1. ESG reporting standards
1.1 Current global trends in ESG reporting
Environmental, Social and Governance (ESG) reporting plays an important role for businesses. ESG reports help disclose sustainable development indicators and information effectively to stakeholders. Effective and transparent disclosure of sustainable development information is what investors always look for in businesses when considering them for their portfolios.
Benefits of ESG reporting:
- Helps organisations increase transparency and strengthen the trust of investors and stakeholders.
- Helps organisations strengthen the management of risks and opportunities related to environmental and social impacts.
- Helps organisations attract sustainable investors.
To establish a basis for researching and understanding ESG standards and implementation frameworks in line with international practice, and from there to evaluate and propose suitable ESG frameworks and standards for Vietnam, the authors researched and compiled a list of popular ESG implementation and reporting frameworks, as follows:
1.2 The most popular ESG reporting standards in the world are:
- GRI – The Global Reporting Initiative
- CDP – The Carbon Disclosure Project
- SASB – The Sustainable Accounting Standards Boars
- IR – The Integrated Reporting
- TCFD – The Task Force on Climate-related Financial Disclosures
Details:
- GRI – The Global Reporting Initiative
This is the most widely used set of ESG reporting standards in the world. The GRI Standards comprise: 3 Universal Standards applicable to all organisations and businesses; and 33 standards on specific topics, divided into three groups: Economic, Environmental and Social.
GRI provides a comprehensive sustainability reporting framework covering a wide range of topics, including governance, environmental impact, social responsibility and business performance.
According to statistics, nearly one third of the world's 250 largest companies and two thirds of the Nasdaq-100 companies use the GRI reporting standards.
- CDP – The Carbon Disclosure Project
The Carbon Disclosure Project (CDP) is the longest-established and most widely used environmental sustainability reporting framework in the world, focusing on sustainability in its environmental dimension and on businesses' impact on the environment
According to statistics, in 2021 more than 13,000 organisations from over 1,100 cities, states and regions – accounting for more than 64% of global financial market share – disclosed environmental sustainability data through CDP
- SASB – The Sustainable Accounting Standards Boars
The SASB reporting framework focuses on ESG aspects directly related to organisations' financial condition, and includes more than 77 component standards for different industries. SASB provides industry-specific standards, helping businesses assess and report industry-relevant ESG factors.
According to statistics, more than half of the companies in the S&P Global 1200 index apply the SASB reporting framework.
- IR – The Integrated Reporting
The Integrated Reporting (IR) framework is a standard framework used to help organisations assess and report factors related to sustainable development and businesses' impact on the environment.
The IR integrated reporting framework provides a holistic perspective covering 06 main capitals: financial, manufactured, human, social and relationship, intellectual, and natural/environmental. According to statistics, more than 2,500 organisations and companies worldwide use the IR integrated reporting framework.
- TCFD – The Task Force on Climate-related Financial Disclosures
The Task Force on Climate-related Financial Disclosures (TCFD) standard is a framework used to assess and report factors related to sustainable development and businesses' impact on the environment.
It is a reporting framework focused on the financial aspects related to climate change. TCFD sets out 04 core recommended areas to be presented in a report, namely:
- Governance: describe the structure and role of the executive board in managing risk (oversight, assessment, management…).
- Strategy: disclose climate risks and their impact on the organisation's business plan; where the impact is adverse, describe the organisation's resilience.
- Risk management: explain how the business identifies, assesses and manages climate change risks.
- Metrics and targets: share which types of metrics/targets are used to monitor and identify risks 1.
According to statistics, more than 3,000 organisations from over 120 countries, with a combined market capitalisation of USD 27.2 trillion, report under the TCFD framework.
2. Analysis of the strengths, weaknesses and applications of ESG reporting standards
To establish a basis for assessing which framework is suitable for implementation in Vietnam, particularly in the Finance – Banking sector, the authors compiled and classified the above frameworks and standards by aspect, including their objectives and their target users for development, implementation and use – as set out below:
| No. | Framework/Standard | Reporting objectives and content | Benefits and strengths | Report users |
| 1. | GRI – The Global Reporting Initiative | The Global Reporting Initiative (GRI) standards are designed to help organisations assess and report factors related to sustainable development and businesses' impact on the community, as well as corporate social responsibility.In particular, GRI focuses deeply on transparency and materiality, especially in relation to social issues | Provides a foundation for developing sustainability-related strategies and activities. Supports target setting, performance measurement and change management. | InvestorsCustomersOther interested parties |
| 2. | SASB – The Sustainable Accounting Standards Boars | Content: integrated reporting, including financial and accounting information; Objective: assess and report the company's financial and non-financial factors related to sustainability | Supports accurate and transparent assessment and reporting of industry-relevant ESG factorsProvides information on key financial indicators Standardises accounting language, making it easy for investors to read, understand and compare financial positions | InvestorsState regulatory authorities |
| 3. | CDP – The Carbon Disclosure Project | Carbon emissionsWater use and Forests | Measures and mitigates environmental impacts.Identifies cost savings.Identifies risks and opportunities, including opportunities to implement carbon emission reduction solutionsDemonstrates transparency in environmental protection. | Investors;The company or organisation itself;Companies and organisations in the organisation's supply chains |
| 4. | IR – The Integrated Reporting | Reported topics include the following groups:EnvironmentalSocialGovernanceFinancial | Provides an integrated approach to reporting financial and non-financial information.Helps organisations assess and report factors related to sustainable development and businesses' impact on the environment.Creates a more comprehensive report on the company's financial and non-financial factorsHelps organisations make better decisions on investment and sustainable development | InvestorsCustomersOther interested parties |
| 5. | TCFD – The Task Force on Climate-related Financial Disclosures | Financial aspects related to climate change; focuses on effectively mitigating harm to the global climate. | Helps organisations clarify the E – environmental aspects of the ESG trio.Provides a basis for assessing and quantifying environmental aspects, including greenhouse gas emissions | InvestorsLending institutions and individualsInsurance companies. |
3. The practical application of ESG reporting standards around the world
Information on the implementation of reporting frameworks in countries around the world:
– According to KPMG (2022), GRI and TCFD are the standards used in sustainability reporting.
– GRI remains the most widely used standard around the world;
– Some countries give priority to the reporting standards issued by their national securities regulator (Stock Exchange Guide);
– Global adoption of TCFD nearly doubled in two years, reaching 61% of the G250, with reporting increasingly focused on climate-related risks.
TCFD is gradually becoming a mandatory ESG framework for businesses and has now been enshrined in law in the United States, the United Kingdom and Australia.
- International practice in ESG reporting in the Finance and Banking sector
- Reporting under the GRI framework
Specifically for the finance and banking sector, GRI plans to develop Sector Standards for Banking, Capital Markets and Insurance, and expects to release an exposure draft of the standard for the Banking sector in Q4/2024
- Reporting under the TCFD framework
TCFD recommends that its standards and reporting framework be applied by organisations in the financial sector, including banks, insurance companies and asset managers.
TCFD has developed four widely adoptable recommendations on climate-related financial disclosures applicable to organisations across different sectors and jurisdictions. The framework is designed to help companies identify and disclose information useful to investors, lenders and insurers in understanding the potential impact of climate change on their business operations.
In particular, in Australia, it is the preferred ESG framework for scoring and rating organisations on the stock market. Organisations with high scores benefit from improved credit ratings and bond performance on the stock market.
- Proposal for implementing ESG reporting standards in Vietnam's banking sector
Based on the findings on the 02 most widely used ESG reporting frameworks in the world, GRI and TCFD, the results of comparing these two reporting standards – with the aim of identifying a reporting framework suitable for the finance and banking sector – are as follows:
| Comparison of the GRI and TCFD reporting standards as applied to Banks in preparing ESG reports | |||
| GRI Standards | TCFD Standard | ||
| Strengths | • Comprehensive coverage of all ESG aspects (environmental, social and governance) •Well-established and widely recognised framework • Flexible approach allowing customisation for specific sectors • Financial sector supplement specifically addressing banking concerns (2024) | • Strong focus on climate-related financial risks and opportunities • Highly aligned with current sustainability concerns • Provides clear guidance on disclosure recommendations • Easy to integrate with existing financial reporting | |
| Weaknesses | • Requires additional detailed climate-related reporting content • Less focus on climate-related risks and opportunities | • Limited scope, addressing only the environmental aspects of ESG • Generally less comprehensive than GRI | |
Conclusions on the choice of reporting standard
- If the top concern is comprehensive ESG reporting, GRI is the better choice.
- If climate risks and opportunities are the priority, TCFD will be more effective.
- When preparing an ESG report, consider what the organisation's stakeholders (e.g. investors, regulators, NGOs, customers) value most.
- GRI is widely recognised around the world
- TCFD addresses stakeholders' growing climate-related concerns and interests.
- Preparing the report:
- If the organisation is not yet familiar with ESG reporting, GRI provides a structured and comprehensive framework for ESG issues
- If the organisation already has climate risk reporting or previous sustainability reports, TCFD may be more suitable, as it can be implemented on the basis and foundation of existing reports.
- Organisations can use a hybrid approach between the two standards above to combine the strengths of both frameworks: use TCFD for climate-related disclosures and supplement it with relevant GRI indicators from the financial sector supplement (expected to be published in 2024) and sector-specific standards.
Based on the analyses and assessments of the above reporting frameworks, it is proposed to pilot the TCFD reporting framework, for the following reasons:
- TCFD recommends that its standards and reporting framework be applied by organisations in the financial sector, including banks, insurance companies and asset managers.
- TCFD is gradually becoming a mandatory ESG framework for businesses and has now been enshrined in law in the United States, the United Kingdom and Australia.
- Beyond the banking sector, TCFD can be used to score organisations on the stock market. Organisations with high scores benefit from improved credit ratings and bond performance on the stock market.
- TCFD clarifies the financial aspects related to climate change, focusing on effectively mitigating harm to the global climate.
- The TCFD reporting standard may be a suitable choice for banks in preparing ESG reports because it focuses on various environmental factors and climate change-related issues, especially as Vietnam is paying great attention to climate change and to the roadmap for delivering its Net Zero 2050 commitment.
D. CONCLUSION
It can be seen that, given the close interconnections involved in applying ESG criteria in Vietnam, the banking sector in particular, in the new period (from now until 2030), greatly needs close and specific direction and regulations from the Government and the State Bank of Vietnam down to the banks, including joint stock commercial banks, and their relevant customers.
Such positive actions will help the banking sector overcome its challenges and make ESG goals a central objective of its development strategy in the new period. With deliberate strategies and coordinated efforts, banks can overcome obstacles to fully integrate ESG factors as a core priority across all business areas.
REFERENCES:
1. Law on Environmental Protection dated 17 November 2020.
2. Decree No. 08/2022/ND-CP dated 10 January 2022 of the Government detailing
a number of articles of the Law on Environmental Protection.
3. Circular No. 17/2022/TT-NHNN dated 23 December 2022 of the Governor of the SBV providing guidance
on environmental risk management in the credit-granting activities of credit institutions and foreign bank branches.
4. Decision No. 1658/QD-TTg dated 1 October 2021 of the Prime Minister approving
the National Green Growth Strategy for the 2021 – 2030 period, with a vision to 2050.
5. Decision No. 882/QD-TTg dated 22 July 2022 of the Prime Minister approving
the National Action Plan on Green Growth for the 2021 -2030 period.
6. Decision No. 1731/QD-NHNN dated 31 August 2018 of the Governor of the SBV promulgating
the Banking Sector's Action Plan to implement the 2030 Agenda for Sustainable Development; Decision No. 1604/QD-NHNN dated 7 August 2018 of the Governor of the SBV approving the Scheme for green banking development in Vietnam; Decision No. 1408/QD-NHNN dated 26 July 2023 of the Governor of the SBV promulgating the Banking Sector's Action Plan to implement the National Green Growth Strategy for the 2021 – 2030 period and the Scheme on tasks and solutions to implement the outcomes of the 26th Conference of the Parties to the United Nations Framework Convention on Climate Change.
7. Green credit workshop materials, "Vietnam cannot be slow on Net Zero", organised by
Lao Động Newspaper.
8. A phased approach to achieving ESG goals (EY)
10. New World Bank Group report proposes a pathway for Vietnam …. (https://www.worldbank.org)
11. Implementation guide: Environmental, Social and Governance Integration (https://vietnam.panda.org)
12. Sustainable development strategy of the banking sector (https://sti.vista.gov.vn)
13. Can Vietnamese banks seize the opportunity of green bonds?. (Mckinsey)
14. Report on ESG Readiness in Vietnam 2022. (PwC)
15. ESG Resource Center | Thomson Reuters.
16. 2022 ESG Report: A year of impact | McKinsey.
17. ESG Report Examples to Get You Started With Your Own – Perillon.
18. ESG, strategy, and the long view (KPMG).
By ESG Expert Phạm Quốc Hưng
