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ESG: Sustainable Frameworks for Use in OKRs
ESG, SDG, CSR… making OKR sense of the acronym-maze
ESG, SDG, CSR… making OKR sense of the acronym-maze
Executive Summary
The good news is that there is no shortage of existing frameworks to use when integrating sustainability into your performance management framework (OKRs). These frameworks are all capable of serving their intended purposes, but the dilemma comes from the fact that the common ones, such as ESG and the Sustainable Development Goals, have other purposes than monitoring and managing our activities.
This is the first of four blog posts that will help you through the identification of the best ESG (sustainability) OKRs for your organization. We will, in sequence:
1. Explore the available ESG frameworks in use of OKRs (this blog post)
2. Provide guidance towards identifying sustainability Objectives for your organization
3. Provide guidance towards identifying sustainability Key Results for your organization
4. Provide ideas on how to manage your organization while using sustainability-related OKRs
About the Existing Sustainability Frameworks
After helping Global clients implement sustainability programs over the last 10 years, we have noticed that most ESG/sustainability frameworks are designed to meet the needs of one of three stakeholder communities:
Investments: The frameworks are meant to help investors evaluate the sustainability related performance of their potential investments. These frameworks focus on activities that are visible and measurable, not the full scope of sustainability issues.
Government: Frameworks, such as the Sustainable Development Goals of the United Nations (SDGs), are meant to guide national and regional governments to help them provide sustainability-related services and support to their constituents.
Management: Frameworks are designed for operational organizations, and they translate sustainability into activities and outcomes that organizations can influence or impact. These are the frameworks ideally suited for OKRs.
It's important to remember that each of these frameworks was designed to meet the needs of its specific target audience, but they're not great at addressing those needs of other groups or applications. For example, the Investor sustainability frameworks cannot be effectively used by governments. Likewise, the frameworks designed for governments cannot be used by management, etc.
A quick survey of the top 14 ESG/Sustainability frameworks
It turns out that 80% of reporting organizations use one of the following frameworks (listed alphabetically
As an independent non-profit organization, Climate Disclosure Standards Board (CDSB) facilitates the integration OF climate change information into corporate reporting. The CDSB provides structure and guidance for data collection and reporting. Focuses on water, forests, and climate change.
Climate Disclosure Standa Board has merged dation. This meets modern accounting regulations and CPA expectations. http://cdsb.net
INVESTMENT APPLICATIONS
The largest repository of company-wide greenhouse gas (GHG) emissions used as a source of information for many sustainability reports
As part of this, CDP will improve the discipline that is used to collect and manage data about GHG emissions, and increase transparency about corporate GHG emissions, water use, etc. As part of CDP, companies present their data in a comprs. It also feeds into portals such as the Bloomberg ESG Indices
GOVERNMENT APPLICATIONS
The Dow Jones Sustainability Indices (DJSI) are designed for investors who believe that sustainable business practices are critical to generating long-term shareholder value through their sustainability convictions in their investment portfolios.
This family was launched in 1999 as the first global sustainability benchmark, and it tracks the stock performance of the world's leading companies in terms of economic, environmental and social criteria.
In addition to serving as benchmarks for investors who include sustainability considerations in their portfolios, the indices provide a useful framework to improve their corporate sustainability practices.
https://www.spglobal.com/spdji/en/indices/esg/dow-jones-sustainability-world-index/#overview
INVESTMENT APPLICATIONS
Systems science tells us how our economy must be We must transform if we are to meet the needs of everyone and nature.
By translating that science into principles, goals, indicators, and guides, FFBB helps any business play its part in getting us there.
By consolidating best-practices established by the FFBB science, along with the principles established by many of the other frameworks listed here, and translates them into what businesses can do and how to measure their impact. www.Futurefitbusiness.org
MANAGEMENT APPLICATIONS
GRESB provides investors and managers with validated ESG performance information and peer benchmarks to enhance business intelligence, industry engagement, and decision making.
The GRESB is used by real estate funds, REITs, property companies, real estate developers, infrastructure fund managers, and asset operators among others, to provide investors and managers with information and insights. https://gresb.com/nl-en/
INVESTMENT APPLICATIONS
According to the Global Reporting Initiative, the Global Reporting Initiative is the most widely 73% of the world’s largest 250 companies use GRI
According to the reasons for reporting, businesses can better communicate their impacts on the economy, environment, and society, as well as their influence. Disclosure topics are comprehensive and reflect stakeholder engagement and materiality assessments.
INVESTMENT APPLICATIONS
Standards are set by the International Organization for Standards (ISO) across hundreds of sectors in all issues relating to ESG.
Consistency with many existing corporate certifications. https://www.iso.org/developing-sustainably.html
MANAGEMENT APPLICATIONS
The International Sustainability Board (ISSB) is committed to providing a globally recognized set of sustainability capital market participants, to be released in Q1 2022
Aimed at financial markets and publicly accountable companies.
https://www.iasplus.com/en/resources/ifrsf/issb
INVESTMENT APPLICATIONS
A set of standards for businesses to identify, manage, and communicate financial material sustainability information to their investors
Report on financially significant issues for significant issues for While SASB is perhaps more relevant to the United States, it is still very relevant to other regions. SASB is more granular in scope to other frameworks and is increasingly popular due to industry-specific modularity.
https://www.sasb.org/standards/download/
INVESTMENT APPLICATIONS
The Science Based Targets Initiative (SBTi) mobilizes companies to set science-based targets and enhance their competitive advantage as they make the transition. It's a collaboration between CDP, WRI, WWF, and the UN Global Compact.
Having a target that is based on the latest science is the best way for companies to reassure that their goals are aligned w says is needed to prevent the worst impacts of climate change.
INVESTMENT APPLICATIONS
Targeting the year 2030, the United Nations Sustainable Development Goals (SDGs) are supposed to be a business strategy framework made up of 17 goals that address issues like poverty, inequality, climate change, economic prosperity, anti-corruption
It is true that the UN SDGs do not serve as a reporting framework, however they do provide companies with guidance on how to align their strategic plans design their strategic plans in response to global challenges.
GOVERNMENT APPLICATIONS
Climate-related Financial Disclosures are recommendations intended to promote more informed investment, credit, and insurance underwriting decisions. Therefore, stakeholders are able to better understand the concentration of carbon-related assets in the financial sector and the vulnerability of the financial system to climate-related risks
Disclosure of climate-related financial risks relevant to all industries and becoming increasingly common for climate-related disclosures that coincide with national decarbonization goals like those in China, South Kore
INVESTMENT APPLICATIONS
Sustainalytics uses an Econometrics strategy to identify an organization's exposure to industry-specific ESG-related risks and produces a rating.
This publication is intended for corporate investors. primarily for institutional investors. It includes an overview of 20 material ESG risks
INVESTMENT APPLICATIONS
WEF is working to improve the way companies measure and demonstrate their contribution to a more prosperous and fulfilling society and a more sustainable relationship with customers our planet.
The metrics are intentionally based on existing standards, with the goals of accelerating convergence among the leading private standard-setters in the short-term and achieving their long-term goals in the medium-term greater comparability and consistency to the reporting of ESG disclosures.
https://www.weforum.org/stakeholdercapitalism
INVESTMENT APPLICATIONS
So to plot these on our previous Venn diagram, we see:
You can see that intentionally based on existing standards, with the goals of accelerating convergence among the leading private standard-setters in the short-term and achieving their long-term goals in the medium-termed towards governments.
There is a deliberate application of existing standards for these metrics with the near-term objective of accelerating convergence among the leading private standard-setters and creating a little bit of transparency at the same time.
Where these frameworks fall short for OKRs
In an August 2020 study of US equity funds, it was found that while "growth has been largely driven by investment interests in sustainable investment rather than performance," unfortunately, "ESG funds are not necessarily more ESG-aware than conventional funds." Hargreaves Lansdown was criticized for touting that tobacco and mining are the third and fourth most highly rated companies in the FTSE 100 (based on Refinitiv data). Former BlackRock Chief Investment Officer Tariq Fancy summarized ESG by saying: "In truth, sustainable investing is little more than marketing hype, PR spin, and disingenuous promises from the investment community.".
Of the 169 UN-SDG targets, only 60% are influenceable by non-governmental organizations and 20% can be directly impacted by non-governmental organizations. lthough goals for society, they are fairly meaningless as organizational targets or measures.
How to choose which framework your organization should follow?
In our next blog post, we'll explain how to choose the right Objectives for your organization based on criteria and methodology.
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