Sustainability Standard or Framework?
The following article is an excerpt of the TCFD Maturity Assessment which you can read here.
Framework or Standard.
Today it is not uncommon for business leaders to refer to Sustainability Frameworks and Standards interchangeably. People can often use the same words and refer to different things, so even though sustainability reporting is an evolving landscape, it would make sense to stabilise the terminology before we revert to the TCFD assessment.
The TCFD is not a reporting standard, rather it is a framework of structured recommendations to help businesses get a forward-looking lens into their climate risk exposures. Becoming aligned to the TCFD recommendations can be achieved through the adoption of certain standards. In other words, if organisations are to deliver against the four pillars of the TCFD, the TCFD suggest using a reporting standard.
Reporting standards: The more established and prominent standards are the ISSB (consolidating SASB and the IIRC) the GRI, CDP, CDSB and the ISO, each with their own purpose, scope, reporting channels and audience appeal - These organisations are referred to as Standard Setters. For example, if your organisation is using the CDP’s disclosure platform, you are likely to appeal to investors with a bias towards water utilisation, forest information and of course climate risks. Given that the issue of sustainability has impacts that are wider than just climate-change, it becomes necessary for an organisation to adopt a comprehensive standard, not only manage their climate-related risks & opportunities but also manage their social relationships/impacts; especially given that societies have an unbreakable relationship with climate. For such comprehensive coverage, the GRI may be adopted for as they offer a wider scope to help your organisation, they appeal to all audiences and stakeholders whilst capturing the essence of sustainability in its Environmental, Social & Governance (ESG) related context. In summary, the TCFD recognise the standard setters as a necessary mechanism to align with the TCFD guidance.
Even though these incumbent standards continue to evolve, they are comprehensive enough to cover most sectors and help organisations align with the TCFD recommendations. It should also be noted that national level supervisory or legislative authority will supersede and even direct an organisations choice of which standards are to be adopted. Therefore, given the global authority that these standard setters have already attained, they have become a necessary component to enable national regulators and government ministries. Take for example the UK’s supervisory guidance for Asset Managers where we see the FCA’s Sustainability Disclosure Requirements (SDR) have directed adoption of the ISSB’s reporting standards as the core component to baseline corporate disclosures.
The challenge with TCFD is the fact that its adoption/alignment is a journey and without a TCFD specific maturity assessment, that journey cannot be measured with precision. The static nature of questionnaires offered by standard setters are not adequate to meet the complex demands of organisational processes. The TCFD is reliant on these incumbent reporting standards to achieve its outcomes but those standards do not incorporate (scaleable) objective measures. For example, an organisations execution of a process (or initiative) can evolve through various phases of maturity where, at its lowest level; an organisation runs chaotic processes/initiatives. At this lowest level of maturity, the business has pockets of awareness (about these processes/initiatives) but they are not defined across the enterprise hence they cannot be managed and certainly cannot be optimised. Given the low latency and dynamic nature of data lineage (and thus the dynamic nature of materiality), your organisation absolutely must be measuring against these incremental levels of TCFD alignment.
It is also important to mention that the philosophical underpinnings of the TCFD framework are different from the GRI, ISSB, CDP and so on. Not least because the TCFD guidance is hinged to climate-related risks, has G20 coordination and therefore lends itself to be enshrined in domestic legislation. So, this is precisely why the TCFD is best placed as an organisational anchor into sustainable development.
How did it get confusing? Well, I have my own idea on this. These standards are designed, created and governed by core principles and concepts; or in other words, these very standards are built through their own native frameworks. This why we see these two terms used interchangeably but with different intentions. All standards are built from a framework but not all frameworks are standards. Furthermore, business leaders may lack the trust that a framework questionnaire would objectively measure those very dynamic and complex processes that only they really understand. Thirdly, the materiality debate is being pulled about and given framework selection is driven by the materiality assessment, it has been seen to create some confusion (albeit not the biggest reason).
Coordinating the frameworks & standards: Across these frameworks and standards, there has been Statement of Intent to Work Together Towards Comprehensive Corporate Reporting and the mappings into the TCFD recommendations can be found in this document on Page 19 & 20.
A concluding analogy: think about the TCFD as your organisations map, the Standard Setters as the roads/pathway and Sustainability as the destination.
To understand why there is an urgent need for organisations to start building their TCFD Alignment capabilities, please switch to the the TCFD article.