Sustainability Standards: Top Standards for Investors / Investment Funds
There has been an increased push among investors, investment funds and firms, and asset management companies in recent years to incorporate environmental, social, and governance (ESG) issues in their businesses. However, there are several overlapping sustainability standards that lead to a lack of consensus among investors and investment funds as to which one is the best among the lot. The top-5 most widely used sustainability standards (frameworks) that most investors and investment funds around the world follow are GRI, SASB, DJSI, CDP, and TCFD. A brief description of each standard and the methodology used to determine their relative ranking are described below.
Global Reporting Initiative (GRI)
- The GRI was founded in 1997. The company's headquarter is in Amsterdam, Netherlands. GRI has offices in the United States, Colombia, Brazil, China, India, and South Africa. GRI's reports are used by investors / investment firms in more than 100 countries.
- The GRI standard is the "most widely used sustainability reporting standard" and 93% of the largest 250 businesses in the world use the GRI Sustainability Reporting Standards.
- The GRI standards are the first global standards for sustainability reporting. They represent the global best practices for reporting on economic, environmental and social impacts.
Sustainability Accounting Standards Board (SASB)
- SASB was founded in 2011. The company's headquarter is in San Francisco. The SASB standards are popular among investors due to their focus on materiality.
- The SASB standards contain 77 industry-specific standards. SASB provides investors with an Engagement Guide for engaging with companies.
- Top investment firms like BlackRock, Capital Group, Fidelity Investments, among others use the SASB standards.
Dow Jones Sustainability Indices (DJSI)
- First launched in 1999, the DJSI are a set of best-in-class benchmarks created specifically for investors that place special emphasis on sustainability and recognize the value of sustainable business practices for generating long-term shareholder value.
- The DJSI are used by investors and investment funds in 61 countries. The DJSI focus on global, regional, and country benchmarks in their sustainability reports.
Carbon Disclosure Project (CDP)
- CDP was founded in 2000. Their headquarter is in London. Currently, they have regional office in 50 countries. The CDP sustainability standards are used by businesses in over 90 countries. More than 8,400 companies spread across 800+ cities worldwide implement the CDP guidelines.
- The CDP guidelines mainly focus on the issues of deforestation, climate change, and water security. As of 2019, CDP’s disclosure request has been signed by 525 investors with a combined asset value of $96 trillion.
Task Force on Climate-related Financial Disclosures (TCFD)
- The TCFD is a branch of the Financial Stability Board (FSB) and it was established in December 2015 to establish a set of voluntary and consistent disclosure recommendations to be used by companies to provide information to lenders, insurance underwriters, and investors about their climate-related financial risks.
- The TCFD is currently supported by 785 organizations that comprise the world’s largest banks, pension funds, and asset managers and pension funds. These organizations have a combined asset value of $118 trillion.
We began our research by trying to find readily available lists that rank the most widely used sustainability standards used by investors, investment funds and firms, and asset management firms. We searched for articles from reputed sources like Harvard Business Review, McKinsey, PwC, Greenbiz, CFA Institute, Ernst & Young, UN PRI, NBS, and several others. However, we could not find any such ready lists in the public domain. This is because the issue of sustainability has only been taken seriously by the investors, investment funds and firms, and asset management companies in recent years. Hence, there is not a lot of information available as to the standards that most investors and investment funds/firms prefer to use. Then, we tried to identify the list of top investors, investment firms and funds, and asset managers around the world. We surmised that since these top players represent a major portion of the investment industry by market share and revenue, their opinion would represent the opinion of the majority. We went through the websites of these individual players and established that the majority of them use these five sustainability standards: GRI, SASB, DJSI, CDP, and TCFD. Other than GRI which is clearly the leader among sustainability standards, the rest of the top-5 could not be ranked explicitly due to insufficient publicly available data. Hence, we have refrained from ranking these standards. Apart from these top-5, a few other standards came close but could not be included in the top-5 due to their low popularity among players in the investment industry and shortage of data in the public domain. These are the standards set by the Climate Disclosure Standards Board (CDSB), International Integrated Reporting Council (IIRC), the Organization for Economic Co-operation and Development (OECD), UN Global Compact (Communication on Progress), and International Organization for Standardization (ISO 26000 Guidance on social responsibility).