: defining substantial contribution to the circular economy;
b) article 17: ‘take into account the life cycle, including evidence from existing life-cycle assessments, by considering
both the environmental impact of the economic activity itself and the environmental impact of the products and
services provided by that economic activity, in particular by considering the production, use and end of life of those
products and services’.
89 The Task Force on Climate-related Financial Disclosures (TCFD)
68
has developed voluntary climate-related financial
disclosures, which are structured around the areas governance, strategy, risk management, and metrics and targets.
The disclosures are mostly focused on the company’s operations, but companies are encouraged to look beyond its
boundaries since climate-related issues are persistent across the value chain. For example:
64 IIRC, The International <IR> Framework (2013)
65 SASB Conceptual Framework (2017)
66 UN Guiding Principles Reporting Framework
67 Regulation (EU) 2020/852
68 Final Report – Recommendations of the Task Force on Climate-related Financial Disclosures (2017)
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a) organisations should consider including the impact on their businesses and strategy in the several areas, among
which the supply chain and/or value chain;
b) when using scenario analysis, organisations should consider their exposure to transition risks and physical risks,
including those risks arising in their value chain.
90 The following table shows the scope of the main frameworks/standards reviewed:
Main Frameworks/standards Scope of reporting
GRI • Own operations of the group comprising fully-owned subsidiaries and Joint
Ventures (financial consolidation approach) (regarding own operations, the
company is free to decide which entities it includes in its sustainability reporting.
If the company’s sustainability reporting does not cover all entities included in
its consolidated financial statements/equivalent documents, the company is
required to state which entities are excluded from its sustainability reporting)
• Products sold / Services rendered
• Entire value chain
• Broader social impacts
69
IIRC Financial boundaries (financial reporting) and value creation boundaries
(risks/opportunities/outcomes) with stakeholders/other entities.
70
SASB Reporting on risks in value chain insofar as they are financially material.
71
UNGP Reporting Framework Reporting on salient human rights impacts in own operations and value chain
Taxonomy Regulation Life-cycle considerations instead of value chain
TCFD Climate-related issues, including those arising in their value chain,
when these have a potential financial impact on the company.
Additional sources analysed
91 EMAS dierentiates between direct (environmental aspect associated with activities, products and services of the
organisation itself over which it has direct management control) and indirect (environmental aspect which can result
from the interaction of an organisation with third parties and which can to a reasonable degree be influenced by an
organisation) environmental aspects that need to be considered in environmental management and reported on in the
environmental statement. When determining significant environmental aspects (the reference point for reporting) the
organisation has to consider a life cycle perspective, meaning that it also has to identify indirect environmental aspects
in the value chain of its products and services. However, the core environmental indicators are designed in such a way
that they are more suitable for reporting on own operations than on supply chain performance.
92 In the German Sustainability Code the scope is that of the annual report (control concept). However, the reporting
organisation must expand this scope where specific reporting criteria require value/supply chain information.
93 The GHG Protocol requires companies to report at least scope 1 (direct GHG emissions) and scope 2 (indirect GHG
emissions resulting from production of acquired electricity, heat, steam etc.) emissions. The GHG Protocol requires
company to set their boundaries in terms of: equity share, financial control and operational control. All other indirect GHG
in the company’s whole value chain (scope 3) may be accounted and reported voluntarily.
69 Information provided by GRI in response to PTF questionnaire.
70 IIRC, The International <IR> Framework (2013)
71 SASB Conceptual Framework (2017)
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94 The following table shows the scope of the additional sources analysed:
Additional sources Scope of reporting
EMAS Direct environmental aspects (what can be controlled by the organisation) as well
as indirect environmental aspects (what can be influenced by the organisation) that
relate to an organisation’s activ./prod./serv, considering a life cycle perspective.
German Sustainability Code Scope of control (annual report) with exceptions for specific supply chain disclosures.
GHG Protocol Scope 1 (direct), Scope 2 (indirect acquired), Scope 3 (up- and downstream).
To what extent do the standards and frameworks reviewed require reporting tied to the business model?
95 A description of the business model in a company’s non-financial reporting is needed to better understand a company’s
risks, opportunities and involvement with impacts in the value chain, as well as the company’s sustainability strategy for
future transition. The standards/frameworks analysed reveal that the NFRD (including EC non-binding guidelines), IIRC,
SASB, UN Guiding Principles Reporting Framework explicitly mention or refer to the business model.
96 Article 19a) of the NFRD specifies that the information in the non-financial statement should include a brief description of
the undertaking’s business model.
97 The EC 2017 Non-Binding Guidelines on Non-Financial Reporting explain that:
a) ‘a company’s business model describes how it generates and preserves value through its products or services over
the longer term. The business model provides context for the management report as a whole. It provides an overview
of how a company operates and the rationale of its structure, by describing how it transforms inputs into outputs
through its business activities. In more simple terms, what a company does, how and why it does it.’
b) ‘when describing their business model, companies may consider including appropriate disclosures relating to:
(i) their business environment;
(ii) their organisation and structure;
(iii) the markets where they operate;
(iv) their objectives and strategies; and
(v) main trends and factors that may aect their future development.’
c) ‘companies may consider using KPIs to explain their business model, main trends, etc.’
d) ‘companies are expected to highlight and explain when material changes to their business model have taken place in
the reporting year.’
98 The EC 2019 Non-Binding Guidelines on Non-Financial Reporting: Supplement on reporting climate-related information
indicate that:
a) ‘It is very important for stakeholders to understand the company’s view of how climate change impacts its business
model and strategy, and how its activities can aect the climate, over the short, medium and long-term. To adequately
report on climate related matters, companies will need to take a longer-term perspective than they normally do for
financial reporting’.
b) ‘Companies that do not appropriately consider their business model and strategy in light of climate change may both
cause negative eects on the climate and experience negative impacts on their business such as on the profit and
loss statement, financing, future regulatory burden, and “licence to operate”. On the other hand, identifying new
climate-related opportunities may strengthen the business model and earnings outlook of a company.’
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99 IIRC states that at the core of the organisation is its business model, which draws on various capitals as inputs and,
through its business activities, converts them to outputs (products, services, by-products and waste). The organisation’s
activities and its outputs lead to outcomes in terms of eects on the capitals. The capacity of the business model to
adapt to changes (e.g., in the availability, quality and aordability of inputs) can aect the organisation’s longer-term
viability.
100 SASB specifies that sustainability accounting includes identifying the impacts that environmental, social and human
capital issues have on business models, financial performance, and long-term enterprise value, and how businesses
adapt corporate strategy, risk management, and governance in response.
101 TCFD recommends that companies disclose the actual and potential impacts of climate-related risks and opportunities
on the organisation’s businesses, strategy and financial planning where such information is material.
72
102 Within the context of the legal-regulatory context, when approaching the definition of a sustainable business model,
the evolution undergone by the principles of drafting financial information should not be forgotten, in particular on the
qualitative aspects. In this regard, the IFRS, in its guidelines relating to information on climate change
73
, is updating
its principles to ensure that each organisation takes a rigorous approach to explain its business model and strategy,
including a description of the long-term drivers of its success. The declaration that imposes the IFRS is not mandatory,
but companies that choose to take it into account, either independently, or because it is imposed on them by the
regulators, will have to do so by necessarily considering also the risks and opportunities in the ESG field.
Key considerations for a potential EU Sustainable Standard
103 Some users of non-financial reports state that non-financial reports should include information related to the whole value
chain of the company, including supply chain operations (upstream) as well as products sold and services rendered down
to their end-of life (downstream). In other words, NFR should extend beyond the scope defined in financial reporting,
which covers only the reporting entity’s own operations (scope of financial consolidation).
104 There is considerable diversity in definition of ‘scope’ across existing frameworks/standards, and even sometimes within
the same framework/standard, which means there is a not an easy approach that a future standards setter can replicate.
The future standard setter could consider distinguishing what type of information may be limited to the company’s own
operations and what information should cover the whole value chain.
105 It is generally considered important to include the whole value chain when assessing how companies can impact people
and the environments, as well as create (and/or destroy) value through their activities, including through business
relationships and when acting together with other stakeholders. At the same time, when companies are making inevitable
prioritisation assessments (including for materiality determination) under such an expanded scope, there needs to be
clear guidance on how they should make such prioritisation in line with widely agreed frameworks and guidelines.
These state that companies should do such prioritisation—both for taking action and reporting—based on an analysis of
‘severity of impact.’
FORWARD-LOOKING INFORMATION AND TIME HORIZON
Definition and relevance
106 While performance information, both financial and non-financial, is by definition retrospective, corporate reporting
also includes forward-looking information, such as financial outlook and risk scenario analyses. Forward-looking non-
financial information is generally found in sustainability reporting, as well as in some parts of the management review in
annual reports.
72 Final Report – Recommendations of the Task Force on Climate-related Financial Disclosures (2017), p.14.
73 IFRS Educational material: Eects of climate-related matters on financial statements, November 2020.
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107 In the consultation on the review of the NFRD, respondents were asked ‘whether companies should be required to
disclose information about additional categories of non-financial information in addition to those already specified in the
NFRD (...). The most frequent category respondents submitted is targets and companies’ progress against targets. Other
frequently mentioned categories were climate scenario analysis [and] forward-looking information (...)’
74
.
108 Disclosing forward-looking information is often required or recommended by existing non-financial frameworks and
standards. The type of information and extent of forward-looking disclosures vary significantly, as do the time horizons
that are considered adequate to address the sustainability challenges ahead.
109 The key question in PTF’s analysis in relation to time horizon is: ‘What is the role and value of forward-looking information,
what may be included in forward-looking information, which time horizons could be applied and how could forward-
looking non-financial information be made meaningful?’
Analysis
Required or recommended forward-looking information
110 Most frameworks and standards reviewed require or recommend some form of forward-looking information. The type of
forward-looking information required or recommended may vary significantly and may include, among others, strategic
outlook, scenario-analyses and (projected performance against) science-based targets.
111 Several existing standards and frameworks require or recommend disclosure of targets and performance against
targets. Only a limited number of these standards and frameworks specifically require or recommend science-based
targets or policy-based targets (e.g. based on global or EU policy commitments such as the ILO Conventions or the
Sustainable Development Goals (‘SDGs’)). The table below summarises the approach to forward looking information for
each main standard or framework analysed.
74 Summary Report of the Public Consultation on the Review of the Non-Financial Reporting Directive (2020), p.10
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75 GRI 101: Foundation (2016) and GRI 102: General Disclosures (2016)
Framework/
standard Types of information (emphasis added)
GRI When preparing a sustainability report, the reporting organisation should present information for the current
reporting period and at least two previous periods, as well as future short and medium-term targets if they have
been established (GRI 101).
GRI 102: General Disclosures includes the following reporting requirements and reporting recommendations:
Reporting requirement 102-14:
The reporting organisation shall report the following information:
A statement from the most senior decision-maker of the organisation (such as CEO, chair, or equivalent senior
position) about the relevance of sustainability to the organisation and its strategy for addressing sustainability.
Reporting recommendation:
When compiling the information specified in Disclosure 102-14, the reporting organisation should include:
2.1.1 the overall vision and strategy for the short-term, medium-term, and long-term, with respect to managing
the significant economic, environmental, and social impacts that the organisation causes, contributes to, or
that are directly linked to its activities, products or services as a result of relationships with others (such as
suppliers and persons or organisations in local communities);
2.1.2 strategic priorities and key topics for the short and medium-term with respect to sustainability, including
observance of internationally-recognised standards and how such standards relate to long-term
organisational strategy and success;
2.1.6 outlook on the organisation’s main challenges and targets for the next year and goals for the coming 3–5
years;
Disclosure 102-15:Key impacts, risks, and opportunities
Reporting requirements
The reporting organisation shall report the following information:
A description of key impacts, risks, and opportunities.
Reporting recommendation:
2.2 When compiling the information specified in Disclosure 102-15, the reporting organisation should include:
2.2.6 the impact of sustainability trends, risks, and opportunities on the long-term prospects and financial
performance of the organisation;
2.2.7 information relevant to financial stakeholders or that could become so in the future;
2.2.8 a description of the most important risks and opportunities for the organisation arising from sustainability
trends;
2.2.11 table(s) summarizing targets for the next reporting period and medium-term objectives and goals (i.e., 3–5
years) related to key risks and opportunities;
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76 IIRC, The International <IR> Framework (2013)
77 SASB Conceptual Framework (2017), p.5
Framework/
standard Types of information (emphasis added)
IIRC IIRC’s Guiding Principles 3A ‘Strategic focus and future orientation’ and 3B ‘Connectivity of information’ provide
guidance on reporting on the future:
3.3 An integrated report should provide insight into the organisation’s strategy, and how it relates to the
organisation’s ability to create value in the short, medium and long-term, and to its use of and eects on
the capitals.
3.4 Applying this Guiding Principle is not limited to the Content Elements 4E Strategy and resource allocation
and 4G Outlook. It guides the selection and presentation of other content, and may include, for example:
• Highlighting significant risks, opportunities and dependencies flowing from the organisation’s market
position and business model
• The views of those charged with governance about:
- the relationship between past and future performance, and the factors that can change that
relationship,
- how the organisation balances short, medium- and long-term interests,
- how the organisation has learned from past experiences in determining future strategic directions.
3.6 The key forms of connectivity of information include the connectivity between […] The past, present and
future. An analysis by the organisation of its activities in the past-to present period can provide useful
information to assess the plausibility of what has been reported concerning the present-to-future period.
The explanation of the past-to present period can also be useful in analysing current capabilities and the
quality of management.
Content Element 4G ‘Outlook’ describes the expected forward-looking disclosures:
4.34 An integrated report should answer the question: What challenges and uncertainties is the organisation
likely to encounter in pursuing its strategy, and what are the potential implications for its business model
and future performance?
4.35 An integrated report ordinarily highlights anticipated changes over time and provides information, built on
sound and transparent analysis, about:
• The organisation’s expectations about the external environment the organisation is likely to face in the
short, medium and long-term
• How that will aect the organisation
How the organisation is currently equipped to respond to the critical challenges and uncertainties that are likely
to arise.
4.37 The discussion of the potential implications, including implications for future financial performance,
ordinarily includes discussion of:
• The external environment, and risks and opportunities, with an analysis of how these could aect the
achievement of strategic objectives
The availability, quality and aordability of capitals the organisation uses or aects (e.g., the continued availability
of skilled labour or natural resources), including how key relationships are managed and why they are important
to the organisation’s ability to create value over time.
4.38 An integrated report may also provide lead indicators, KPIs or objectives, relevant information from
recognised external sources, and sensitivity analyses. If forecasts or projections are included in
reporting the organisation’s outlook, a summary of related assumptions is useful. Comparisons of actual
performance to previously identified targets further enables evaluation of the current outlook.
76
SASB The SASB’s approach to sustainability accounting consists of defining operational metrics on material, industry-
specific sustainability topics likely to aect current or future financial value.
• Sustainability accounting information can be forward-looking to the extent that it helps management describe
known trends, events, and uncertainties that may reveal an actual or potential impact on the financial condition
or operating performance of a reporting entity.
• SASB metrics—both qualitative and quantitative— will thus be of interest to investors and creditors, thereby
helping to communicate and to more completely represent company performance.
Each SASB standard provides general disclosure guidance for issuers, including forward-looking statements.
77
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112 Additional resources consulted that require science-based targets or policy-based targets are the Science Based Target
initiative, the GHG Protocol and the Future Fit Business Benchmark.
78 UN Guiding Principles Reporting Framework (2015), p.4, 6 and 7
79 Regulation (EU) 2020/852
80 Final Report – Recommendations of the Task Force on Climate-related Financial Disclosures (2017), p.26
Framework/
standard Types of information (emphasis added)
UN GP
Reporting
Framework
In using the UN GP Reporting Framework, companies should endeavour to show how they have progressed
in their implementation of the Guiding Principles and how they intend to continue to improve. The Reporting
Framework describes several opportunities to report forward-looking information.
Questions in Section C4 (on Integrating Findings and Taking Action) relate to how the reporting company tries to
ensure that potential impacts related to each salient issue do not materialize. This includes eorts to ensure that
actual impacts do not continue or recur in the future. The focus is therefore on forward-looking actions by the
company.
Implementation guidance to the supporting question A2.5, “What lessons has the company learned during the
reporting period about achieving respect for human rights, and what has changed as a result?” states that this
question oers an opportunity to describe forward-looking plans or targets for continued improvement in the
next reporting period or beyond (e.g. changes made or planned to a policy, process or practice in order to better
manage one or more human rights impacts).
78
Taxonomy
Regulation
The taxonomy does not require forward-looking information. However, capex is an indicator for potential future
turnover alignment with the EU taxonomy.
79
TCFD The Task Force encourages organisations to undertake both historical and forward-looking analyses when
considering the potential financial impacts of climate change, with greater focus on forward-looking analyses as
the eorts to mitigate and adapt to climate change are without historical precedent. This is one of the reasons the
Task Force believes scenario analysis is important for organisations to consider incorporating into their strategic
planning or risk management practices.
Scenario analysis can be qualitative, relying on descriptive, written narratives, or quantitative, relying on
numerical data and models, or some combination of both.
Reasons to consider using scenario analysis for climate change:
a) Scenario analysis can help organisations consider issues, like climate change, that have the following
characteristics:
- Possible outcomes that are highly uncertain (e.g., the physical response of the climate and ecosystems to
higher levels of GHG emissions in the atmosphere),
- Outcomes that will play out over the medium to longer term (e.g., timing, distribution, and mechanisms of the
transition to a lower-carbon economy),
- Potential disruptive eects that, due to uncertainty and complexity, are substantial.
b) Scenario analysis can enhance organisations’ strategic conversations about the future by considering, in a
more structured manner, what may unfold that is dierent from business-as-usual.
c) Scenario analysis can help organisations frame and assess the potential range of plausible business, strategic,
and financial impacts from climate change and the associated management actions that may need to be
considered in strategic and financial plans.
d) Scenario analysis can help organisations identify indicators to monitor the external environment and better
recognise when the environment is moving toward a dierent scenario state (or to a dierent stage along a
scenario path). This allows organisations the opportunity to reassess and adjust their strategies and financial
plans accordingly.
e) Scenario analysis can assist investors in understanding the robustness of organisations’ strategies and
financial plans and in comparing risks and opportunities across organisations.
TCFD recommends describing the targets used to manage climate-related risks and opportunities and the
company’s performance against these targets.
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113 Financial reporting standards generally require companies to report historical figures up to two years backwards. In non-
financial information, a longer time period is often considered to be necessary since the related topics are of a longer-
term nature. For instance, it is more insightful for stakeholders to understand the development in a company’s emission
over the last 10 years, than only a comparison between the current and last two years.
114 Providing information over a longer time period (both retrospective and forward-looking) may increase the volume and
may decrease the comprehensibility of a report. A potential way to overcome this issue in relation to climate is the base-
year concept, as can be found in the GHG-protocol. The organisation reports its progress against the base year figures
to provide meaningful insight in its development over a longer period in an aggregated manner, thereby not flooding the
stakeholders with too many details for all years covered.
115 Forward-looking information may be reported in several time frames, such as short-term, medium-term and long-term.
Inherently, long-term forward-looking information is subject to more uncertainty and a higher estimation risk than short-
term information. Companies may connect longer-term goals with shorter term action targets and a transition plan to
work towards the long-term goal and to explain the steps towards the greater goal to investors. An example is the
81 Future Fit Business Benchmark Methodology Guide (2020)
82 The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard Revised Edition
83 SBTi Criteria and Recommendations Version 4.1 (April 2020) stresses that targets should be recalculated, as needed, to reflect significant changes that
could compromise relevance and consistency of the existing target. Scope 3 emissions become 40% or more of aggregated scope 1, 2 and 3 emissions is
one of the changes that should trigger a target recalculation.
84 Science Based Target initiative
Resource Types of information (emphasis added)
Future Fit
Business
Benchmark
FFBB requires companies to adopt a time horizon for the reporting which is aligned with the time horizon of the
systemic risks (and related goals) it is designed to address. There is not a one-time horizon. Forward-looking
requirements are aligned with the objective necessity. FFBB guides companies to report on pt. IV – transition
plans. The rest is not explicitly required but should be reported where appropriate.
The Future Fit Business Benchmark is based on science-based and policy-based target-setting, such as human
rights norms as defined in UN instruments, Planetary boundaries and SDGs.
81
GHG Protocol The GHG Protocol encourages companies to establish GHG emissions reduction targets and report against
these targets. Forward looking targets are quantitative and the same accounting rules apply to the targets as to
all backward-looking reported data and info!mation.
The GHG-protocol encourages companies to establish science-based GHG emissions reduction targets and
report against these targets. The GHG-protocol introduces the base year in its reporting requirements:
“A meaningful and consistent comparison of emissions over time requires that companies set a performance
datum with which to compare current emissions. This performance datum is referred to as the base year
emissions. For consistent tracking of emissions over time, the base year emissions may need to be recalculated
as companies undergo significant structural changes such as acquisitions, divestments, and mergers.”
82
Science
Based Target
initiative
Targets (forward-looking) are set based on an indicator against which companies need to report regularly (e.g.
yearly), starting from a baseline (retrospective). Targets must cover a minimum of 5 years and a maximum of 15
years from the date the target is submitted to the SBTi for an ocial validation.
SBTi suggests ways in which forward-looking information may be reported on:
a) One of the components of science-based target setting is an emissions scenario, defining the magnitude and
timing of emissions reductions; at a minimum, an SBT should lead to emissions reductions from scope 1 and
2 sources that are consistent with well-below 2°C scenarios. Companies are encouraged to pursue greater
eorts towards a 1.5°C trajectory. Companies should report on emissions scenario and methods used to set
targets.
b) Emissions scopes that are and are not included in the target (e.g., whether scope 3 emissions are excluded
because they do not account for a significant portion of total emissions) and any future plans to include them
83
;
c) How the company will cut emissions: While most companies will not have a fully engineered plan for meeting
their SBT at the outset, they may be able to provide near-term examples of the steps they will take to reduce
emissions.
The Science-Based Target initiative requires both science-based and policy-based targets (GHG-protocol,
United Nations Convention on Biological Diversity (UNCBD), United Nations Framework Convention on Climate
Change (UNFCCC), United Nations Convention to Combat Desertification (UNCCD) and SDGs).
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Science Based Target initiative, where companies are asked to provide near-term examples of the steps they will take to
reduce emissions. Periodical reports on progress against the targets and updates of the transition plan ensures that the
long-term goal remains up to date and within reach.
116 The relevance of reports is generally considered to increase when a meaningful connection is made between
retrospective information and forward-looking information. Companies may explain how their current state and
performance impact their ability to be successful in the future. The reviewed standards and frameworks provide dierent
ways to promote this interconnectivity.
a) GRI does not require a direct connection between past-present-future but recommends combine retrospective and
forward-looking information in the statement from the most senior decision-maker about sustainability. Recommended
forward-looking information includes the company’s vision and strategy, main challenges, targets and goals. The
recommended retrospective information includes the company’s view on performance with respect to targets and
key events, achievements and failures during the reporting period.
b) The <IR> Framework
85
is one of the few frameworks that specifically calls out the ‘past-present-future’ interconnectivity.
The Framework requires companies to disclose the organisation’s activities, performance (financial and other) and
outcomes in terms of the six capitals in the past, present and future. This analysis can provide useful information to
assess the readiness of the company to be successful in the current and future context. However, it may be dicult
for preparers of the report to disclose the 18 dierent lenses in a structured and comprehensible manner, nor does
it necessarily cover those impacts (positive and negative; past, present or future) that cannot be connected to value
creation and the capitals.
c) SASB considers that accounting can be forward-looking to the extent that it helps management describe known
trends, events, and uncertainties that may reveal an actual or potential impact on the financial condition or operating
performance of a reporting entity. This approach is more limited in promoting interconnectivity between past-present-
future than IIRC.
d) In using the UN GP Reporting Framework, companies report how they have progressed in their implementation of the
UN Guiding Principles and how they intend to continue to improve, including through actively preventing identified
potential impacts from occurring or other ways to address them. This oers an opportunity to describe forward-
looking plans or targets for continued improvement in the next reporting periods and link this to past performance, as
well as targets and metrics set.
Time horizon
117 Most standards and frameworks define the time horizons to be applied in reporting as short-term, medium-term and
long-term. However, the time span of short-term, medium-term and long-term is not defined in most standards and
frameworks. Furthermore, factors that should be considered when defining the time horizons vary significantly between
the standards and frameworks reviewed. Only a few standards recommend or require reporting organisations to
describe how they determined the time horizons applied.
85 IIRC, The International <IR> Framework (2013)
3636
118 Additional resources consulted provide additional ways to define time horizons.
86 GRI 101: Foundation (2016)
87 IIRC, The International <IR> Framework, p.32
88 SASB Conceptual Framework (2017), p.10
89 Regulation (EU) 2020/852 and Taxonomy: Final report of the Technical Expert Group on Sustainable Finance (2020)
90 Final Report – Recommendations of the Task Force on Climate-Related Financial Disclosures (2017), p.20
Framework/
standard Types of information
GRI According to GRI, “Horizons are defined in terms of the definition of the term ‘impact’ that can refer to positive,
negative, actual, potential, direct, indirect, short-term, long-term, intended, or unintended impacts.”
86
IIRC IIRC encourages reporting organisations to define their own time horizons considering several factors:
“The future time dimension to be considered in preparing and presenting an integrated report will typically be
longer than for some other forms of reporting. The length of each time frame for short, medium and long-term
is decided by the organisation with reference to its business and investment cycles, its strategies, and its key
stakeholders’ legitimate needs and interests. Accordingly, there is no set answer for establishing the length for
each term.”
87
With these considerations in mind, the following descriptions avoid assigning specific time frames; instead,
organisations are encouraged to define time scales that suit their unique circumstances.
• Short term eects include immediate, event driven impacts, such as those arising from health and safety
infractions or the identification of design flaws that prompt product recalls. For practical purposes, some
organisations treat the annual reporting cycle as a suitable measure for the short term; this milestone provides
an opportunity to share progress over the past year, as well as expectations between now and the next report.
• Medium term eects are those that extend beyond the short term as defined by the organisation.
• Long-term eects cover a more extensive time range and are generally more strategic than operational in
nature. Again, the distinction between medium- and long-term eects is defined by the organisation.
SASB SASB standards provide investors with decision-useful information on the sustainability issues that are
reasonably likely to materially aect near-, medium-, or long-term business value.
88
UN GP
Reporting
Framework
The UN GP Reporting Framework does not specify time horizons.
Taxonomy
Regulation
The final report of the TEG and the EU Taxonomy Directive consider ‘medium-term’ and ‘long-term’ climate goals
and impacts but do not define the time horizons in years or descriptive terms.
89
TCFD TCFD identifies the short-, medium- and long-term time horizons and recommends organisations to disclose “a
description of what they consider to be the relevant short-, medium-, and long-term time horizons, taking into
consideration the useful life of the organisation’s assets or infrastructure and the fact that climate-related issues
often manifest themselves over the medium and longer terms”.
90
3737
Framework/
standard Types of information
Future Fit
Business
Benchmark
The FFBB requires companies to adopt a time horizon for the reporting which is aligned with the time horizon of
the systemic risks (and related goals) it is designed to address. So, there is not one-time horizon for everything.
However, the forward-looking requirements are always aligned with the objective necessity.
91
GHG Protocol The GHG Protocol defines long-term as ten years to facilitate long-term planning for large capital investments
with GHG benefits. However, they recognise that a five-year target period may be more practical for
organisations with shorter planning cycles.
92
Natural
Capital
Protocol
The Natural Capital Protocol does not prescribe time horizons. Instead, the framework requires the identification
of the temporal boundaries for the assessment of natural capital impacts.
93
Science
Based Target
initiative
SBTi defines the following time frames: 0-5 years: short term, 5-15 years: mid-term, beyond 15 years (up to 2050):
long-term. SBTi focuses on medium- and long-term targets – rather than on short term targets.
94
119 As is apparent from this analysis, the actual period in years that is meant by short-term, medium-term and long-term
varies greatly among standards and frameworks. Amongst others, varies per topic to be reported on.
120 Furthermore, the sector in which a business operates is likely to play a significant role in determining the time span of
what is considered short, medium and long-term. For instance, the fashion industry sells several collections every year
and may consider long-term to be not much longer than a year, while in the forestry sector long term is more than 50-
years, the time needed to grow a forest.
Key considerations for a potential EU Sustainable Standard
121 In non-financial reporting (when compared to financial reporting), reporting over a longer time period, both retrospective
and (in particular) forward-looking, is often deemed necessary due to the nature of the topics. Assessing available
methods and tools that assist reporting organisations in disclosing the information in a comprehensive yet understandable
manner will be helpful in a next step
122 Time horizons that are considered adequate to address the sustainability challenges ahead may vary a lot. There is
not a common understanding of the definition of short-term, medium-term and long-term in existing standards and
frameworks and the latter may have dierent objectives that may be related to the determination of time horizons. It is
important that organisations define what short-term, medium-term and long-term means in their business and for their
organisation, and report on this to provide stakeholders with sucient insight. The analysis suggest that one option
could be for the standard setter to provide set time horizons for preparers and/or oer guidance to companies on how
to determine time horizons and explain those in their reporting, including set criteria for target-setting by companies,
whether science-based, policy-based or results-based.
123 Longer-term goals have an inherent higher degree of estimation uncertainty. Furthermore, based on the analysis, it
may be challenging for stakeholders to assess easily how a company’s shorter-term activities aim to achieve the long-
term goal whilst avoiding risks of unrealistic goals and green-washing. Setting and disclosing shorter-term goals in
the context of a transition might help operationalising and reporting on the longer-term goals as does a comparison
between goals, targets and achievements.
124 Connecting forward-looking information with retrospective information is key for the company to provide insights into its
ability to be successful in the short-term, medium-term and long-term, given the current and future context.
91 Future-Fit Business Benchmark Methodology Guide (2020)
92 The Greenhouse Gas Protocol – A Corporate Accounting and Reporting Standard, Revised Edition, p.80
93 Natural Capital Coalition “Nature Capital Protocol” (2016), p.41
94 Science-Based Target Setting Manual (2020)
3838
125 A meaningful comparison of historic, current and forward-looking information requires a consistent method of aggregating
and reporting information; however, the discipline is in its early stages and still evolving significantly. Methods and
historical figures may need to be updated to follow new insights and developments for proper inclusion of emerging best
practices.
LEVEL OF APPLICATION
Definition and relevance
126 Reporting organisations can present information on dierent levels of consolidation. Levels of reporting may include the
whole capital group (parent company and its subsidiaries as per consolidation scope), country/regional level, subsidiary
level, site level (asset or business unit), portfolio level and activity level (among others), depending on the nature and size
of the company, the complexity of its structure, the nature and severity of impacts, and the nature of information that is
reported.
127 A potential EU NF Reporting Standard will need to consider whether it should require that companies report at dierent
levels of application, in terms of Parent Company level, subsidiary level or sector specific level For example, a relevant
question is whether subsidiaries should produce their own NF statements (if they meet the personal scope definition of
the NFRD), even if their parent produces a consolidated NFS
95
128 Furthermore, non-financial information may be approached from a generic standpoint (allowing inter-sector comparisons)
or from a sector-specific standpoint (putting the emphasis on a ‘best-in-class’ comparison) or from a combination of both.
129 The consultation on the NFRD asked respondents whether a standard should include sector-specific elements. 80% of
all respondents favoured the inclusion of sector-specific elements in a reporting standard.
96
130 In addition to generic indicators that apply to all entities, standardised approaches may leave flexibility to introduce
elements of sector-specific or entity-specific indicators. Such an approach can increase relevance but potentially reduce
comparability and could take its point of departure from the business model, as referenced in the current NFRD. A
standardised approach could also include elements such as governance oversight, strategy, and related policies and
procedures.
131 Both materiality assessment and the data gathering process are impacted by the level of application.
a) Some sustainability topics may be more material for companies in some sectors or industries than others. Many
existing standards and frameworks provide sector-specific guidance and urge reporting organisations to provide
information that is comparable to other organisations in the same sector or industry.
b) Some sustainability data must be gathered on more granular levels to be reported at the corporate level, while other
sustainability data must be both gathered and reported on a granular level to be consolidated on a sector or meta
sector level, for example EU Taxonomy turnover, CAPEX and OPEX or GHG emissions.
132 Key question in PTF’s analysis is how the level of application may be reflected in standard setting reporting requirements
for companies, thereby considering the relevance, comparability and reliability of non-financial information and the
needs of the intended audience and other stakeholders.
95 Subsidiaries may be involved with major impacts and risks and it may desirable that they would be required to report separately. For example, consider a
bank that plays a critical role in a national EU economy and is a subsidiary of an EU based parent company. It could be very relevant for stakeholders in that
country to know what is the exposure to climate risks of the subsidiary bank (rather than just the exposure of the whole banking group).
96 Summary Report of the Public Consultation on the Review of the Non-Financial Reporting Directive (2020)
3939
Analysis
Company level and more granular reporting
133 Most standards and frameworks reviewed require reporting at company level, whereby the company level is understood
as the whole capital group or the parent company
97
, and do not explicitly mention more granular reporting.
134 Some of the standards and frameworks reviewed explicitly allow for more granular reporting, usually organised by
geography or market area, such as GRI and the UN Guiding Principles Reporting Framework.
a) Examples of GRI allowing more granular reporting can be found in GRI 102-8. GRI 102-8 requires companies to report
the total number of employees by employment contract by region. Similarly, when applying GRI 401-1, GRI requires
companies to report the number of new employees and their turnover by age group, gender and region. Furthermore,
the GRI 207-4 Global Standard for Public Reporting on Tax introduces public country-by-country reporting of business
activities, revenues, profit and tax. It requires reporting of financial, economic, and tax-related information for each
jurisdiction in which the organisation operates.
b) The UN Guiding Principles Reporting Framework urges reporting companies to focus on salient human right issues to
ensure reporting is focused and relevant. In the process of identifying those issues, companies may choose to focus
on specific geographies. They may identify dierent geographies in relation to dierent issues. If reporting on the
salient human rights issues focuses on particular geographies, the company is urged to explain how that choice was
made.
98
135 The EU taxonomy focuses on economic activities, whereby companies are required to disclose their Taxonomy-
aligned turnover, CAPEX and OPEX on a company level, but must calculate the Taxonomy-alignment per activity. Other
disclosures, such as project-level disclosures, can be made.
99
136 Additional sources consulted, such as the GHG Protocol, the Eco-Management and Audit Scheme (‘EMAS’) and the
Polish Non-Financial Information Standard (‘nFIS’), allow or require for site-level reporting (business unit, plant level):
a) The GHG Protocol
100
is primarily designed to be used on the company level. However, the standard also provides
requirements and guidance enabling it to be used on virtually all granularity levels: up to the level of a sector, meta-
sector, regional or even global economy and down to business unit, plant or even activity level. An interconnected
GHG Protocol Product Life Cycle Standard allows for GHG emissions accounting for particular products. Furthermore,
GHG Protocol requires companies to report any significant emissions changes that trigger base year recalculations.
This information is relevant on site-level and the standard requires the company to report it on that level.
b) The intention of EMAS is ‘to ensure local accountability, [therefore] organisations shall ensure that the significant
environmental impacts of each site are clearly identified and reported within the corporate environmental statement.’
101
c) The main standard of nFIS allows for companies to report on a more detailed level (than the company level) such as
asset level or unit level when considered appropriate by the reporting company.
137 The review shows that the required or recommended level of application of reporting diers based on the standard’s
or framework’s objectives, theory of change, intended audience and the level where impacts or risks typically occur
(both outside-in and inside-out perspective). Most standards and frameworks foresee reporting on the company or
group level but ask for more granular information if impacts or risks vary significantly among sites, geographies, assets
or specific activities of a company.
97 It means controlling entity, subsidiaries and others in which the parent exercise significant influence
98 UN Guiding Principles Reporting Framework with implementation guidance (2015) – B3 Choice of focal geographies
99 Taxonomy: Final report of the Technical Expert Group on Sustainable Finance (2020)
100 Greenhouse Gas Protocol Corporate Accounting and Reporting Standard, Revised Edition
101 Regulation (EC) No 1221/2009 of the European Parliament and of the Council of 25 November 2009 on the voluntary participation by organisations in a
Community eco-management and audit scheme (EMAS)
4040
Sector-specific reporting
138 The table below includes an analysis of the availability of sector-specific disclosures and metrics and the objective for
recommending or requiring sector-specific information of the six standards / frameworks primarily analysed.
Framework/
standard
Sector specific
standards Text
GRI Provides sector-
specific standards
“The GRI Sector Program develops Sector Standards that provide organisations with
authoritative guidance on the most likely material topics for reporting in their sector and
the information they should report on these topics. The program aims to cover all high-
impact sectors, starting with those with the highest impact on sustainable development.
The first of these sectors are: oil and gas, coal, and agriculture and fishing, for which
projects are underway.”
102
IIRC No “The Framework (…) Is written primarily in the context of private sector, for-profit
companies of any size but it can also be applied, adapted as necessary, by public sector
and not-for-profit organisations.”
103
SASB 77 industry-specific
standards
“The SASB develops sustainability accounting standards at the industry level, focusing
on issues that are closely tied to resource use, business models, and other factors at
play in the industry”
104
UNGP
Reporting
Framework
Not applicable The Framework does not specifically mention sector-specific reporting.
Taxonomy
Regulation
Economic activity
focus (more granular
than sectors)
“Assessing alignment with the Taxonomy should be performed by economic activity
rather than by sector or industry. The TEG recommendations are structured around
the EU’s NACE (Nomenclature des Activités Économiques dans la Communauté
Européenne) industry classification system, and the TEG has set technical screening
criteria for economic activities within priority macro-sectors.”
105
TCFD Guidance on financial
sector expectations to
companies potentially
most aected by
climate change
and the transition
to a lower-carbon
economy.
“Importantly, the Task Force’s recommendations apply to financial-sector organisations,
including banks, insurance companies, asset managers, and asset owners.”
“For the financial sector and certain non-financial sectors
106
, supplemental guidance
was developed to highlight important sector-specific considerations and provide a fuller
picture of potential climate-related financial impacts in those sectors.”
“The level of detail provided in disclosures should enable comparison and
benchmarking of risks across sectors and at the portfolio level, where appropriate.”
107
102 www.globalreporting.org/standards/sector-program/
103 IIRC, The International <IR> Framework, p.4
104 SASB Conceptual Framework (2017), p.16
105 Taxonomy: Final report of the Technical Expert Group on Sustainable Finance (2020), p.35
106 Energy, Transportation, Building Materials, Agriculture, Food and Forest Products
107 Final Report – Recommendations of the Task Force on Climate-Related Financial Disclosures (2017), p.iii, p. iv and Appendix 3
4141
139 The table below includes additional sources consulted for the analysis of sector-specific disclosures and metrics, and
objectives for recommending or requiring sector-specific information.
Source
Sector specific
standards Text
EMAS Guidance on sector-
specific indicators
and improvement
of environmental
performance
“The Sectoral Reference Documents (SRDs) on Best Environmental Management
Practice provide guidance and inspiration to organisations in specific sectors on how to
further improve environmental performance.”
“Each SRD includes the following elements:
• Best environmental management practices;
• Environmental performance indicators;
• Benchmarks of excellence.”
108
German
Sustainability
Code
Sector-specific
reporting guidance
for a limited number of
sectors
“A number of industry associations have developed sector-specific reporting
supplements. These provide concrete guidance such as information about key aspects
and examples relating to the individual Code criteria”
109
GHG Protocol Provides guidance to
report on sector level
across 50 sectors
GHG Protocol is primarily designed to be used on the company level. The standard
provides requirements and guidance enabling it to be used on virtually all granularity
levels: up to the level of a sector, meta-sector, regional or even global economy and
down to business unit, plant or even activity level.
110
nFIS Materiality of topics
assessed
Categorisation of ESG topics is done also at a sector level (50 sectors) and macro sector
(8 macro sectors)
111
140 A review of existing frameworks and standards shows that there are many dierent approaches to the level of application.
Some standards only include generic guidance, whereas others combine generic and sector-specific guidance. Other
dierentiating factors are the balance between generic and sector-specific reporting, and what topics are considered
relevant for generic or sector-specific reporting.
141 About half of the standards and frameworks reviewed provide guidance concerning topics that are material or metrics
that should be disclosed in some sectors (GRI, SASB, EU Taxonomy), as do several of the additional sources consulted
(EMAS, German Sustainability Code, nFIS).
142 Few standards and frameworks provide guidance for all sectors (SASB does). In some cases, only some sectors are
covered and there is work in progress for other sectors (GRI, EU Taxonomy).
143 Key considerations in current standards and frameworks for requiring or advising disclosure of sector-specific metrics or
indicators are:
a) Facilitating comparability of information among companies in the same sector or industry; and
b) Ensuring that specific indicators or metrics that are deemed material for certain sectors or industries are reported on
by preparers.
108 https://ec.europa.eu/environment/emas/emas_publications/sectoral_reference_documents_en.htm
109 https://www.deutscher-nachhaltigkeitskodex.de/en-GB/Home/DNK/DNK-for-industry
110 Greenhouse Gas Protocol, A Corporate Accounting and Reporting Standard Revised edition
111 Foundation for Reporting Standards, non-Financial Information Standard (2019)
4242
Key considerations for a potential EU Sustainable Standard
Company level and more granular reporting
144 It is likely relevant for providing and obtaining a complete picture of the company’s non-financial performance and
forward-looking plans (from both lenses of the double materiality perspective) to disclose information on a level of
application more granular than the capital group (such as country/region or site/activity). This could include adding
a component specific to subsidiary, country/region, site or activity where it is likely to create substantial additional
insight. The relevance can be assessed, including dependence on the nature of the topic: for environmental topics,
such as water scarcity, geography is often of incremental importance; and for workforce composition and levels of
unionisation, country by country or site by site reporting can oer additional insight or may be relevant for public interest
considerations. The structure of the company may also be a relevant determinant.
145 Defining the dierent levels consistently poses a significant challenge. The definition of capital group is well established
by financial reporting standards, but there is no standard definition for the other levels yet. This may cause issues for
organisations when preparing the reports, or for users when comparing organisations.
146 Another challenge may be that the recommended or required levels of application may not align with the business
model or operations of a company, nor with where the most severe impacts can be found in a company’s value chain.
For instance, an economic activity may be performed at several sites, as well as several economic activities may
be performed at a particular site. At the same time, dierent reporting users might be interested in dierent level of
disclosure, impacting on the granularity of the information disclosed. Requiring disclosures on a certain topic on a
specific level may create incomplete or irrelevant information.
147 Current company level indicators related to People are often inadequate and therefore provide insucient basis for
defining indicators at the granular company (or even sector) level.
Sector-specific reporting
148 Several existing frameworks and standards recommend or require sector-specific disclosures and/or metrics. The
sectors identified, or the way sectors are categorised, dier between the standards.
149 Should it wish to mandate sector specific reporting requirements, harmonisation with the other ocial EU classification
of sectors and economic activities (such as NACE) should be analysed, as it’s currently being used in the EU Taxonomy.
In addition, internationally, other classifications of sectors and economic activities may be used, such as the Industry
Classification Benchmark (‘ICB’) and the Global Industry Classification Standard (‘GICS’).
150 Some topics are relevant to all sectors as generic; others are critical for only one sector and the standard setter will have
to consider how to account for this in its standard setting architecture.
151 Work already done by the TEG for the Taxonomy Regulation is a first step for identifying specific sector requirements.
The Taxonomy prioritises sectors that have the potential to make a substantial contribution to climate change mitigation
or climate change adaptation.
4343
TYPES OF INFORMATION
Definition and relevance
152 Companies are required to disclose ‘information to the extent necessary for an understanding of the undertaking’s
development, performance, position and impact of its activity’ (article 19a Directive 2014/95/EU).
153 Recital 8 of the NFRD states that ‘the undertakings … should provide adequate information’ and should include material
narratives and indicator-based disclosures, commonly referred to as key performance indicators (KPIs).
154 Article 19a(1) / 29a(1) of the Non-Financial Reporting Directive contains a broad requirement for undertakings to disclose
information ‘to the extent necessary for an understanding of the [undertaking’s / group’s] development, performance,
position and impact of its activity, relating to […] environmental […] matters […]’.
155 Considering their specific circumstances and the information needs of investors and other stakeholders, companies are
expected to provide a fair and balanced view by using general, sectoral and company-specific information and metrics.
156 During the NFRD Public Consultation, most respondents stated that there were problems in particular with regard to
comparability of non-financial information but also in terms of reliability and relevance (82% of all the respondents believe
a common standard would solve the problems identified).
157 Some of the respondents to the NFRD Public Consultation, such as users and preparers, stressed the need for more
concrete and detailed definitions of what types of non-financial information should be disclosed.
158 The Consultation also highlighted that reporting entities face diculties in providing consistent, comparable and reliable
non-financial information in part due to the existence of a variety of frameworks and standards requiring dierent types
of information.
Analysis
Qualitative and quantitative information
Main analysed frameworks and standards
159 In its guidelines, NFRD specifies the cases when it is necessary to use quantitative or qualitative information. In particular:
a) Guidelines article 3.4: ‘By disclosing targets, benchmarks and commitments, a company may help investors and
other stakeholders to put its performance in context. This may be helpful when assessing future prospects. External
monitoring of commitments and progress towards targets promotes greater transparency towards stakeholders.
Targets and benchmarks may be presented in qualitative or quantitative terms. As appropriate, companies may
disclose relevant information based on science-based scenarios.’
b) The Guidelines on climate related reporting furthermore provide a number of recommended quantitative indicators.
160 GRI Standard specifically requires – for each material topic – to report the management approach disclosures for that
topic, that is a narrative description about how the topic is managed, and a specific disclosure to be chosen within the
Topic Specific Standards (200, 300, 400) that is typically a quantitative KPI, or report other appropriate disclosures, if the
material topic is not covered by an existing GRI Standard.
161 Some frameworks are not granular in terms of specific quantitative and qualitative information to disclose (IIRC, UNGP).
The IIRC Framework
112
is principle-based. The intent of the principle-based approach is to strike an appropriate
balance between flexibility and prescription that recognises the wide variation in individual circumstances of dierent
organisations while enabling a sucient degree of comparability across organisations to meet relevant information
needs. This Framework does not prescribe specific key performance indicators (KPIs), measurement methods or the
disclosure of individual matters. Quantitative indicators, such as KPIs and monetised metrics, and the context in which
112 IIRC, The International <IR> Framework (2013)
4444
they are provided can be very helpful in explaining how an organisation creates value and how it uses and aects
various capitals. While quantitative indicators are included in an integrated report whenever it is practicable and relevant
to do so:
a) The ability of the organisation to create value can best be reported through a combination of quantitative and
qualitative information.
b) It is not the purpose of an integrated report to quantify or monetise the value of the organisation at a point in time, the
value it creates over a period, or its uses of or eects on all the capitals.
162 SASB provides companies with standardised quantitative—or, in some cases, qualitative—metrics intended to
measure performance on each disclosure topic or an aspect of the topic. Indicators are retroactive and can be either
quantitative (in amounts or percentages) or descriptive (e.g. corporate policies). Sustainability accounting metrics
should be accompanied by a narrative description of any material factors necessary to ensure completeness, accuracy,
and comparability of the data reported, where not addressed by the specific accounting metrics, including strategy,
competitive positioning, degree of control, performance, and trends over time
113
163 The UNGP Reporting Framework
114
, like the IIRC Framework, is not granular in terms of specific quantitative and
qualitative information to disclose. In its implementation guidance it says that relevant information for the company’s
disclosure could include processes, key performance indicators and/or criteria/metrics that the company can use to
better understand its own human rights impacts, risks and other useful data as a means of answering the assessment
questions.
164 The EU Taxonomy
115
require non-financial undertakings to provide specific monetary KPIs when disclosing their alignment
with the Taxonomy, that is also based on extensive technical criteria for assessing whether an activity is taxonomy-
aligned (article 10 to 15).
a) Monetary KPIs:
(i) Proportion of their turnover derived from products or services associated with environmentally sustainable
economic activities under the Taxonomy Regulation;
(ii) Proportion of their CapEx related to assets or processes associated with environmentally sustainable economic
activities under the Taxonomy Regulation;
(iii) Proportion of their OpEx related to assets or processes associated with environmentally sustainable economic
activities under the Taxonomy Regulation.
b) Qualitative information: furthermore, in its call for advice, the Commission is considering whether it should require, in
its delegated act, that non-financial undertakings must disclose additional information to supplement the three KPIs.
ESMA considered that such supplementary information alongside the three KPIs could enable users of non-financial
information to better understand the KPIs, by:
(i) Providing information on how the KPIs were prepared,
(ii) Describing how the KPIs should be interpreted (i.e. providing a narrative explanation of the numerical information
presented by the KPI),
(iii) Providing context around the KPIs (e.g. by providing comparatives for how the non-financial undertaking
performed on the same KPI in previous years or information on the target the undertaking had set for itself for
each KPI for the year in question).
113 SASB Conceptual Framework (2017), p. 20
114 UN Guiding Principles Reporting Framework
115 Regulation (EU) 2020/852
4545
165 The TCFD requires both qualitative and quantitative information: the first category includes, for instance, narrative
description of governance, strategy and risk management approach concerning climate-related issues; while the second
category includes, for instance, metrics and targets concerning climate-related risks and opportunities, such as Scope
1, 2 and 3 carbon emissions, or the quantification of the financial impacts of climate-related risks and opportunities over
the organisations’ business, financial planning and strategy.
Additional Sources Analysed
166 GHG protocol
116
focus primarily on quantitative information: it requires predominantly quantitative information on GHG
emissions. Some additional explanatory information is also provided in qualitative form in reports.
167 Natural Capital Protocol
117
establishes that the valuation of natural capital can be:
a) Qualitative: e.g. opinion surveys, deliberative approaches, relative valuation;
b) Quantitative (numerical but NOT monetary): e.g. structured surveys, indicators, multi-criteria analysis;
c) Monetary: e.g. market and financial prices (if available), production function, cost-based approaches, revealed or
stated preference approach.
Quality of information
168 Although a general classification on types and quality of information based on the analysed frameworks and standards
would be highly useful, there is not clear convergence among them. The landscape is characterised by is a wide range
of indicators and metrics, each with their own structure and requirements, without a common basis to build upon.
169 Most frameworks and standards provide a set of reporting principles (see section above) that also reflect on the type of
targets, metrics and other information that should be disclosed by reporting entities.
170 A few frameworks go beyond that and provide a more detailed prescription of quality of information (e.g., GRI and SASB,
see next).
171 GRI Standard Reporting principles for defining quality:
118
a) Accuracy: the reported information shall be suciently accurate and detailed for stakeholders to assess the reporting
organisation’s performance.
b) Balance: the reported information shall reflect positive and negative aspects of the reporting organisation’s
performance to enable a reasoned assessment of the overall performance.
c) Clarity: the reporting organisation shall make information available in a manner that is understandable and accessible
to stakeholders using that information.
d) Comparability: the reporting organisation shall select, compile, and report information consistently. The reported
information shall be presented in a manner that enables stakeholders to analyse changes in the organisation’s
performance over time, and that could support analysis relative to other organisations.
e) Reliability: The reporting organisation shall gather, record, compile, analyse, and report information and processes
used in the preparation of the report in a way that can be subject to examination, and that establishes the quality and
materiality of the information.
f) Timeliness: The reporting organisation shall report on a regular schedule so that information is available in time for
stakeholders to make informed decisions.
116 Greenhouse Gas Protocol, A Corporate Accounting and Reporting Standard Revised edition
117 Natural Capital Coalition, Nature Capital Protocol (2016)
118 GRI 101, Foundation, p. 13
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172 At the accounting metrics level, SASB considers the following set of criteria when evaluating potential metrics to measure
performance on aspects of each sustainability topic
119
:
a) Fair Representation: a metric adequately and accurately describes performance related to the aspect of the disclosure
topic and it is intended to address or is a proxy for performance on that aspect of the disclosure topic.
b) Useful: a metric will provide useful information to companies in managing operational performance on the associated
topic and to investors in performing financial analysis.
c) Applicable: metrics are based on definitions, principles, and methodologies that are applicable to most companies in
the industry based on their typical operating context.
d) Comparable: metrics will yield primarily (a) quantitative data that allow for peer-to-peer benchmarking within the
industry and year-on-year benchmarking for an issuer, but also (b) qualitative information that facilitates comparison
of disclosure.
e) Complete: individually, or as a set, metrics provide enough data and information to understand and interpret
performance associated with all aspects of the sustainability topic.
f) Verifiable: metrics are capable of supporting eective internal controls for the purposes of data verification and
assurance.
g) Aligned: metrics are based on those already in use by issuers or are derived from standards, definitions, and concepts
already in use by issuers, governments, industry associations, and others.
h) Neutral: metrics are free from bias and value judgment on behalf of SASB, so that they yield an objective disclosure
of performance that investors can use regardless of their worldview or outlook.
i) Distributive: metrics are designed to yield a discernible range of data for companies within an industry or across
industries allowing users to dierentiate performance on the topic or an aspect of the topic.
173 The Report ‘Ensuring the relevance and reliability of non-financial corporate information: an ambition and a competitive
advantage for a sustainable Europe’
120
, recommends the definition of a general classification system, distinguishing
between qualitative and quantitative information, supplemented by distinctions based on the type of information
(governance, strategy, policies and methodologies for qualitative information; monetary, non-monetary for quantitative
information) and on their temporality (position, dedicated resources, targets/objectives).
174 From the workstream’s understanding of the literature, each piece of disclosure, be it narrative or quantitative, should be
evaluated against key criteria, to test its capacity for providing valuable insight to stakeholders.
175 Accordingly, it is important to recognise the value of and need for qualitative indicators when it comes to impacts
on people. The human experience cannot be reduced to numbers, and most quantitative data will require qualitative
information for its reasonable interpretation. In this case key criteria may be represented by:
a) Indicative capability: Whether an indicator or metric provides a true signal of the likelihood that the company’s
practices are reducing negative outcomes and increasing positive outcomes for people and planet or is unrelated or
weakly related to such outcomes.
b) Measurability: in the case of quantitative metrics, whether the issue at hand can reasonably be measured by a
company without an excessive amount of conjecture and unknowns that would render it too arbitrary to be of value
119 SASB Conceptual Framework (2017), p.19
120 Ensuring the relevance and reliability of non-financial corporate information: an ambition and a competitive advantage for a sustainable Europe, Patrick de
Cambourg, (2019)
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176 Contextualisation: the extent to which an indicator can be relied upon for insight absent contextual information to enable
its interpretation; and the extent to which variations in such contextual information mean that a quantitative indicator
does not provide for comparability
177 The literature also suggests that the metrics chosen should be meaningful to dierent stakeholders and they must
ultimately be comprehensible and capable of communicating meaningful progress, or otherwise, towards sustainable
development. Suggested indicators must also be scientifically valid, cost-eective, measurable and feasible to collate.
They must be capable of indicating progress over time and therefore must have a dynamic quality and be capable of
capturing both positive and negative qualities.
Key considerations for a potential EU Sustainable Standard
178 Definition and assessment of indicators and metrics for their potential value in the context of reporting, whether at
the sector-agnostic or sector -specific level are currently missing. Such clarification will help to provide clarity and
predictability for companies regarding the indicators and metrics on which they should focus their reporting.
179 For non-financial information, both qualitative and quantitative information is important. Further clarification of where and
how to use quantitative and qualitative information, considering also where the combination of the two is needed and
where qualitative information provides essential context for the interpretation of numerical data or when numerical data
illustrate or support qualitative information.
180 Some current indicators and metrics existing in EU standards provide little insight into how well a company is minimising
its negative impacts and maximising its positive impacts on people and planet. Some other indicators, that are assumed
to provide comparability across companies, in fact fail to do so in practice, risking misleading conclusions by investors. It
is therefore important to identify and define key criteria to test indicators and/or metrics capacity for providing valuable
insight to stakeholders.
181 It is important to take into consideration that for certain topics established and well recognised quantitative indicators
exist and have proven their quality, robustness and usability (for example GHG emissions accounting, where metrics
provided by GHG Protocol and ISO 14064-1:2018 have become global standards). At the same time some topics currently
lack such quantitative indicators, or they are at a relatively early stage of development, proliferation or use (for example
measuring circular economy issues). Usually in such cases, where quantitative metrics are lacking, qualitative indicators
are temporarily used.
182 It should not be precluded that certain indicators may exist or emerge that can be applied at a sectoral level while
meeting the quality criteria. Industry initiatives may play a particular role in identifying such indicators, and experience
over time with company-determined targets and indicators may point to others.
REPORTING PRINCIPLES
Definition and relevance
183 The definition of ‘reporting principles’ used by this workstream is that of reporting principles being a set of abstract
concepts guiding Non-financial Reporting (NFR) regarding process, content, quality, assurance and the presentation of
Non-financial Information (NFI). Reporting principles are a key element of a Non-financial Reporting (NFR) framework,
with other key elements being the objectives of NFR, a specification of topics for NFI covered by the framework, specific
reporting standards guiding the generation of NFI under each topic, and a governance structure for developing reporting
standards.
184 The lack of a clear definition of reporting principles in the NFRD is a contributing factor to the problems seen with the
current practice of NFR in the EU. The great majority of users responding to the Commission’s 2020 online consultation
on the revision of the NFRD sees problems with the limited reliability, limited comparability, and incompleteness of
reported NFI. These problems may in part be addressed through the mandatory application of a clear set of reporting
principles to NFR in the EU.
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185 The NFRD non-binding guidelines define a set of six ‘key principles’ which can be understood as reporting principles
according to the definition given above: 1) disclose material information, 2) fair, balanced and understandable, 3)
comprehensive but concise, 4) strategic and forward-looking, 5) stakeholder-oriented and 6) consistent and coherent.
However, it is reported that only 5% of the largest 1.000 listed companies in the EU refer to the NFRD non-binding
guidelines in NFR
121
, and this may be caused by the fact, that the Commission stated in the 2017 Guidelines that ‘this
document does not constitute a technical standard, and neither preparers of non-financial statements nor any party,
whether acting on behalf on a preparer or otherwise, should claim that non-financial statements are in conformity with
this document.’ These reporting principles have been defined with the objective of disclosing non-financial information
in a relevant, useful, consistent and more comparable manner
122
. However, in addition to being voluntary, these principles
are seen by many as being too general and not systematic enough to function as the reporting principles of an EU NFR
framework.
186 The revision of the NFRD thus raises the question of what the role of Reporting Principles should be, and how they
should be constructed in order to guide NFR standard setting as well as preparers in providing relevant and useful
information to stakeholders, thereby contributing to the achievement of sustainability objectives.
187 Key question in PTF’s analysis of the Reporting Principles is: ‘What role can Reporting Principles play within an EU NFR
framework and how can they contribute to the realisation of the objectives in the NFRD’.
Analysis
188 The Non-Binding Guidelines (2017) define 6 Key principles that companies should follow to define the content of
their Non-Financial Statement, in order to guarantee the correct understanding of an undertaking’s development,
performance, position and impact in relation to required matters
123
:
a) Disclose material information: the Accounting Directive (2013/34/EU) defines material information as ‘the status of
information where its omission or misstatement could reasonably be expected to influence decisions that users make
on the basis of the financial statements of the undertaking’.
b) Fair, balanced and understandable: the non-financial statement should give fair consideration to favourable and
unfavourable aspects, and information should be assessed and presented in an unbiased way. The non-financial
statement should consider all available and reliable inputs, taking into account the information needs of relevant
stakeholders. Users of information should not be misled by material misstatements, by the omission of material
information, or by the disclosure of immaterial information. The non-financial statement should clearly distinguish
facts from views or interpretations.
c) Comprehensive but concise: material disclosures are expected to provide a comprehensive picture of a company in
the reporting year. This refers to the breadth of information disclosed. However, the depth of information reported
on any particular issue depends on its materiality. A company should focus on providing the breadth and depth
of information that will help stakeholders understand its development, performance, position and the impact of its
activities. The non-financial statement is also expected to be concise and avoid immaterial information. Disclosing
immaterial information may make the non-financial statement less easy to understand since it would obscure material
information. Generic or boilerplate information that is not material should be avoided.
d) Strategic and forward-looking: the statement is expected to provide insights into a company’s business model,
strategy and its implementation, and explain the short-term, medium-term and long-term implications of the information
reported.
121 The Alliance for Corporate Transparency Research Report 2019: An analysis of the sustainability reports of 1.000 companies pursuant to the EU Non-
Financial Reporting Directive
122 Guidelines on non-financial reporting (methodology for reporting non-financial information) (2017/C 215/01)
123 EC 2017 Non-Binding Guidelines on Non-Financial Reporting, art 3, p. 6-9
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e) Stakeholder oriented: companies are expected to consider the information needs of all relevant stakeholders. They
should focus on information needs of stakeholders as a collective group, rather than on the needs or preferences of
individual or atypical stakeholders, or those with unreasonable information demands.
f) Consistent and coherent: the non-financial statement is expected to be consistent with other elements of the
management report. Making clear links between the information presented in the non-financial statement and other
information disclosed in the management report makes the information more useful, relevant and cohesive.
Main analysed frameworks and standards
189 GRI considers its Reporting Principles fundamental to achieving high quality sustainability reporting. An organisation is
required to apply the Reporting Principles if it wants to claim that its sustainability report has been prepared in accordance
with the GRI Standards. The Reporting Principles are divided into two groups: principles for defining report content and
principles for defining report quality
124
.
190 Reporting principles for defining content:
a) Stakeholder Inclusiveness: the reporting organisation shall identify its stakeholders and explain how it has responded
to their reasonable expectations and interests.
b) Sustainability Context: the report shall present the reporting organisation’s performance in the wider context of
sustainability.
c) Materiality: the report shall cover topics that reflect the reporting organisation’s significant economic, environmental,
and social impacts or that substantively influence the assessments and decisions of stakeholders.
d) Completeness: the report shall include coverage of material topics and their boundaries, sucient to reflect significant
economic, environmental, and social impacts, and to enable stakeholders to assess the reporting organisation’s
performance in the reporting period.
191 Reporting principles for defining quality:
a) Accuracy: the reported information shall be suciently accurate and detailed for stakeholders to assess the reporting
organisation’s performance.
b) Balance: the reported information shall reflect positive and negative aspects of the reporting organisation’s
performance to enable a reasoned assessment of the overall performance.
c) Clarity: the reporting organisation shall make information available in an understandable and accessible manner to
the stakeholders which use that information.
d) Comparability: the reporting organisation shall select, compile, and report information consistently. The reported
information shall be presented in a manner that enables stakeholders to analyse changes in the organisation’s
performance over time, as well as to compare the reporting entity with other organisations.
e) Reliability: The reporting organisation shall gather, record, compile, analyse, and report information and processes
used in the preparation of the report in a way that can be subject to examination, and that establishes the quality and
materiality of the information.
f) Timeliness: The reporting organisation shall report on a regular schedule so that information is available in time for
stakeholders to make informed decisions.
124 GRI 101: Foundation 2016 – Global Reporting Initiative
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192 IIRC, a principle-based framework, identifies 7 Guiding Principles to guide companies in defining the report content and
the quality of information
125
:
a) Strategic focus and future orientation: an integrated report should provide insights into the organisation’s strategy,
and how it relates to the organisation’s ability to create value in the short-, medium- and long-term and to its use of
and eects on the capitals.
b) Connectivity of information: an integrated report should show a holistic picture of the combination, interrelatedness
and dependencies between the factors aecting the organisation’s ability to create value over time.
c) Stakeholder relationships: an integrated report should provide insights into the nature and quality of the organisation’s
relationships with its key stakeholders, including how and to what extent the organisation understands, considers and
responds to their legitimate needs and interests.
d) Materiality: an integrated report should disclose information about matters that substantively aect the organisation’s
ability to create value over the short-, medium- and long-term.
e) Conciseness: an integrated report includes enough context to understand the organisation’s strategy, governance,
performance and prospects without being burdened with less relevant information.
f) Reliability and completeness: an integrated report should include all material matters, both positive and negative, in a
balanced way and without material error.
g) Consistency and comparability: the information in an integrated report should be presented on a basis that is
consistent over time and in a way that enables comparison with other organisations to the extent it is material to the
organisation’s own ability to create value over time.
193 SASB takes a systematic approach to its standards-setting activities to ensure that its standards are material for each
industry and cost-eective for issuers and decision-useful for investors
126
.
194 To achieve these objectives, SASB standards are:
a) Evidence-based: they are based on an assessment of whether sustainability topics are likely to be of interest to the
reasonable investor, and whether they are reasonably likely to have material impacts on the financial condition or
operating performance of the company
b) Market-informed: SASB considers the views of all stakeholders, however its determinations are guided by its core
objectives to provide the users and providers of financial capital with material, decision-useful, cost-eective
disclosures
c) Industry-specific: they focus on issues that are closely tied to resource use, business models, and other factors at play
in the industry.
195 SASB considers the following set of principles when identifying sustainability topics to be disclosed by companies
127
:
a) Potential to aect corporate value: through research and stakeholder input, SASB identifies topics that can or do
aect operational and financial performance through three channels of impact: (1) revenues and costs, (2) assets and
liabilities, and (3) cost of capital or risk profile.
b) Of interest to investors: SASB addresses issues likely to be of interest to investors by assessing whether a topic
emerges from the total mix of information available through the existence of, or potential for, impacts on five factors:
(1) direct financial impacts and risk; (2) legal, regulatory, and policy drivers; (3) industry norms, best practices, and
competitive drivers; (4) stakeholder concerns that could lead to financial impacts; and (5) opportunities for innovation.
125 IIRC, The International <IR> Framework (2013), p. 16
126 SASB Conceptual Framework (2017), p. 12-17
127 SASB Conceptual Framework (2017), p. 18
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c) Relevant across an industry: SASB addresses topics that are systemic to an industry and/or represent risks and
opportunities unique to the industry and which, therefore, are likely to apply to many companies within the industry.
d) Actionable by companies: SASB assesses whether broad sustainability trends can be translated into industry-specific
topics that are within the control or influence of individual companies.
e) Reflective of stakeholder (investor and issuer) concerns: SASB considers whether there is consensus among issuers
and investors that each disclosure topic is reasonably likely to constitute material information for most companies in
the industry.
196 The UN Guiding Principles Reporting Framework define several cross-cutting principles that should guide reporting in
line with the Framework. They are
128
:
a) Setting human rights reporting in the business context: readers of a company’s human rights disclosure should
understand the broader context of what the company does. Relevant information includes the company’s business
model, organisational structure, governance, strategy and operations.
b) Meeting a minimum threshold of information: any company claiming to use this Framework should comply with
specific threshold that is designed to be attainable by any company that has begun to address human rights within its
business.
c) Demonstrating ongoing improvement: in using the Reporting Framework, companies should endeavour to show how
they have progressed in their implementation of the Guiding Principles and how they intend to continue to improve.
d) Focusing on respect for human rights: a company should ensure that its disclosure does not obscure or detract from
the required disclosure it provides in this Reporting Framework.
e) Addressing the most severe impacts on human rights: companies should focus their human rights disclosure on the
most severe actual and potential impacts on human rights associated with their activities and business relationships.
f) Providing balanced examples from relevant geographies: companies should ground their disclosure as far as possible
in specific information, including balanced examples of how impacts related to their salient human rights issues have
occurred and been prevented, mitigated or remedied during the reporting period.
g) Explaining any omission of important information: companies should always indicate the eventual omitted information
and explain its reasons for the omission.
197 The EU Taxonomy requires undertakings which are subject to the requirement to disclose non-financial information
under the Non-Financial Reporting Directive to include, either in their (consolidated) non-financial statement or in a
separate report, information on how and to what extent their activities are associated with environmentally sustainable
economic activities under the Taxonomy Regulation. The EU Taxonomy should be used to provide readers with any
contextual information needed to understand a company’s Taxonomy-related turnover and expenditures
129
.
198 TCFD includes 7 main principles that companies should follow to identify the content of the disclosure
130
:
a) Relevant information: the organisation should provide information specific to the potential impact of climate-related
risks and opportunities on its markets, businesses, corporate or investment strategy, financial statements, and future
cash flows.
b) Specific and complete: an organisation’s reporting should provide a thorough overview of its exposure to potential
climate-related impacts; the potential nature and size of such impacts; the organisation’s governance, strategy,
processes for managing climate-related risks, and performance with respect to managing climate-related risks and
opportunities.
128 UN Guiding Principles Reporting Framework (2015)
129 Regulation (EU) 2020/852
130 Final Report – Recommendations of the Task Force on Climate-related Financial Disclosures (2017), p. 67
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c) Clear, balanced, and understandable: disclosures should be written with the objective of communicating financial
information serving the needs of a range of financial sector users (e.g., investors, lenders, insurers, and others). This
requires reporting at a level beyond compliance with minimum requirements. The disclosures should be suciently
granular to inform sophisticated users but should also provide concise information to those who are less specialised.
Clear communication will allow users to identify key information eciently. Disclosures should show an appropriate
balance between qualitative and quantitative information and use text, numbers, and graphical presentations as
appropriate. Fair and balanced narrative explanations should provide insight into the meaning of quantitative
disclosures, including changes or developments they portray over time. Furthermore, balanced narrative explanations
require that risks as well as opportunities are portrayed in a manner that is free from bias.
d) Consistent over time: disclosures should be consistent over time to enable users to understand the development and/
or evolution of the impact of climate-related issues on the organisation’s business. Disclosures should be presented
using consistent formats, language, and metrics from period to period to allow for inter-period comparisons. Presenting
comparative information is preferred; however, in some situations it may be preferable to include a new disclosure
even if comparative information cannot be prepared or restated.
e) Comparable: disclosures among organisations within a sector, industry, or portfolio should be comparable. They
should allow for meaningful comparisons of strategy, business activities, risks, and performance across organisations
and within sectors and jurisdictions. The level of detail provided in disclosures should enable comparison and
benchmarking of risks across sectors and at the portfolio level, where appropriate.
f) Reliable, verifiable, and objective: disclosures should provide high-quality reliable information. They should be
accurate and neutral. Future-oriented disclosures will inherently involve the organisation’s judgment (which should
be adequately explained). To the possible extent, disclosures should be based on objective data and use best-in-
class measurement methodologies, which would include common industry practice as it evolves. Disclosures should
be defined, collected, recorded, and analysed in such a way that the information reported is verifiable to ensure it is
high quality. For future-oriented information, this means assumptions used can be traced back to their sources. This
does not imply a requirement for independent external assurance; however, disclosures should be subject to internal
governance processes that are the same or substantially similar to those used for financial reporting.
g) Provide on timely basis: information should be delivered to users or updated in a timely manner using appropriate
media on, at least, an annual basis within the mainstream financial report.
Additional Sources Analysed
199 Other frameworks analysed mention similar principles, such as EMAS where the indicators should be comprehensible,
representative, comparable in the sector, comparable over time; the German Sustainability Code that explicitly mentions
some general reporting requirement on how processes ensure reliability, comparability and consistency of the data used
for reporting; the ISO 14007 and 14008 that require companies to apply quality principles for determining environmental
costs and benefits following the principles of accuracy, completeness, consistency, credibility, relevance, transparency;
the Natural Capital Protocol integrates four principles for natural capital assessment: relevance, rigor, replicability,
consistency.
200 Accounting directive article 6: items presented in the annual and consolidated financial statements shall be recognised
and measured in accordance with the following general principles: Relevance and faithful representation are the
fundamental qualitative characteristics of useful financial information. Comparability, verifiability, timeliness and
understandability are qualitative characteristics that enhance the usefulness of information that is relevant and faithfully
represented
131
.
a) Relevant financial information is capable of making a dierence in the decisions made by users. Financial information
is capable of making a dierence in decisions if it has predictive value, confirmatory value, or both. Materiality is an
131 IASB Conceptual Framework for Financial Reporting 2018
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entity-specific aspect of relevance based on the nature or magnitude (or both) of the items to which the information
relates in the context of an individual entity’s financial report.
b) Faithful representation means representation of the substance of an economic phenomenon instead of representation
of its legal form only. A faithful representation seeks to maximise the underlying characteristics of completeness,
neutrality and freedom from error.
c) Comparability enables users to identify and understand similarities in, and dierences among, items.
d) Verifiability helps to assure users that information represents faithfully the economic phenomena it purports to
represent. Verifiability means that dierent knowledgeable and independent observers could reach consensus,
although not necessarily complete agreement, that a particular depiction is a faithful representation.
e) Timeliness means that information is available to decision-makers in time to be capable of influencing their decisions
f) Understandability: Classifying, characterising and presenting information clearly and concisely makes it
understandable. While some phenomena are inherently complex and cannot be made easy to understand, to exclude
such information would make financial reports incomplete and potentially misleading.
201 The Sustainable Development Goals Disclosure (SDGD) Recommendations define 7 principles for SDG Disclosures that
align closely with IR, GRI and TCFD, namely
132
:
a) Strategic focus and future orientation: SDG Disclosures should reflect the extent to which consideration of the SDGs
and the sustainable development issues that they address are integrated into the organisation’s processes. This
includes processes for considering risk and opportunity influencing strategy and the organisation’s business model
to create long-term value for the organisation and the society.
b) Stakeholder inclusiveness: SDG Disclosures should reflect the outcome of the reporting organisation’s process to
identify its key stakeholder groups, including communities it impacts, and should explain how it has responded to
their reasonable expectations and interests.
c) Conciseness: SDG Disclosures should be concise so that relevant information is not obscured, nevertheless SDG
Disclosures must satisfy the Principle of Completeness.
d) Connectivity of information: SDG Disclosures should demonstrate that consideration of sustainable development
issues and impact on the achievement on the SDGs is integrated into the organisation’s: business model, consideration
of risks and opportunities in the external environment, strategy to create value and avoid harm, risk management,
and other key organisational processes. SDG Disclosures should convey the interrelatedness of the SDGs and the
interdependencies between the sustainable development issues that aect the organisation’s ability to create long-
term value for organisations and the society.
e) Consistency and comparability: Changes that occur through the application of these Principles should be disclosed
so that the SDG Disclosures are comparable over time and across organisations.
f) Completeness, balance, understandability: SDG Disclosures should be complete, balanced and understandable. They
should report on the organisation’s impact on the achievement of the SDGs in a balanced way and without material
error. For SDG Disclosures to be complete and comply with the Fundamental Concept of Sustainable Development
context and relevance and the Fundamental Concept of Materiality, they may need to address issues and impact in
the organisation’s value chain but outside its boundary.
g) Reliability and verifiability: quantified SDG Disclosures should be reliable and verifiable.
h) Timeliness: SDG Disclosures should be provided on a timely basis such that users can make informed decisions.
132 IFAC, Sustainable Development Goals Disclosure (SDGD) Recommendations, 2020
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202 The table below represents the most frequent principles contained in the analysed frameworks and standards, organised
by way of more generic clusters in order to provide an overview of the dierent sets of principles.
Cluster of main principles GRI IIRC SASB
UNGP Reporting
Framework TCFD SDGs EU Guidelines
Natural
Capital Prot. IASB
Stakeholder Inclusiveness / Relationships / orientated Stakeholder Inclusiveness Stakeholder Inclusiveness Reflective of stakeholder Stakeholder inclusiveness Stakeholder orientated
Materiality / Relevance Materiality Materiality of interest to investors;
relevant across an industry
Addressing the most
severe impacts on
human rights
Relevant information Disclose material
information
Relevance Relevance
Completeness / Comprehensive / Balance Completeness
Balance
Completeness Explaining omission;
Balanced examples; min.
threshold of information
Complete, Balanced Completeness
Balance
Comprehensive Fair,
Balanced
Faithful
representation
Strategic focus and future orientation / forward
looking
Strategic focus and future
orientation
Demonstrating ongoing
improvement
Strategic focus and future
orientation
Strategic and forward-
looking
Timeliness / Provided on a timely basis Timeliness Provide on timely basis Timeliness Timeliness
Conciseness / Understandable / Clarity Clarity Conciseness Setting human rights
reporting in the business
context
Clear, understandable Conciseness;
Understandability
Understandable
Comprehensive but
concise
Understandability
Reliability /Accuracy / Verifiability Accuracy
Reliability
Reliability Focusing on respect for
human rights
Reliable, verifiable Reliability and verifiability Replicability Verifiability
Consistency / Comparability Comparability Consistency and
comparability
actionable by companies Consistent over time
Comparable
Consistency and
comparability
Consistent and coherent Consistency Comparability
Connectivity Connectivity of information Potential to aect corporate
value
Connectivity of information Consistent and coherent
203 From the analysis of the frameworks and standards the workstream identified the following clusters:
a) Stakeholder Inclusiveness / Stakeholder Relationships / Stakeholder orientated: identify and include relevant
stakeholders in preparing the non-financial disclosure, considering and responding to their interests and needs.
b) Materiality / Relevance: approach for inclusion and prioritisation of specific information in financial, non-financial or
sustainability reporting, considering the needs of and expectations from the stakeholders of an organisation.
c) Completeness / Comprehensive / Balanced: provide all (material) information, based on valid criteria and not influenced
by personal opinions, of dierent nature (both positive and negative) that ensure an adequate understanding by
stakeholders of the activities of the organisation.
d) Strategic focus and future orientation / Strategic and forward-looking: consider the organisation’s strategy and how it
relates to the organisation’s ability to create value in the short, medium and long-term.
e) Timeliness / Provided on a timely basis: report regularly and in a timely manner, thus allowing stakeholders to make
informed decisions in time.
f) Conciseness / Understandability / Clarity: information must be understandable and accessible by all relevant
stakeholders involved (regardless of their activity), presented clearly and not obscured by redundant information.
g) Reliability / Accuracy / Verifiability: information must be reported in a detailed, reliable and complete manner, with a
clear reference to methodology and processes used to prepare the report that allows the verifiability of the information.
h) Consistency / Comparability: information and metrics should be selected and presented in way that enables users to
analyse changes over time and compare them with similar information about other entities.
i) Connectivity: provide a comprehensive vision, in which the interconnections between the dierent areas and
documents are highlighted, in such a way that it is possible to understand the creation of value in the organisation.
5555
Cluster of main principles GRI IIRC SASB
UNGP Reporting
Framework TCFD SDGs EU Guidelines
Natural
Capital Prot. IASB
Stakeholder Inclusiveness / Relationships / orientated Stakeholder Inclusiveness Stakeholder Inclusiveness Reflective of stakeholder Stakeholder inclusiveness Stakeholder orientated
Materiality / Relevance Materiality Materiality of interest to investors;
relevant across an industry
Addressing the most
severe impacts on
human rights
Relevant information Disclose material
information
Relevance Relevance
Completeness / Comprehensive / Balance Completeness
Balance
Completeness Explaining omission;
Balanced examples; min.
threshold of information
Complete, Balanced Completeness
Balance
Comprehensive Fair,
Balanced
Faithful
representation
Strategic focus and future orientation / forward
looking
Strategic focus and future
orientation
Demonstrating ongoing
improvement
Strategic focus and future
orientation
Strategic and forward-
looking
Timeliness / Provided on a timely basis Timeliness Provide on timely basis Timeliness Timeliness
Conciseness / Understandable / Clarity Clarity Conciseness Setting human rights
reporting in the business
context
Clear, understandable Conciseness;
Understandability
Understandable
Comprehensive but
concise
Understandability
Reliability /Accuracy / Verifiability Accuracy
Reliability
Reliability Focusing on respect for
human rights
Reliable, verifiable Reliability and verifiability Replicability Verifiability
Consistency / Comparability Comparability Consistency and
comparability
actionable by companies Consistent over time
Comparable
Consistency and
comparability
Consistent and coherent Consistency Comparability
Connectivity Connectivity of information Potential to aect corporate
value
Connectivity of information Consistent and coherent
204 An eort to analyse the current literature as it relates to reporting principles can be found in the 2019 report ‘Ensuring
the relevance and reliability of non-financial corporate information: an ambition and a competitive advantage for a
sustainable Europe’
133
for the French Ministry of Finance. In this report six main quality principles were defined: faithful
representation; relevance; understandability; comparability; verifiability; and timeliness. Moreover, the report suggests
that, when considering the non-financial reporting it could also be important to consider two main principles that arise
from the analysed standard: Stakeholder engagement and Connectivity with financial information.
205 The report also provides definitions for the abovementioned quality principles, based in part on the analysis of definitions
from existing reporting frameworks
134
:
a) Faithful representation: Non-financial information conveys a faithful representation of the reality it depicts: a faithful
representation should be complete, neutral and free from error.
b) Comparability: Non-financial information is presented: on a basis that is consistent over time, on a way that enables
comparison with other organisations.
c) Relevance: Non-financial information is relevant when it has substantive influence on the assessments and decisions
made by all stakeholders under a double materiality approach.
d) Understandability: Non-financial information is presented in a clear and understandable manner for all stakeholders.
e) Verifiability: Non-financial information is verifiable, and auditable when required. All assumptions data, caveats, and
methods used are transparent, traceable and fully documented.
133 http://www.anc.gouv.fr/files/live/sites/anc/files/contributed/ANC/4.%20Qui%20sommes-nous/Communique_de_presse/Report-de-Cambourg_extra-
financial-informations_May2019_EN.pdf
134 Ensuring the relevance and reliability of non-financial corporate information: an ambition and a competitive advantage for a sustainable Europe, Patrick de
Cambourg, (2019), p. 194
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f) Timeliness: Non-financial information is reported on a regular schedule so that the information is available in time for
stakeholders to make informed decisions.
g) Connectivity: Non-financial information is prepared in a way which, when read in conjunction with financial information,
gives a comprehensive picture of the combination, interconnection and dependencies between the factors generating
the reporting entity’s overall performance and social contribution.
To what extent do certain principles reflect the dierent audience focus?
206 The dierent initiatives are often directed to audiences with dierent focuses, which appears to be an important driver
in defining the set of reporting principles:
a) The intended audience for GRI are all stakeholders, it provides both specific principles for preparing information and
guidance for narrative reporting. It enables all organisations – regardless of size, sector or location – to report about
their impacts on the economy, the environment, and/or society.
135
b) IIRC is principles-based, so its approach is to strike an appropriate balance between flexibility and prescription that
recognises the wide variation in the individual circumstances of dierent organisations while enabling a sucient
degree of comparability across organisations to meet relevant information needs. Here the intended audience
historically has been investors. However, in early 2020, the IIRC explored a shift – still under consultation – in
emphasis from “provider of financial capital” to “providers of other forms of capital”, enlarging the audience to a wider
range of stakeholders, in line with the fundamentals of integrated reporting and encouraging disclosure on the full
range of capital on which organisations rely or have an eect.
136
c) SASB Standards are developed for use in statutory financial filings for the benefit of investors and others who rely
on such filings. Their focus is on “...material factors likely to aect [a company’s] ability to create long-term value”
137
. It
enables companies around the world to identify, manage and communicate financially-material ESG and sustainability
information to their investors.
d) The reporting principles of TCFD, where the intended audience are the investors, are practically identical to those
of the GRI. It “would enable stakeholders to understand better the concentrations of carbon-related assets in the
financial sector and the financial system’s exposures to climate-related risks”.
138
e) IASB aims at providing high quality, transparent and comparable information for investors, provides world capital
markets with a common language for financial reporting, promotes capital market stability through transparent
financial reporting and promotes consistent application of standards.
139
Key considerations for a potential EU Sustainable Standard
207 Reporting Principles are one of the key elements of a non-financial reporting framework, in addition to objectives,
reporting standards and the governance of an EU NFR standard setter. There is a large spectrum of underlying concepts
guiding the preparation of non-financial information that may be implicit or explicit (i.e. presented in a published
conceptual framework). Because of this large spectrum, reporting practices dier significantly.
208 An examination of major NFR frameworks (GRI Standard, IIRC, SASB, TCFD, UNGP Reporting Framework) shows that all
frameworks have reporting principles. However, the terminology, clarity of definitions of these principles and the extent
to which they are operationalised varies greatly across initiatives.
135 GRI 101: Foundation (2016)
136 Consultation Draft International <IR> Framework (2020)
137 SASB Conceptual Framework (2017)
138 FSB, “Proposal for a Disclosure Task Force on Climate-Related Risks,” (2015)
139 https://www.ifrs.org/use-around-the-world/why-global-accounting-standards/
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209 Moreover, the NFRD itself does not define a clear set of reporting principles and, while the non-binding guidelines to the
NFRD define six “key principles”, these lack the precision and systematic nature that are required in order to eectively
guide standard setting and report preparers.
210 According to this workstream Reporting Principles can play a dual role:
a) They can be a guide for the standard setter in developing the standards themselves, including defining process,
content, quality, assurance and the presentation of Sustainability Information.
b) They can also be a reference point for preparers to guide them in defining the content of their report, as well as other
reporting decisions they need to make: during the reporting process preparers might face ongoing dilemmas and
decisions for which there is no detailed requirement or guidance by the standard setter. In such cases, the preparer
may refer to the Reporting Principles, as a general guide to resolve key questions.
LINK TO GLOBAL POLICY PRIORITIES
Definition and relevance
211 Global policy priorities, including the 2030 Agenda and the Paris Agreement, EU policy priorities such as the EU
Sustainable Finance Action Plan, and globally adopted standards, notably ILO Labour Standards, UN Guiding Principles
on Business and Human Rights and the OECD Guidelines for Multinational Enterprises, reflect commonly accepted goals
aiming at advancing sustainable development.
212 The EU has committed to the implementation of these and other global policy priorities, pledging to address adverse
impacts on society and advancing sustainable development.
213 Many existing standards and frameworks reference one or more of the global policy priorities. Businesses are considered
key in contributing to the achievement (or detriment) of the goals included in these priorities and often report on (some
of) them by applying the existing standards and frameworks.
214 Given the commitments of the EU and the importance of the role of businesses in reaching the goals included in the
policy priorities, it is key to provide sucient guidance and tools to businesses.
215 Key question in PTF’s analysis is how global priorities may be reflected in standard setting reporting requirements for
companies, also considering their dynamic nature.
Analysis
216 From the frameworks and standards reviewed, several initiatives include a specific reference to the SDGs in their
framework, standards or other main documents. However, there is only a limited number of initiatives that has explicitly
attempted to integrate the SDGs in their core framework or standard. At most, initiatives map the linkages between their
initiatives and key concepts, targets and indicators.
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140 https://www.globalreporting.org/public-policy-partnerships/sustainable-development/integrating-sdgs-into-sustainability-reporting/
141 https://www.unglobalcompact.org/library/5628
142 https://integratedreporting.org/resource/sdgs-integrated-thinking-and-the-integrated-report/
143 SASB Industry guide to the Sustainable Development Goals (June 2020)
144 Shift (with WBCSD), The Human Rights Opportunity (2018) https://shiftproject.org/wp-content/uploads/2018/08/TheHumanRightsOpportunity_Shift.pdf
145 Regulation (EU) 2020/852
146 Final report – Recommendations of the Task Force on Climate-related Financial Disclosures (June 2017)
Framework/
standard Link with SDGs
GRI GRI started to consider the SDGs in the development of its most recent Standards, such as GRI 207: Tax 2019,
GRI 303: Water and Euents 2018, GRI 306: Waste 2020 and GRI 403: Occupational Health and Safety 2018.
Previous GRI Standards are not specifically built on the SDGs.
GRI has developed both mapping documents and tools for integrating the SDGs into GRI reporting
140
:
1. GRI, UNGC and PwC have developed a handbook of indicators to make reporting on the SDGs more
straightforward and easier to execute (‘Business reporting on the SDGs: Analysis of the goals and targets’).
This Analysis is an inventory of possible disclosures per SDG, at the level of the 169 targets.
2. GRI, UNGC, Shift and PwC have developed ‘Business reporting on the SDGs: Integrating the SDGs into
Corporate Reporting: A Practical Guide’. This is a three-step guide to embed the SDGs in existing business and
reporting processes. It makes clear that when it comes to negative impacts connected to the business, they
should be prioritised based on their salience (i.e., their relative severity) and then connected to relevant SDGs,
whereas for beneficial products and services the company may start with specific SDGs and prioritise both
their actions and reporting based on where they feel they can contribute most.
141
3. GRI, UNGC and PRI have published the report ‘In focus: Addressing investor needs in business reporting on
the SDGs’ to guide preparers in addressing investor needs within their reporting.
4. GRI, UN Global Compact and WBCSD have developed the SDG Compass that provides guidance for
companies on how to align their strategies as well as measure and manage their contribution to the realisation
of the SDGs.
5. GRI has published ‘Mapping the SDGs against the GRI Standards’. This is a linkage document to show which
GRI Standards can be used to report on specific SDGs.
IIRC The IIRC published “The Sustainable Development Goals, integrated thinking and the integrated report”. The
report proposes a five-steps approach to align the content of the integrated report with SDGs, although not
providing specific indicators or metrics to disclose.
The report addresses how, through eorts to transform the six capitals to create value for themselves and for
others, organisations can make a material contribution to the SDGs, as well as clarify how they are mitigating or
alleviating any detrimental eects.
142
SASB SASB recently mapped SASB standards to the SDGs in its Whitepaper
143
but does not explicitly reference to
SDGs in its Conceptual Framework or Standards.
UN GP
Reporting
Framework
WBCSD and Shift have developed guidance and case studies about how respect for human rights can have
positive impacts that contributes to the SDGs
144
.
Taxonomy
Regulation
Regulation (EU) 2020/852 – the EU Taxonomy – mentions the SDGs as a core element of all Union actions and
policy initiatives. However, the Taxonomy nor the Technical Report explicitly attempt to align with the SDGs.
“The 2030 Agenda has at its core the Sustainable Development Goals (SDGs) and covers the three dimensions
of sustainability: economic, social and environmental. The Commission communication of 22 November 2016 on
the next steps for a sustainable European future links the SDGs to the Union policy framework to ensure that all
Union actions and policy initiatives, both within the Union and globally, take the SDGs on board at the outset.”
145
TCFD The TCFD does not mention the SDGs explicitly in its final report with recommendations on climate related
financial disclosures
146
.
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217 Other resources consulted provide guidance on how companies may report on the SDGs.
Source Link with SDGs
UNDP Recently, UNDP issued a first public consultation draft of its ‘SDG Impact Standards for Enterprises’
147
. These
Standards are impact management standards designed to promote sustainable development and advance
Enterprises’ contributions towards the SDGs.
WEF IBC
Measuring
Stakeholder
Capitalism Report
(2020)
The WEF-paper
148
identifies the SDGs as the roadmap for alignment of businesses to long-term goals of
society. The metrics recommended by WEF are organised in four pillars – Principles of Governance, Planet,
People, and Prosperity – which are aligned with the elements of the SDGs. The SDGs are mapped to the
four pillars. For instance, SDG 6, 7, 12, 13, 14 and 15 are mapped to pillar Planet.
German
Sustainability
Code
The German Sustainability Code mentions the SDGs as relevant context but does not include a systematic
alignment of code criteria to the SDGs. The Code requires that, as part of reporting on objectives,
organisations shall state how their sustainability goals are based on the SDGs.
SDGD
Recommendations
The SDGD-recommendations are specifically aimed at the communication of implications for and impact on
achievement of the SDGs.
The SDGD also maps the 17 SDGs to the IR-value creation process, relating each of the 6 IR-capitals to a
specified set of possibly relevant SDGs.
The SDGD-recommendations provide an additional layer to existing reporting on company level metric and
indicators. I.e. no indicators or metrics are proposed and it basically assumes reporting along the lines of IR,
GRI, and/or TCFD as a condition sine qua non.
218 Exceptions to the absence of integration between frameworks and SDGs include IIRC, GRI, and the UNGP Reporting
Framework, for which guidance is available on the alignment between their standards and the SDGs.
219 The guidance developed by WBCSD and Shift
149
on how to strategically align between the UNGPs and the SDGs focuses
on the connection between tackling risks to, or negative impacts on, people’s human rights, and positive outcomes for
people that align with SDG targets. It challenges assumptions that action and reporting that contribute to the human
dimensions of the SDGs will be found primarily in new products and services, and points out that the single greatest
contribution of most companies to this human dimension will come through tackling negative impacts and risks in their
operations and value chains. It illustrates this connection through case studies related to force labour, child labour, land-
related rights and women’s rights. The guidance is closely aligned with the guidance developed by the UN with GRI,
Shift and PWC on ‘Business Reporting on the SDGs.’
150
220 SASB’s Whitepaper considers the following benefits of linking the SASB standards to the SDGs:
“Definitely by understanding the important interconnections between SASB standards and the SDGs, investors can:
• Identify financially relevant SDG targets by industry.
• Inform engagements with companies regarding the links between specific SDGs and financial performance.
• Inform allocation of capital to industries based on their potential to impact specific SDG targets.”
“Meanwhile, companies can:
• Identify financially relevant SDG targets by industry.
• Prioritise activities to address the SDGs that are aligned with industry-specific drivers of value.
• Gather decision-useful performance information on company-specific activities related to key SDGs.”
151
147 SDG Impact Standards – Enterprises Impact management for Enterprises committed to contributing positively to sustainable development and the SDGs.
First public consultation draft (October 2020)
148 WEF, Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation White Paper (2020)
149 Shift (with WBCSD), The Human Rights Opportunity (2018) https://shiftproject.org/wp-content/uploads/2018/08/TheHumanRightsOpportunity_Shift.pdf
150 https://www.globalreporting.org/public-policy-partnerships/sustainable-development/integrating-sdgs-into-sustainability-reporting/
151 SASB Industry guide to the Sustainable Development Goals (June 2020) page 6 and 10
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221 The IIRC publication “The Sustainable Development Goals, integrated thinking and the integrated report” mentions that
integrating SDGs in the framework helps integrated thinking in contributing to the SDGs:
“Integrated Reporting cannot provide all the answers. Encouraging organisations to integrate sustainable development
considerations is challenging and requires a concerted eort led from the top (see Adams, 2014). It requires leaders to
“build support for the global goals as the right growth strategy” in their companies (BSDC, 2017, p15).
However, by aligning the SDGs to a conceptual reporting framework (the Framework) this document provides the
conceptual rigour required to support integrated thinking in contributing to the SDGs. It is hoped that integrated reporters
will respond to these challenges and that those organisations that are embracing the SDGs will be able to use the
Framework as a means of demonstrating how their value creation process contributes to sustainable development.”
152
222 The consultation on the NFRD also allowed respondents to provide their views on what standards potentially reflecting
global policy priorities should be incorporated in a potential European Sustainable Standard. The first five frameworks
or standards that were most mentioned by the respondents to the consultation were OECD, ILO Standards, ISO, UN GC
and SDGs
153
.
223 Most frameworks reviewed include specific references to one or more global priorities.
152 The Sustainable Development Goals, integrated thinking and the integrated report (2017) page 7
153 Summary Report of the Public Consultation on the Review of the Non-Financial Reporting Directive (2020)
The categories OECD, ILO Standards, and ISO consolidate responses mentioning dierent frameworks developed by these bodies, for example, the OECD
Guidelines on Multinational Enterprises, OECD guidelines on due diligence, ILO labour standards, ILO child labour guidance, or various ISO standards such
as 26000, 14001, and 14064.
154 Guidelines on non-financial reporting (methodology for reporting non-financial information)
155 GRI 412: Human Rights Assessment (2016), p.4
Framework/
standard Link with global policy priorities
NFRD While drafting the non-binding Guidelines to the NFRD, the European Commission reviewed several existing
frameworks. The principles and contents described in the Guidelines are built on existing frameworks and
initiatives, among which the ILO Labour Standards, UN Guiding Principles on Business and Human Rights and the
OECD Guidelines for Multinational Enterprises. Specifically:
“Companies are expected to disclose material information on social and employee matters. These include: the
implementation of fundamental conventions of the International Labour Organisation (…)”
“Companies should provide material disclosures on due diligence processes implemented, including, where
relevant and proportionate, on its suppliers and subcontracting chains. (…) For example, OECD Guidance
documents for several sectors, UN Guiding Principles on Business and Human Rights, the Tripartite Declaration
of Principles concerning Multinational Enterprises and Social Policy, or ISO 26000 provide useful guidance on
this.”
“Companies, where relevant and proportionate, are expected to disclose material information on supply chain
matters that have significant implications for their development, performance, position or impact. (…) Material
disclosures may reflect how a company approaches, among others, the OECD Guidelines for Multinational
Companies, the UN Guiding Principles on Business and Human Rights, and relevant industry-specific frameworks
such as the FAO-OECD Guidance for Responsible Agricultural Supply Chains.”
“Companies should consider making material disclosures on human rights due diligence, and on processes and
arrangements implemented to prevent human rights abuses. (…). For instance, in line with the Indigenous and
Tribal Peoples Convention, 1989 (No. 169) of the International Labour Organisation (ILO).”
154
GRI GRI does not mention the global priorities in its universal standard. However, GRI refers to standards as external
sources to guide reporting organisations in complying with its specific standards. For example:
“GRI 412 addresses the topic of human rights assessment. The international standard that establishes the
expectations of responsible conduct for organisations with respect to human rights is the United Nations (UN)
‘Guiding Principles on Business and Human Rights’, endorsed by the UN Human Rights Council in 2011.
(…)
Organisations are responsible for their impacts on the entire range of internationally recognised human rights.
These rights include, at a minimum, all rights set out in the International Bill of Rights and the principles set out in
the International Labour Organisation (ILO) ‘Declaration on Fundamental Principles and Rights at Work’.”
155
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Key considerations for a potential EU Sustainable Standard
224 Global policy priorities reflect commonly accepted goals aiming at advancing sustainable development and addressing
adverse impacts of society. Businesses are considered key in contributing to the achievement (or detriment) of these
goals. It will therefore be important to make a meaningful link between the global policy priorities, their objectives and
architecture and future EU non-financial guidance for corporate action and reporting.
225 Any reference to global policy priorities should consider the risk of so called “green washing” and “blue washing” (or „SDG
washing”). This refers to the risk of intentional or unintentional exploitation of global policy priorities for communication
purposes by reporting companies, without aligning the company’s strategy with the goals included in the global policy
priorities.
226 The assessment report shows that it is of critical importance that a true integration of the priorities in the strategy
of reporting organisations and their business model takes place and that this is also reflected in an organisation’s
sustainability reporting.
227 Moreover, where global policy priorities are, or are due to be, integrated into EU regulations, it will be particularly
important that reporting standards align with those regulations. Of particular note in this regard is the EU’s Sustainable
Governance Initiative and the specific proposal for the development of mandatory human rights and environmental due
diligence legislation, in line with the expectations set out in the UN Guiding Principles on Business and Human Rights
and the OECD Guidelines for Multinational Enterprises. It will be essential that the due diligence requirements set with
regard to companies’ impacts on the environment and people (including workers) are appropriately reflected in the
standards developed by the standard setter for companies’ sustainability reporting. This will help ensure that reporting
requirements support, rather than distract from, the eective management of these issues, and that there is no burden
on preparers to reconcile inconsistent or competing expectations between the two sets of requirements.
156 Guiding Principles on Business and Human Rights – Implementing the United Nations “Protect, Respect and Remedy” Framework (2011)
157 The UNGPs and OECD Guidelines are not minimum safeguards in the meaning of something every company will or can have done as a baseline before then
looking at things they are trying to achieve in line with the taxonomy. Respect for human rights is an aim that companies are continually trying to achieve and
that no company has ‘complied with,’ because meeting the UNGPs and OECD Guidelines are not a compliance exercise.
158 Final report – Recommendations of the Task Force on Climate-related Financial Disclosures (June 2017)
Framework/
standard Link with global policy priorities
IIRC The <IR> Framework does not mention the global priorities explicitly.
SASB SASB’s conceptual framework does not mention the global priorities explicitly, however it’s reporting standards
include references to, amongst others, ILO and OECD.
UN GP
Reporting
Framework
UNGP mentions in the commentary to foundational principle 12 the International Bill of Human Rights, which
consists of the Universal Declaration of Human Rights and the two Covenants on Civil and Political Rights, and on
Economic, Social and Cultural Rights, as well as the ILO Principles concerning fundamental rights that underpin
the eight ILO core conventions.
“The responsibility of business enterprises to respect human rights refers to internationally recognised human
rights – understood, at a minimum, as those expressed in the International Bill of Human Rights and the principles
concerning fundamental rights set out in the International Labour Organisation’s Declaration on Fundamental
Principles and Rights at Work.”
156
Taxonomy
Regulation
Regulation (EU) 2020/852 – the EU Taxonomy – requires that for economic activities to be Taxonomy-aligned,
the activities should comply with minimum safeguards. These minimum safeguards include the OECD Guidelines
for Multinational Enterprises and UN Guiding Principles on Business and Human Rights, including the ILO’s
declaration on Fundamental Rights and Principles at Work, the eight ILO core conventions and the International
Bill of Human Rights.
157
The EU Taxonomy Regulation is one of the steps in the EU Sustainable Finance Action Plan.
TCFD The final report of the TCFD does not mention the global priorities explicitly
158
.
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228 Data alignment is a key consideration for a future reporting standard. Also when a future standard will not be directly
build on or refer to global policy priorities such as the SDGs, the EU could consider aligning the data needed for reporting
on the contribution to the goals. This enables companies to prepare themselves to be ready to submit data about SDGs
that enables monitoring the state of art at country level or at industry level.
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SALIENT ASSESSMENT POINTS
229 There is a large spectrum of underlying concepts that guide the preparation of non-financial information. They may
be implicit or explicit (i.e. presented in a published conceptual framework). As a consequence of this large spectrum,
reporting practices may significantly dier, dierent user groups having dierent interpretations and focuses. Even if
certain orientations have already been taken in the EU, there is a need for further guidance and policies based on
explicit reporting principles and a standardised approach. The following conceptual points (inter alia) would benefit from
further clarification to establish a clear playing field that would provide a comprehensive and widely endorsed basis for
standard-setting.
Categorisation of topics and sub-topics
230 Non-financial information can address a significant variety of topics, from environmental to people matters (including
human rights), governance, or anti-corruption issues. Non-financial information does not have obvious borders and
may evolve as new issues emerge and become more relevant over time. The manner in which topics are defined and
organised is obviously relevant for how reporting entities structure and present information. Standards can also consider
prescribing certain categories of information (e.g., policies, risks, targets, metrics) per topic, noting that there may be
a dierent balance among various types of information for each topic. It is therefore critical to consider the dynamic
nature of issues, and how emerging topics can be incorporated as they become more relevant over time. In addition,
a clear and concise structure will also help to develop a data taxonomy for the necessary digitisation of sustainability
information.
Materiality
231 Materiality is to be understood as the approach for inclusion and prioritisation of specific information in corporate reports,
considering the needs and expectations of the stakeholders of an organisation and of the organisation itself. Three
main materiality perspectives are recognised amongst the existing frameworks and standards: financial materiality;
environmental and people materiality or “impact materiality”; and double materiality that covers both perspectives,
recognising they in part overlap.
232 The quality of non-financial reports relies in large part on the quality of the materiality assessment process that was used
to define the contents of the report. Some standards guide companies to conduct the materiality assessment, but none
provide clear criteria or (qualitative or quantitative) thresholds that report preparers or standard setters can use to define
report content.
233 Most non-financial reporting standards and frameworks oer definitions and concepts for materiality supported by
operational guidance. However, all together this has not led to suciently relevant information being disclosed from a
double materiality perspective. This is due in part to a number of challenges in the operational implementation of double
materiality, including an implicit financial materiality lens when assessing the materiality of issues related to people and
the environment, the lack of clarity on how reporting entities should include perspectives of aected and other relevant
stakeholders in their assessment of impacts and prioritisation (for action and reporting) and the insucient alignment
between what companies are expected to prioritise for reporting and what they are expected to prioritise for action.
Scope of reporting
234 Many users consider that non-financial information should include information related to the whole value chain of the
company, including supply chain operations (upstream) as well as products sold and services rendered down to their
end-of life (downstream), far beyond the boundaries applied to financial information, which covers only the reporting
entity’s own operations (scope of financial consolidation). It is generally considered important to include the whole
value chain when assessing how companies can create (and/or destroy) value through their activities, including through
business relationships and when acting together with other stakeholders. At the same time, when companies are
making inevitable prioritisation assessments (including for materiality determination) under such an expanded scope,
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there needs to be clear guidance on how they should make such prioritisation in line with widely agreed frameworks
and guidelines. These state that companies should do such prioritisation—both for taking action and reporting—based
on an analysis of “severity of impact.”
Time horizon
235 While financial information, as expressed by financial statements, is essentially retrospective, it is generally considered
important for sustainability reporting to put the emphasis on the forward-looking dimension of non-financial information
in addition to retrospective information on performance. Time horizons that are considered adequate to address the
sustainability challenges ahead may vary a lot. It is important that organisations define what short-term, medium-term
and long-term means in their business and for their organisation, and report on this to provide stakeholders with sucient
insight. Connecting forward-looking information with retrospective information is key for the company to provide insights
into its ability to be successful in the short-term, medium-term and long-term, given the current and future context. Key
consideration for a future non-financial reporting standard is to provide guidance and tools to reporting organisations to
create this interconnectivity.
Sector-agnostic, sector-specific and entity-specific approaches
236 Non-financial information may be approached from a generic standpoint (allowing inter-sector comparisons) or from
a sector-specific standpoint (putting the emphasis on a “best-in-class” comparison) or from a combination of both. In
addition, the EU Taxonomy has brought the perspective of economic activity or asset specific information (allowing a
more granular comparison of company performance). Standardised approaches may also leave flexibility to introduce
elements of entity-specific information. Such an approach could increase relevance but reduce comparability and could
take its point of departure in the business model, as built into the current NFRD. A standardised approach could also
include elements such as governance oversight, and related policies and procedures, and strategy on topics covered by
the NFRD and connections between those topics. Proper standard-setting implies clarification in this domain, balancing
comparability and flexibility in order to accommodate the constraints and capabilities of entities of all sizes and sectors.
Types and quality of information
237 For non-financial information, both qualitative and quantitative (both non-monetary and monetary) information are equally
important, including where qualitative information provides essential context for the interpretation of numerical data or
when numerical data illustrate or support qualitative information. The dierent types of non-financial information are not
always clearly defined. The obvious dierences with financial information (as reflected in Financial Statements), which is
monetary by construction, are also not always clearly taken into account. On the basis of a prima facie comparison with
financial information (which has reached a high level of maturity and recognition), there is a risk of focusing excessively
on non-financial information expressed in monetary and quantitative terms and of perceiving non-financial information
simply as an extension of financial information. There is therefore a need to better define the specificities of non-financial
information within the confines of an integrated approach.
Principles (characteristics) of quality of information and reporting
238 The current quality of non-financial information and non-financial reporting does not meet users’ extremely diverse
needs and has been found to be insucient when compared to the EU’s clearly stated objectives. The gap is generally
considered to be significant. As regards of quality expected from information included in sustainability, there is
a lack of precision on the characteristics of the information, both for standard-setting and preparation purposes. It
may be observed that while existing conceptual frameworks are converging on general attributes (relevance, faithful
representation, comparability, reliability…). There is also agreement on the need to further explore connectivity between
non-financial and financial information as a quality to be introduced in order to establish coherent and comprehensive
corporate reporting. As regards the principles of quality of non-financial reporting (organisation and presentation of data
points), there is also a lack of precision that creates diculties for reporting entities to prepare understandable non-
financial statements and for users to access meaningful information. Adopting principles of quality seems therefore to
be a prerequisite to achieving the necessary level of quality for proper non-financial information and reporting, aligned
with the adopted concepts and similar to the ones defined for financial information.
6565
Global policy priorities
239 The Paris Agreement and the 2030 Agenda represent objectives that are commonly tied to a broad set of salient
impacts and risks. Together with the ILO Conventions, OECD Guidelines for Multinational Enterprises and the UN
Guiding Principles on Business and Human rights, they represent global policy priorities that reflect commonly accepted
goals and business conduct standards aimed at advancing sustainable development and addressing adverse impacts
of business on society. Businesses are considered key in contributing to the achievement (or detriment) of these goals.
By making clear and meaningful links between these policy priorities and corporate reporting, companies can be better
guided to take appropriate action and can be held accountable for their contribution to policy goals and compliance with
global standards. The current NFRD non-binding guidelines have incorporated transparency around the implementation
of said standards and frameworks as part of material disclosure regarding human rights topics. Consistency with global
policy objectives and standards/frameworks can contribute to easier application and possible adoption of a future EU SI
standard in other jurisdictions.
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