ESG STANDARDS — THE MISSING COMMON DENOMINATOR
Environmental, Social, Governance (ESG), and related sustainability themes are crucial for companies, investors, and regulators. However, myriad reporting standards, protocols, and guidance, with each one focusing on a particular stakeholder, pose challenges to consistency in reporting and comparability of published information.
ESG ECOSYSTEM MAP
Source: ESG Ecosystem Map weforum.org
To address this issue, regulators across the globe have increased their focus on promoting consistent and mandatory reporting on ESG performance.
The lack of cross-references between regulator frameworks and popular voluntary protocols leaves the original consistency and alignment challenges unaddressed.
This problem is more pronounced in emerging markets.
BRSR AND GRI FRAMEWORKS ALIGNMENT
Sustangibles has conducted an extensive study to assess this alignment gap in the Indian context. Our study “Mapped” 140 disclosures (329 unique questions) in the Indian Business Responsibility and Sustainability (BRSR) framework with the disclosure questions in the Global Reporting Initiative (GRI) and developed a “Composite Alignment Score.”
Initially, we created a mapping schema by taking each 329 unique questions in the BRSR framework and finding a “Match” with a disclosure question on the GRI framework. We have sifted through over 1,000 GRI disclosures across 45+ sustainability categories. Then each of the 329 questions in BRSR is assigned a score of 1, 2, or 3 based on the BRSR question’s “Level of Match” with the question in the GRI framework. The scoring 1 indicates “No/Low Match,” 2 indicates “Conceptual Match,” and 3 shows an “Exact Match.”
The results show that across the 329 questions, 31% have an “Exact Match,” 52% have a “Conceptual Match,” and the rest 17% have a “No/Low match.”
NUMBER AND % OF QUESTIONS BASED ON LEVEL OF MATCH
Source: Source: BRSR, GRI, and Sustangibles
A weighted average of these questions scores based on weights (1,2&3) assigned to the parameter “Match” translates into a 71% alignment score.
We have further examined the level of alignment across each of the nine principles (P1-P9) mentioned under the National Voluntary Guidelines on Social, Environmental, and Economic Responsibilities of Business (NVGs). Even there, the results show a consistent alignment across the nine categories.
PRINCIPLE-WISE BRSR-GRI (1- DIMENSIONAL) ALIGNMENT SCORECARD
Source: BRSR, GRI, and Sustangibles N = Number of questions
INTRODUCING THE “IMPORTANCE” DIMENSION IN ALIGNMENT
A closer look at the alignment scores of both questionnaires indicates that not all Match indicators can create equally valuable or material insight for decision-making. For example, “Company Contact Details” on BRSR may have an “Exact Match” with the GRI questionnaire but will not provide any “material” insight for decision-making. On the other hand, “Carbon Emissions Intensity” measured as a ratio of “tons of CO2 per unit of Revenue” or “tons of CO2 per unit of Production” may have a “Partial Match” based on the denominator metric selected in each framework. Despite only a “conceptual match,” this question will generate an “important” insight for decision-making.
Therefore, we created an additional “Importance” dimension along with the existing “Match” dimension and assigned a score of 1, 2, or 3 based on the “importance” of this metric to the business. Based on this, we have reclassified the 329 sub-questions into a 3x3 matrix with columns depicting the “Importance of Disclosure” of the disclosure and rows showing “Level of Match.”
IMPORTANCE AND MATCH (I-M) MATRIX
Source: BRSR, GRI, and Sustangibles
Thus, each question on BRSR is assigned a score (1–2–3) based on the “Level of Match” and another score (1–2–3) based on the “Importance of the Disclosure.”
This two-dimensional (Importance & Match) approach has enabled us to understand not only the level of alignment but also the level of alignment on important disclosures.
When the “importance” dimension is included, the alignment score drops from 71% to 65%. However, the highly important questions (D=3), which constitute more than two-thirds of the questionnaire, still show a strong 67% alignment.
BRSR-GRI IMPORTANCE-MATCH (2- DIMENSIONAL) SCORECARD
Source: BRSR, GRI, and Sustangibles N = Number of questions
Even at a principle level, there is a good alignment consistently across the nine parameters. The parameters for which a sizable number of questions exist on topics such as environment, employee wellbeing, and human rights show a good alignment score of 66%, 70%, and 69%, respectively.
PRINCIPLE-WISE BRSR-GRI IMPORTANCE-MATCH (2-DIMENSIONAL) SCORECARD
Source: BRSR, GRI, and Sustangibles, N = Number of questions
FINAL TAKE
Though several ESG framework mapping exercises have been conducted earlier, our study is unique because we mapped BRSR and GRI “questionnaires” at a granular level and generated a composite score. Further, we have used a two-dimensional approach (importance and Match) to assess the level of alignment in general and on a few parameters that are more important than others for decision making.
Our study shows that sustainability reporting is as much an art as a science as it weaves across several disciplines, multiple frameworks, and diverse data points. To add to this, fast-changing regulations and increasing stakeholder demands are creating a reporting fatigue for corporations. Large corporations have the resources to build such extensive reporting machinery; however, it creates a reporting challenge for mid-size companies.
Next year in India, 1,000 companies will have to report on the BRSR framework mandatorily, with over 500+ companies reporting sustainability metrics for the first time. Therefore, we have built a comprehensive mapping schema between BRSR and GRI. This schema is being further expanded to include Sustainable Development Goals (SDGs) and other emerging protocols such as International Sustainability Standards Board (ISSB).
Sustangibles alignment schema can enable Indian companies to not only meet the minimum compliance threshold but also appeal to a global audience.
This schema will also enable global investors who aren’t well versed with Indian sustainability reporting regulations to translate the regional reporting onto the global GRI scale, thus making this schema extremely valuable to companies, investors, and other stakeholders.
If you need any additional insights or to discuss methodology details, you may reach out to ravi.nori@sustangibles.com
Sustangibles is a specialized ESG research, advisory, and consulting company. Our mission is to help our customers understand material and complex sustainability issues across companies, sectors, and industries. Our research focuses on identifying critical ESG themes important to our client’s decisions. We then combine our domain expertise, technology know-how, and analytics experience to uncover tangible insights.
Disclaimer: This document is for informational purposes only and in no way shall be interpreted or construed to create any warranties of any kind, either express or implied, regarding the information. No part of the document may be reproduced without written permission from Sustangibles Private Limited. ©2022 Sustangibles Private Limited - ALL RIGHTS RESERVED
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