In private markets, various frameworks, standards, and regulations offer principles and guidance to help stakeholders understand ESG risk and value creation.
With ESG constantly evolving, frameworks, standards, and regulations help standardize reporting and disclosure. Standardization helps improve understanding of the material impacts of business on sustainability factors, enable peer-to-peer comparison of ESG data, and allows for replicability across industries and sectors.
ESG Frameworks are broad and provide a contextual “frame” for disclosure topics in ESG reporting. Frameworks focus on the bigger picture, such as information structure and what broad topics are covered.
ESG Standards are detailed and replicable requirements for reporting. The specificity of standards promote consistency of information and allow organizations to compare ESG data over time.
ESG Regulations are legal, mandatory reporting requirements set by a governing body or regulatory authority. These regulations vary by geography and are set by lawmakers, for example the European Commission in the EU, the Financial Conduct Authority in the UK, and the Securities and Exchange Commission in the US.
There are many frameworks that support ESG reporting. TCFD, SDGs, and CDP are some of the most widely accepted frameworks.
Task Force on Climate-Related Financial Disclosure (TCFD) was established to develop a framework of disclosure recommendations for climate-related financial information. This promotes more informed investment, credit, and insurance underwriting decisions and facilitates the understanding of concentrations of carbon-related assets in the financial sector and financial systems that may be exposed to climate-related risks.
United Nations Sustainable Development Goals (SDGs) is a collection of 17 global sustainable development goals aimed to combat the world’s most pressing environmental, social, and economic challenges. The SDGs provide a shared blueprint for peace and prosperity that cover social and environmental topics, and are a call for a global partnership across these thematic areas. They serve as a broad framework for impact reporting.
Carbon Disclosure Project (CDP) is an international nonprofit organization that runs a global disclosure system to support investors, companies, cities, states, and regions measure their environmental impacts. CDP collects and standardizes environmental data through a voluntary basis to better inform corporate and city progress towards climate change, forests, and water security goals through an independent scoring methodology.
Invest Europe is the association representing Europe’s private equity, venture capital and infrastructure sectors, as well as their investors. Invest Europe is the guardian of the industry’s professional standards, shaping the principles of ethical behavior and trust that govern the relationships between private equity managers, their investors and portfolio companies.
The Responsible AI Assessment for Venture Capital framework in partnership with the Markkula Center for Applied Ethics is designed to help investors and startups navigate the ethical complexities of AI. Tailored to companies of different funding stages—from seed to Series B+—it guides users through crucial considerations like data privacy, algorithmic bias, regulatory compliance, and accountability. The questions push organizations to assess how AI is deployed, who it affects, and what safeguards are in place to ensure fairness and transparency.
The ESG_VC measurement framework supports early-stage companies in understanding how they perform against key ESG objectives. The framework consists of metrics spanning all three ESG themes and trending ESG topics such as responsible procurement, cybersecurity, and data governance. Designed in partnership with VCs and startups, the framework acts as an industry-informed resource, helping early-stage growth companies begin and advance their ESG journey.
Voluntary standards can help a company improve reporting of its sustainability impacts by providing guidance around language and presentation for stakeholders. SASB Standards and GRI are examples of common ESG standards.
International Financial Reporting Standards (IFRS) General Sustainability-related Disclosures are a set of standards for companies to disclose their exposure to and management of sustainability-related risks and opportunities. In 2023, the International Sustainability Standards Board (ISSB), which oversees the development of IFRS, published its first two disclosures which cover general requirements for disclosure of sustainability-related financial information (IFRS S1) and climate-related disclosures (IFRS S2).
Sustainability Accounting Standards Board (SASB) Standards identify the environmental, social, and governance issues most relevant and may potentially impact the financial performance and overall enterprise value of an organization. These standards are voluntary and industry-specific, which allow for more flexibility to determine what ESG topics are financially material for an organization’s unique positionality.
GRI Sustainability Reporting Standards is an international independent standards organization that supports organizations to identify and report on their impacts on the economy, environment and people. GRI Standards is one of the most commonly used reporting standards globally and offer Universal Standards as well as topic-specific standards.
ESG regulations are constantly evolving and seek to increase transparency in sustainability claims. The SFDR and CSRD are two notable disclosure regulations.
The Corporate Sustainability Reporting Directive (CSRD) is a European regulation which requires large companies above a threshold to disclose risks and opportunities related to ESG practices, and is planned to take effect in 2024. Topics companies are required to report on to include carbon, water, pollution, biodiversity, and other ESG topics. Companies are required to disclose through annual reports with financial information.
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