New and seasoned sustainability professionals alike can find themselves overwhelmed in the world of reporting and certifying. Understanding ESG certifications is the first step to figuring out which options to recommend.
With more than 400 specific certifications, standards, and frameworks out there, it can get confusing so if you have trouble understanding ESG certifications, you’re not alone. The first step to navigating this rapidly evolving world of ESG reporting is to understand the difference between these three components of ESG strategy and disclosure.
While often lumped together, standards, certifications, and frameworks all mean different things. Standards are checklists that often make up a certification. In order to obtain a certification, you must meet certain performance criteria determined by the governing body. Frameworks don’t require certification and are often used as a guiding resource for reporting or strategy development.
Standards provide benchmarking opportunities for companies to compare Key Performance Indicators (KPIs) within their industry. Companies may choose to go the extra step and certify these standards, or they may model an ESG strategy around a standard, but choose not to seek certification. Both approaches are of value, but certification provides protection against accusations of greenwashing due to third-party verification.
ESG standards and certifications can be classified into two categories: company-wide and attribute-specific.
Certifying that a company is operating responsibly and aligned with standards on an organizational level.
This is a holistic certification taking into account social and environmental impacts with emphasis on ethical governance and transparency. The certification requires a rigorous verification process of documentation, public statements, and submitted data. B Corporations include small businesses to multinational corporations across all sectors.
A good option for companies looking for organizational credibility, and seeking well-rounded environmental, social and governance programs. Primarily used by B2C companies, but more B2B are certifying to this standard. Not to be confused with benefit corporations (B-Corp) as a legal structure which is available in around 30 states.
This is a global standardization body which takes different standardizing metrics from around the world, compiles them from expert opinion, and produces an international standard across industries which can be certified under ISO. Focuses on the management and systems side of ESG.
A good option for companies wanting to focus on a particular segment of ESG such as ISO 14000 Environmental Management Systems and ISO 21001 Social Impact.
Certifying that a specific component of ESG is aligned with the standard.
This certification focuses on environmentally friendly infrastructure, buildings, and design, and assigns the level of certification based on performance. Some factors being taken into account include water usage, energy efficiency, building materials, indoor air quality, and site development impacts.
A good option for companies looking to reduce energy consumption and improve indoor air quality for employee well-being.
Fair Trade is focused on the inception of a supply chain. This certification protects farmers, fishers, and producers by providing fair wages, transparency and accountability in supply chains, and traceability of products. Recently, this certification was extended to include apparel and consumer goods manufacturing facilities, instead of its original focus on food production.
A good option for verifying farmer and producer welfare within food/beverage and apparel industries.
Carbon neutral certifications measure Scope 1-3 emissions, strategically plans for and takes action to reduce emissions across the value chain. Carbon neutrality can be achieved at the product or organization level depending on the certifying body.
A good option for companies and corporations looking to reduce and offset GHG emissions along their value chain.
There are several certifying bodies, but it all boils down to the simple principle of diverting at least 90% of a company’s waste from the landfill. Actions taken to attain this certification include things such as developing recycling services, changing employee behavior, working with vendors to reduce waste during shipping, and taking away the option for single-use plastics within the workplace.
A good option for companies looking for tangible, visible ways to reduce waste from their operations or to level up current recycling and diversion programs..
Frameworks are used to guide public disclosures of ESG data for consumers, investors, and stakeholders. Reporting frameworks that offer third-party certification verify that the information and data contained within the report is accurate and true. There are several different frameworks that vary across industry, location, and purpose.
This was created by financial institutions to be aligned with the Financial Accounting Standards Board (FASB). It provides quantitative and qualitative data related to ESG risks for financial disclosures. There are templates for 70+ industries to produce standardized and industry-specific SASB reports.
This is a reporting framework that is grounded in a materiality assessment to determine which economic, social, and environmental topics are most important to a business. There are 3 universal frameworks: foundations, general disclosures providing contextual information about the organization, and management approach for each material topic. There are 33 topic areas that are segmented into the categories of economic, environmental, and social impacts.
This is a European framework which is in close alignment with SEC recommendations. There is a strong focus on governance and policy, risks to financial markets, and emerging technology. The goal of TCFD is to make climate change risks a normal part of strategic planning and risk management.
This is a disclosure dataset focused on sustainable economic development. It specifically hones in on climate change, water security, and deforestation measurements. CDP targets companies and city-level governments looking for reporting solutions for investors, reputation, community health, and resiliency.
This standardized framework provides global investors with a complete ESG portfolio of climate-related risks and opportunities for better investment strategies. This framework is still in the planning and development stages (as of October 2022).
This is an investor-focused ESG reporting framework for climate-related disclosures. Public companies will likely be required to disclose more transparent ESG data with comparable statistics and valuable investment information. This framework is still being developed and will push public companies to transform their reporting methods and ESG strategy for investment incentives (as of October 2022).
Evaluate capacity and budget to undertake. Some certifications can be cost-prohibitive for smaller businesses, but support transparency and validation for larger corporations. The UN Sustainable Development Goals (SDGs) or GRI Foundations are good places to start if you are just engaging with ESG strategy or analyzing materiality within an industry.
Determining financial risk and opportunity within a rapidly evolving world is becoming extremely pertinent to investment portfolios of all sizes. Clients wishing to benchmark against other companies within their industry for investor attention might consider SASB or TCFD frameworks, keeping eyes on any SEC updates to their ESG disclosure system.
What are direct and indirect competitors or industry leaders using? What feedback are you seeing from public disclosure systems? Consider looking at adjacent industry sectors, or sustainability indices which rank industry leaders in specific ESG disclosure topics.
Are there certifications or frameworks that offer more credibility to your stakeholders? For example, the B Corporation certification communicates holistic sustainability values to consumers and has an accessible platform for consumers to discover certified businesses. If your client is an emerging consumer goods producer, this could be advantageous for both product and organization-level credibility and reputation.
Which framework is useful for developing an ESG strategy? It might be exciting to jump into ESG reporting, but can be overwhelming and a drain on resources. Look at founding principles of sustainability reporting, like the UN SDGs, and start your ESG materiality assessments there. Consider checking off applicable standards, then re-evaluating ESG strategy and certification type.
Does a particular framework or standard allow for streamlining? For example, reporting on emissions to CDP can make emission reporting to TCFD easier. I can also allow participation within climate commitment groups like the UN Global Compact, and rankings on public sustainability indices for standardized reports like GRI.
Does it serve as a proactive measure against forthcoming regulations? Anticipate consumer, investor, and stakeholder demands by looking at competition, risks for your industry, and feedback. Getting started with ESG strategy and reporting sooner will put your client ahead of the competition, and in a better position to push ESG boundaries within their industry and grow their market share.
We are seeing an overwhelming amount of demand from investors and consumers for ESG information across all industries. Some challenges include the confusion around reporting frameworks and relevant certifications, as well as presenting the data in an accessible way. Standardization efforts, like that of GRI reporting and the upcoming SEC and ISSB financial reporting standards, will help make ESG disclosures comparable, as well as sustainability indices like EcoVadis and the Dow Jones Sustainability Indices (DJSI) which compare and rank companies based on their reporting data.
Whether or not your client is ready for certifications and formal reports, it is important to get them started on analyzing ESG strategy, looking at industry standards, and taking action.
If you are just getting started in ESG consulting, visit our digital course to quickly build your credibility, knowledge, and confidence. You can also reserve your spot in our ESG Consulting Accelerator, a group coaching program that builds off of the course and supports your sustainability consulting journey with individualized feedback and a supportive learning community.