Elevating Environmental, Social, and Governance Reporting in Emerging Markets Aligning IFC Disclosure Requirements Handbook with Other International Standards January 2025 About IFC IFC – a member of the World Bank Group – is the largest global development institution focused on the private sector in emerging markets. We work in more than 100 countries, using our capital, expertise, and influence to create markets and opportunities in developing countries. In fiscal year 2024, IFC committed a record $56 billion to private companies and financial institutions in developing countries, leveraging private sector solutions and mobilizing private capital to create a world free of poverty on a livable planet. For more information, visit www.ifc.org. About this Work © 2025 International Finance Corporation. All rights reserved. 2121 Pennsylvania Avenue, NW Washington, DC 20433 USA Internet: www.ifc.org The material in this work is copyrighted. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to IFC’s Corporate Relations Department, 2121 Pennsylvania Avenue, NW, Washington, DC 20433, USA. International Finance Corporation is an international organization established by Articles of Agreement among its member countries and a member of the World Bank Group. All names, logos, and trademarks are the property of IFC, and you may not use any of such materials for any purpose without the express written consent of IFC. Additionally, “International Finance Corporation” and “IFC” are registered trademarks of IFC and are protected under international law. ACKNOWLEDGMENTS This report was produced by IFC’s Beyond the Balance Sheet program on sustainability and climate reporting and IFC’s Integrated ESG Advisory Program in Europe and Central Asia. This undertaking was led by Ralitza Germanova, Corporate Governance Officer and Lead on IFC’s Beyond the Balance Sheet program, and Vladimir Hrle, Senior Consultant on IFC’s Integrated ESG Advisory Program and Team Lead for Serbia; and was overseen by Charles Canfield, IFC Corporate Governance Manager, and Caroline Bright, IFC’s Regional ESG Advisory Lead for Europe, Central Asia, Middle-East and Pakistan. The research was funded by the State Secretariat for Economic Affairs (SECO), Switzerland. Special recognition goes to Mott MacDonald for conducting the study and providing valuable research contributions and subject matter expertise: Karen Dinucci, Mott MacDonald Technical Director; Tom Critchley, Mott MacDonald Climate Change Consultant; Lou Rudolph, Mott MacDonald Consultant; and Ellen Dennison, Mott MacDonald Senior Stakeholder and Public Liaison Coordinator. We are grateful to all survey interview participants: > Patrick de Cambourg, Chair, Sustainability Reporting Board, European Financial Reporting Advisory Group (EFRAG) > Saskia Slomp, CEO, European Financial Reporting Advisory Group (EFRAG) > Pedro Faria, Environmental Leader, European Financial Reporting Advisory Group (EFRAG) > Samuel Prestidge, International Financial Reporting Standards Foundation (IFRS) > Laura Espinach Tort, Global Reporting Initiative (GRI) > Anthony Miller, UN Trade and Development (UNCTAD) > Tiffany Grabski, UN Trade and Development (UNCTAD) > Pietro Bertazzi, Carbon Disclosure Project (CDP) > Guilherme Cassaro, Carbon Disclosure Project (CDP) > Irina Ivanova, Kyrgyz Stock Exchange (KSE) > Madina Kassymbayeva, Kazakhstan Stock Exchange (KASE) > Alessandra Melis, Taskforce on Nature‑related Financial Disclosures (TNFD) > Vesselina Haralampieva, European Bank for Reconstruction and Development (EBRD) > Hoang Thi Thuy Duong, State Securities Commission of Vietnam > Ana Raquel Paiva Martins, Brazilian Development Bank (BNDES) > Chowdhury Liakat Ali, Bangladesh Bank > Lebogang Senne, Pan-African Federation of Accountants (PAFA) (currently IFRS Foundation) > Adina Relicovschi, European Investment Bank (EIB) > Rasha Dayyat, Amman Stock Exchange (ASE) > Edwin Ongera, Capital Market Authority Kenya Elevating Environmental, Social, and Governance Reporting in Emerging Markets i The preparation of this report would not have been possible without the contributions and peer reviews of the following parties, whose insights were indispensable to the findings of the research: IFC/World Bank: Martine Valcin, Merima Zupcevic, Rong Zhang, Patrick Kabuya, Madina Zhanuzakova, Jana Mudronova, Giorgio Miguel Saavedra, Paolo Lombardo, Justin Pooley, Mikko Venermo. Mott MacDonald: Adrian Bliss, Alicia Sabin, Helen Meekings, Fiona Quinlan-Wells, Pete Giddings, Zoe Duvall. We also thank our editor, Tim Spence, and our designer, Christopher Mattox. Elevating Environmental, Social, and Governance Reporting in Emerging Markets ii TABLE OF CONTENTS Acknowledgments............................................................................................................................................................................................................... i Acronyms................................................................................................................................................................................................................................. vii Executive Summary.......................................................................................................................................................................................................viii 1. Introduction.................................................................................................................................................................................................................... 1 1.1 IFC D&T Framework: benchmarking context and purpose............................................................................ 4 1.2 Regulatory and mandatory requirements and best practice standards, tools and guidance........................................................................................................................................................................................ 7 1.3 Methodology ...................................................................................................................................................................................... 7 1.3.1 Standards for analysis..................................................................................................................................................... 7 1.3.2 Analysis approach............................................................................................................................................................... 8 1.3.3 Stakeholder engagement.............................................................................................................................................9 1.3.4 Presentation of results....................................................................................................................................................9 1.3.5 Prioritization of the standards ............................................................................................................................. 10 2. Strategic alignment review: purpose and approach of different standards.........................................11 2.1 Introduction........................................................................................................................................................................................11 2.2 Results of the benchmarking analysis: strategic alignment review.................................................... 12 2.3 Key findings....................................................................................................................................................................................... 16 3. General sustainability reporting requirements.................................................................................................................. 20 3.1 Introduction..................................................................................................................................................................................... 20 3.2 Results of the benchmarking analysis: high-level content review....................................................... 22 3.2.1 ISSB/IFRS S1 comparison with IFC D&T Framework............................................................................ 22 3.2.2 ESRS 1 & 2 alignment and comparison with IFC D&T Framework............................................ 24 3.2.3 GRI alignment and comparison with IFC D&T Framework...........................................................26 3.2.4 Stakeholder views...........................................................................................................................................................28 Elevating Environmental, Social, and Governance Reporting in Emerging Markets iii 4. Topic-related sustainability disclosure requirements................................................................................................... 31 4.1 Introduction....................................................................................................................................................................................... 31 4.2 Results of the benchmarking analysis: detailed content review........................................................... 33 4.2.1 ISSB/IFRS S2 alignment and comparison with IFC ESG Standards and IFC Climate Governance.......................................................................................................................................................... 33 4.2.2 ESRS alignment and comparison with IFC ESG Standards and IFC Climate Governance............................................................................................................................................. 33 4.2.3 GRI alignment and comparison with IFC Performance Standards on Environmental and Social Sustainability and IFC Climate Governance..................................... 36 5. Overall findings ...................................................................................................................................................................................................... 38 5.1 Key Outputs........................................................................................................................................................................................ 40 6. Support, tools, and further collaboration................................................................................................................................. 42 Appendices............................................................................................................................................................................................................................ 47 A. Detailed General Requirements components alignment with IFC D&T Framework......................................... 47 B. Detailed “Climate” comparison between ISSB, ESRS, GRI and IFC D&T Framework............................................59 C. Detailed “Environmental” comparison between ISSB, ESRS, GRI and IFC Performance Standards on Environmental and Social Sustainability................................................................... 61 C.1 ISSB/IFRS S1 alignment and comparison with IFC Performance Standards on Environmental and Social Sustainability...................................................................................................................62 C.2 ESRS topic standards alignment and comparison with IFC ESG Standards................................ 63 C.3 GRI alignment and comparison with IFC Performance Standards on Environmental and Social Sustainability...................................................................................................................65 D. Detailed “Social” comparison between ESRS, GRI and IFC Performance Standards on Environmental and Social Sustainability........................................................................................................................................ 66 D.1 ESRS alignment and comparison with IFC Performance Standards on Environmental and Social Sustainability................................................................................................................... 67 D.2 GRI alignment and comparison with IFC Performance Standards on Environmental and Social Sustainability ................................................................................................................... 71 E. Detailed “Governance” comparison between ESRS, GRI, and IFC ESG Standards................................................. 73 E.1 ESRS alignment and comparison with IFC ESG Standards......................................................................... 73 E.2 GRI alignment and comparison with IFC ESG Standards............................................................................. 75 Elevating Environmental, Social, and Governance Reporting in Emerging Markets iv LIST OF FIGURES Figure 1.1. Bringing together corporate and financial market disclosures.......................................................................................... 2 Figure 1.2. The IFC Disclosure and Transparency Framework..................................................................................................................... 5 Figure 1.3. Summary of the analysis approach...................................................................................................................................................... 8 Figure 2.1. Responses to the Question: Please rate how aligned you think the IFC D&T Framework is with the following reporting standards from your personal perspective......................................................... 19 Figure 3.1. IFC D&T corporate value creation pillars......................................................................................................................................... 21 Figure 3.2. Responses to the Question: Which of the four pillars do you think currently provides the best reporting guidance in the IFC D&T Framework?............................................................................................ 28 Figure 3.3. Responses to the Question: Please rank the following standard/framework setters on how useful they are to emerging market users for sustainability reporting guidance....................................... 29 Figure 3.4. Responses to the Question: Please rank the following pillars on how useful they are to emerging market users for sustainability reporting...................................................................................................... 29 Figure 6.1. Responses to the Question: Please rate the following formats to facilitate wider communication of the report research outputs............................................................................................................... 45 Figure 6.2. Responses to the Question: Please rate the following formats to facilitate wider communication of the report research outputs............................................................................................................... 45 LIST OF TABLES Table 2.1. Summary of strategic purpose and approach of different international ESG frameworks and standards........................................................................................................................................................................................... 12 Table 2.2. Level of alignment of strategic purpose and approach of different international ESG frameworks and standards in comparison to the IFC D&T Framework.............................................................. 15 Table 3.1. IFRS S1 level of alignment comparison with IFC D&T Framework................................................................................... 22 Table 3.2. ESRS 1 and 2 level of alignment comparison with IFC D&T Framework...................................................................... 24 Table 3.3. GRI disclosure requirements level of alignment comparison with IFC D&T Framework................................. 26 Table 4.1. ISSB/IFRS S2 - IFC ESG Standards and Climate Governance alignment and comparison summary...........32 Table 4.2. ESRS ESG Topics - IFC ESG........................................................................................................................................................................ 34 Table 4.3. GRI - IFC Performance Standards on Environmental and Social Sustainability and IFC Climate Governance alignment and comparison summary............................................................................. 36 Table A.1. Mapping IFRS S1, ESRS 2 and GRI based on the structure of the IFC D&T Framework...................................... 48 Table B.1. ISSB/ESRS/GRI alignment and comparison with IFC D&T Framework....................................................................... 60 Elevating Environmental, Social, and Governance Reporting in Emerging Markets v Table C.1. ISSB/IFRS S1 - IFC Performance Standards on Environmental and Social Sustainability components alignment and comparison.............................................................................................................................. 62 Table C.2. ESRS Environmental Topic Standards - IFC Performance Standards components alignment and comparison............................................................................................................................................................ 63 Table C.3. GRI Environmental Standards - IFC Performance Standards on Environmental and Social Sustainability component alignment and comparison................................................................................ 65 Table D.1. ESRS Social Topic Standards - IFC Performance Standards on Environmental and Social Sustainability components alignment and comparison.............................................................................. 67 Table D.2. GRI Social Standards - IFC Performance Standards on Environmental and Social Sustainability components alignment and comparison............................................................................... 71 Table E.1. ESRS Governance Topic Standard - IFC ESG Standards components alignment and comparison............ 74 Table E.2. GRI Governance Standards - IFC ESG Standards component alignment and comparison.............................75 Elevating Environmental, Social, and Governance Reporting in Emerging Markets vi ACRONYMS CDSB Climate Disclosure Standards Board CSRD Corporate Sustainability Reporting Directive D&T Disclosure & Transparency DNSH Do No Significant Harm EPA Equator Principles Association EFRAG European Financial Reporting Advisory Group EHS Environment, Health and Safety ESG Environmental, Social, and Governance ESRS European Sustainability Reporting Standards EU European Union GRI Global Reporting Initiative GSSB Global Sustainability Standards Board IFC International Finance Corporation IFRS International Financial Reporting Standards IIRC International Integrated Reporting Council ISSB International Sustainability Standards Board NFRD Non-Financial Reporting Directive PS Performance Standards RAG Red, Amber, Green SASB Sustainability Accounting Standards Board SFDR Sustainable Finance Disclosure Regulation SMEs Small and Medium-sized Enterprises TCFD Task Force on Climate-Related Financial Disclosures ToR Terms of Reference UN United Nations US SEC US Securities and Exchange Commission Climate-Related Disclosures WBG World Bank Group Elevating Environmental, Social, and Governance Reporting in Emerging Markets vii EXECUTIVE SUMMARY As the level of interoperability between sustainability disclosure standards and frameworks increases, a global baseline for sustainability disclosures is evolving, and evidence from independent analyses indicates that there is already a high degree of alignment between the European Sustainability Reporting Standards (ESRS) and Global Reporting Initiative (GRI), as well as the ESRS and International Sustainability Standards Board (ISSB). The analysis presented in this report adds to this work, providing a benchmarking assessment of the International Finance Corporation Disclosure and Transparency (IFC D&T) Framework against the ISSB, ESRS, and GRI reporting standards. The IFC D&T Framework components used in this study consisted of the D&T Toolkit: Beyond the Balance Sheet; the IFC Performance Standards on Environmental and Social Sustainability (IFC PSs), and the IFC Corporate Governance Methodology (collectively known as IFC ESG Standards); and the IFC Climate Governance Progression Matrix. Whilst the ESRS and the ISSB sustainability disclosure requirements have become mandatory following their adoption in EU and ISSB worldwide jurisdictions, users of GRI Standards and the IFC D&T Framework are well positioned to comply with the legal requirements, as this benchmarking analysis demonstrates. The objective of this analysis is to identify areas of alignment between IFC and ISSB, ESRS, and GRI standards to assist IFC D&T Framework users (companies, banks, stock exchanges, regulators, partners) in emerging markets to prepare for these requirements and ensure alignment with current sustainability disclosure standards. By leveraging IFC’s presence in emerging markets, this effort aims to support businesses, stock markets, and other stakeholders in implementing the new ISSB and ESRS standards while bridging gaps between various standards and frameworks and reducing administrative burden associated with reporting. This report can also be used for detection and prevention of greenwashing, as it helps companies improve their sustainability reporting and navigate through different standards and frameworks. The approach adopted for this study involved assessing the alignment between the strategic purposes and approaches of the standards. This was followed by a high-level review of the topic areas covered, culminating in a detailed analysis of the specific texts of comparable guidance and requirements. The report presents conclusions on the level of alignment between each section of the IFC D&T Framework and the other aforementioned standards. Summary tables indicate whether there was “strong,” “some,” or “weak” alignment between the IFC D&T Framework components and the i) strategic purpose, ii) general Elevating Environmental, Social, and Governance Reporting in Emerging Markets viii requirements and iii) environmental, social, and governance topic requirements of each standard. Detailed tables containing further information on the level of alignment of specific topics are provided in the annexes. Key findings from the analysis include: The updates made by IFC to various components of the D&T Framework have strengthened alignment with the ISSB Standards. The adoption of the four-pillar system—“Governance,” “Strategy,” “Risks, Impacts, and Opportunities,” and “Performance, Metrics, and Targets”—instills confidence in users that the guidance will enable them to align their reporting effectively with ISSB requirements. Additionally, the IFC Corporate Governance Methodology demonstrates strong alignment with IFRS governance reporting requirements. The IFC D&T Framework has strong alignment with multiple areas of the ESRS General Sustainability Requirements. In general, the ESRS are more prescriptive and provide clearer information about what is expected to be disclosed. The IFC ESG Standards have some alignment with the ESG topics of the ESRS Environmental and Social Standards. The IFC Corporate Governance Methodology has strong alignment with ESRS governance reporting requirements. However, ESRS provides more clarity on reporting requirements related to payment practices, political influence and lobbying, and corruption and bribery avoidance. The IFC D&T Toolkit has some alignment with most of the general organizational, governance and strategic requirements of GRI 2: General Disclosures and GRI 3: Material Topics. The IFC PSs have strong alignment with some Environment (GRI 300s) and Social (GRI 400s) Standard topics, but further guidance would be required for IFC users to align reporting with the Economic Performance (GRI 200s) topics, which currently has weak alignment. As part of this benchmarking exercise, 16 interviews were conducted with stakeholders, including standard setters, IFC D&T Framework users, and stock exchanges. This engagement enabled the report team to gather stakeholder feedback, collate and analyze it, and integrate the findings into this document. The key outputs from the stakeholder engagement interviews and survey are summarized in Chapter 5 (Overall Findings) of this report, showing: 81% of interviewees said that multiple and varying reporting requirements are a challenge for emerging market users. 75% of interviewees discussed interoperability or harmonization between reporting standards. 63% of interviewees mentioned materiality as being an important focus for reporting. The variation between single and double/impact and financial materiality requirements between the various standards was highlighted as a complexity to overcome. Elevating Environmental, Social, and Governance Reporting in Emerging Markets ix 56% of interviewees suggested that collaboration between standard setters would benefit users. 50% of interviewees said that data availability is a challenge for organizations when completing reports. 19% of interviewees recommended that a reporting template would be a useful tool for emerging market users to overcome barriers in understanding what they need to report. 33% of survey respondents ranked Governance and 33% ranked Strategy as the most important pillar to emerging market users for sustainability reporting. 33% of survey respondents ranked the ISSB as the most useful standard/ framework for emerging market users, with 50% ranking the ISSB as the second most useful. 33% of survey respondents answered that the IFC D&T Framework aligns very well with both the ESRS and GRI currently, whereas 17% believed that it does not align at all with the GRI. To support its users, IFC has published this benchmarking analysis to enhance understanding of how entities reporting under its D&T Framework are prepared for global sustainability reporting in alignment with ESRS, GRI Standards, and IFRS ISSB Standards. IFC is committed to aligning its reporting requirements with these standards, positioning itself as a central hub for users and establishing a strong foundation for international sustainability reporting. Elevating Environmental, Social, and Governance Reporting in Emerging Markets x 1 1. INTRODUCTION Triggered by the Paris Agreement on Climate Change (2015) and the United Nations (UN) 2030 Agenda for Sustainable Development (2015), the European Union (EU) and other governments and organizations around the world have started the journey to build sustainable finance strategies such as the European Green Deal1 and the UK Green Finance Strategy2. Recent years have witnessed the introduction environmental, social, and governance data to make of new sustainability reporting regulations more informed investment decisions. and standards frameworks, which take into consideration the relationship between corporate The connections between corporate sustainability disclosure requirements and financial market reporting and financial market disclosures are disclosure requirements, with the aim of providing illustrated in Figure 1.1, which is based primarily society with a transparent and comparable set of on the co-relation between the EU’s Corporate 1 The European Green Deal - European Commission (europa.eu) 2 Mobilising Green Investment - 2023 Green Finance Strategy (publishing.service.gov.uk) Elevating Environmental, Social, and Governance Reporting in Emerging Markets 1 Sustainability Reporting Directive (CSRD3) and of the other sustainability reporting frameworks the Sustainable Finance Disclosure Regulation such as the Global Reporting Initiative (GRI), aimed (SFDR ), both of which aim to promote 4 at guiding business sustainability reporting, and the information transparency to investors, civil society International Financial Reporting Standards General organizations, consumers, and other stakeholders, Requirements for Disclosure of Sustainability- in order to evaluate the sustainability performance related Financial Information (IFRS S1) and Climate- of companies as part of the European Green Deal. related Disclosures (IFRS S2). However, it also provides a general understanding Figure 1.1. Bringing together corporate and financial market disclosures. Sustainable Financial Disclosures Corporate Other users Sustainability (civil society, Reporting customers, shareholders, etc.) Products with environmental or social characteristics ( i.e. 'Article 8 Have to publicly Reporting Products') report information goes to Large Financial Market companies % of sustainable activities Participants and and Financial listed Advisors companies Products with sustainable % of company's investment current and future objectives revenues coming from ( i.e. 'Article 9 sustainable activities Products') Country/Global Taxonomy for sustainable activities Source: Mott MacDonald, 2024 3 Directive - 2022/2464 - EN - CSRD Directive - EUR-Lex (europa.eu) 4 Regulation - 2019/2088 - EN - sfdr - EUR-Lex (europa.eu) Elevating Environmental, Social, and Governance Reporting in Emerging Markets 2 > In 2023, in partnership with the Equator Worldwide efforts are being made to: Principles Association (EPA), IFC published a > Develop standards for a global baseline for document entitled “Promoting interoperability sustainability disclosures. across environmental and social risk management frameworks,” providing a > Enable companies to provide comprehensive comparison with the SFDR10 through the EU sustainability information to global capital Taxonomy’s “Do No Significant Harm” (DNSH) markets. and Minimum Safeguards Criteria, and their > Facilitate the interoperability of reporting alignment with the IFC Performance Standards systems, regarding disclosures that are on Environmental and Social Sustainability jurisdiction-specific and/or aimed at broader (IFC PSs) and the World Bank Group (WBG) stakeholder groups. Environmental, Health, and Safety (EHS) Guidelines. To address the interoperability challenge across > In May 2024, the IFRS Foundation and EFRAG these different frameworks and reduce the burden published interoperability guidance, focusing on of undertakings and disclosure preparation (in climate-reporting requirements.11 More recently, the instance of financial market participants), in December 2024, EFRAG issued the technical benchmark analyses of the recently published advice to the European Commission regarding industry-agnostic sustainability frameworks have the Voluntary Sustainability Reporting Standard for non-listed SMEs (“the VSME”). The VSME been released. standards aim to be a simple and standardized > In April 2022, the European Financial Reporting framework for non-listed SMEs to report on ESG Advisory Group (EFRAG) published reconciliation issues.12 tables between the IFRS S1 and S2 and the This report is a further effort by IFC to promote European Sustainability Reporting Standards (ESRS)5 that EU companies are now required to the interoperability of its framework with others, report, in line with the CSRD. providing a benchmarking assessment between the IFC Disclosure and Transparency Framework (IFC D&T > In July 2023, the IFRS released a comparison Framework) guidance and mainstream corporate analysis between the IFRS S2 Climate- sustainability reporting frameworks. Details on the related Disclosures with the Task Force on context and purpose is provided below. Climate-Related Financial Disclosures (TCFD) recommendations.6 > A high degree of interoperability between the ESRS, the GRI, and the requirements of the IFRS prevents double reporting by companies.7, 8, 9 5 Download (efrag.org) 6 ifrs-s2-comparison-tcfd-july2023.pdf 7 Daily News 31 / 07 / 2023 (europa.eu) 8 GRI - European Commission signals ESRS alignment with GRI (globalreporting.org) 9 IFRS - European Commission, EFRAG and ISSB confirm high degree of climate-disclosure alignment 10 Promoting Interoperability Across Environmental and Social Risk Management Frameworks (ifc.org) 11 esrs-issb-standards-interoperability-guidance.pdf (ifrs.org) 12 https://www.efrag.org/sites/default/files/sites/webpublishing/SiteAssets/VSME%20Standard.pdf Elevating Environmental, Social, and Governance Reporting in Emerging Markets 3 1.1 IFC D&T Framework: benchmarking context and purpose The overall purpose of this benchmarking is advisory services activities to its clients, partners, to compare the components of the IFC D&T and stakeholders. Framework with the emergent regulations and > IFC Corporate Governance Methodology15 (2018): standards of the IFRS S1 and S2, the ESRS and GRI to provides an approach to evaluate and improve a identify areas of similarity and alignment, and help company’s governance, including environmental companies in emerging markets prepare for these factors and risk management, through emerging requirements. Objectively, the report presenting agile corporate governance codes and aims to: principles. – Corporate Governance Progression Matrix for > Enhance the ESG reporting landscape. Listed Companies > Provide clarity to emerging-market users on their – Corporate Governance Progression Matrix for reporting requirements. Listed Companies - Instruction Sheet > Support emerging-market users in aligning with – Corporate Governance Document and IFC and ISSB/GRI/ESRS, where appropriate. Information Request List for Listed Companies > Contribute to the development of interoperability > IFC Performance Standards on Environmental between standards and frameworks. and Social Sustainability (known, collectively > Provide recommendations to IFC on how to with the Corporate Governance Methodology, communicate best the outputs of this research as IFC ESG Standards),16, 17 (2012): IFC’s eight and support its users in reporting on ESG matters Performance Standards describe IFC clients' in the future. responsibilities for managing environmental and social risks. The IFC D&T Framework aims to support companies based or operating in emerging markets to identify, > IFC Climate Governance Progression Matrix18 (2023): based on the above Corporate manage, and report on their environmental, social, Governance Methodology, is a tool to assist and governance (ESG) impacts and risks. It is built on boards of directors in identifying and overseeing the following documents: climate-related risks and opportunities. The > IFC D&T Toolkit: ‘Beyond the Balance Sheet’13 reports produced using the IFC D&T Framework (2018, updated 2024) – the IFC Toolkit for are intended for companies, stock exchanges, Disclosure and Transparency – is a part of market regulators and investors, as well as a broader effort to enhance disclosure and IFC, itself, when making investment decisions. transparency in countries and companies IFC Benchmarking the IFC D&T Framework with the works with, either as investors or advisers. It emerging standards will help users required or builds on IFC’s Access to Information Policy,14 willing to adhere voluntarily to other reporting which seeks to provide accurate and timely frameworks to bridge the gap between lower and information regarding IFC investment and heightened standards and frameworks. 13 Homepage | IFC Beyond the Balance Sheet 14 Disclosure - Access to Information Policy (AIP) (ifc.org) 15 IFC Corporate Governance Methodology Tools 16 Performance Standards on Environmental and Social Sustainability | International Finance Corporation (IFC) 17 IFC ESG Guidebook 18 https://www.ifc.org/content/dam/ifc/doc/2023-delta/climate-governance-matrix-may2023.pdf Elevating Environmental, Social, and Governance Reporting in Emerging Markets 4 The shifting landscape on sustainability reporting frameworks is highly beneficial for businesses in is driven by the increasing demand for transparent, emerging markets, reducing the burden of meeting reliable, and comparable information to investors the demands of different sets of structure and and society. This movement is observed globally, requirements. as asset managers and investors are operating worldwide. Therefore, the targeted users of the Whilst much analysis of the alignment of ISSB, ESRS IFC D&T Framework are also being affected by the and GRI disclosure standards exists, there is no ESG reporting trends. Improving the alignment direct or detailed comparison with the constituent and compatibility between these different components of the IFC D&T Framework. Figure 1.2. The IFC Disclosure and Transparency Framework. IFC Disclosure and Transparency Framework IFC D&T Toolkit: "Beyond the Balance Sheet" (2018, updated 2024) IFC Corporate Governance Methodology and Tools (2018) IFC ESG Framework IFC Performance Standards on Environmental and Social Sustainability (2012) IFC Climate Governance Progression Matrix (2023) Elevating Environmental, Social, and Governance Reporting in Emerging Markets 5 The core purpose of this research is, therefore, to: > Identify at a more granular level priority areas of the IFRS S1 and S2, the ESRS, and the GRI > Identify, at a high level, how well the components standards which are not addressed within, or has of the IFC D&T Framework, IFC PSs, and IFC weak alignment with, the IFC D&T Framework. Corporate Governance Methodology align with the components of each of the emergent A summary of the standards under consideration, as regulations or standards. of July 2024, are summarized in the box below: BOX 1: SUMMARY OF THE STANDARDS UNDER CONSIDERATION > European directives and standards: The Non-Financial Reporting Directive (NFRD) came into force in 2017 and provided for disclosure on 5 topics (environment, social, human rights, anti-bribery and corruption, and diversity) by large public interest companies. Review of disclosures under the Directive showed that, whilst they had contributed to an increase in reporting, the quality and completeness of disclosure required improvement. The revision of the Directive to the CSRD was therefore initiated by the European Commission in April 2021, with the final proposal approved by the European Council in November 2022. Alongside the CSRD, the European Financial Reporting Advisory Group (EFRAG) was asked by the Commission to develop the ESRS to support consistent disclosure under the CSRD. The standards cover the full range of environmental, social, and governance issues, including climate change, biodiversity, and human rights. They provide information for investors to understand the sustainability impact of the companies in which they invest. They also take account of discussions with the ISSB and the GRI to ensure a very high degree of interoperability between EU and global standards, and to prevent unnecessary double reporting by companies. The ESRS were formally adopted by the EU on 31st July 2023. > International standards: In October 2021, the International Financial Reporting Standards (IFRS) Foundation announced the formation of the ISSB, intended to develop globally applicable reporting standards across ESG topics, focused on financial materiality. Over early 2022, the ISSB completed consolidation with voluntary standard setters, the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF). The ISSB has since released exposure drafts of its first proposed standards, general requirements, and climate-related disclosures, which draws heavily on the Task Force on Climate Related Financial Disclosures (TCFD) recommendations. Following public consultation and consolidation, the IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures were issued in June 2023. > GRI: Established in 1997, GRI has developed standards which support impact-focused disclosure on sustainability topics. Its standards have been widely adopted globally on a voluntary basis and are also reflected in IFC’s current D&T Framework approach. GRI is collaborating closely with both the ISSB and EU standards development process to support closer alignment of requirements, and ensure standards are available to address both materiality perspectives. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 6 1.2 Regulatory and mandatory requirements and best practice standards, tools and guidance Whilst the CSRD/ESRS and the IFRS/ISSB sustainability with IFC PSs is mandatory, the IFC Corporate disclosure requirements have become mandatory, Governance Methodology and Climate Governance following their adoption in EU and worldwide Progression Matrix provide a methodology for jurisdictions, the GRI Standards are adopted on 19 users of IFC reporting, while the IFC D&T Toolkit a voluntary basis and aim to helps businesses, provides overarching guidance on the structure of governments, and other organizations understand sustainability reporting. and communicate their impact on issues such as climate change, human rights, and corruption. Corporations that have been implementing this guidance on a voluntary basis and/or to comply with The IFC D&T Framework has different levels of FI requirements are well positioned to adhere to the application. Similarly to the GRI, it can be and is legal requirements, as this benchmarking analysis adopted on a voluntary basis by entities over the demonstrates. world interested in assessing the sustainability risk level and management of projects and/or The results presented in the Sections 2, 3, and 4 of organizations. However, the IFC Performance this report provide an understanding of the level Standards are mandatory in cases of IFC direct of alignment between these different disclosure investment and investment by other financial requirements and best practice standards, institutions (FIs) that are signatories to the Equator highlighting the strong and weak sustainability Principles. In such cases, whilst compliance reporting topics. Implementing the best practice standards, guidance, and tools improve the capacity of a corporation to comply with legal disclosure requirements. 1.3 Methodology 1.3.1 Standards for analysis The ISSB, the ESRS and GRI sustainability frameworks and standards were considered in the context of how The benchmarking and analysis comprised a review well the IFC D&T Framework benchmarks against of the following core standards: each of them. For the purposes of the analysis, the IFC D&T Framework comprised of: > International Financial Reporting Standards (IFRS) ISSB standards (IFRS S1 and S2) > IFC Disclosure & Transparency Toolkit (IFC D&T Toolkit) > European Sustainability Reporting Standards (ESRS) > IFC ESG Standards: > Consolidated Set of Global Reporting Initiative – IFC Performance Standards on Environmental Standards (GRI) and Social Sustainability 19 As of December 2024, more than 20 jurisdictions have committed to using or introducing the ISSB’s disclosure standards in their legal or regulatory regimes IFRS - Jurisdictional sustainability consultations. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 7 – IFC Corporate Governance Methodology 1. Strategic alignment review: purpose and approach of different standards > IFC Climate Governance Progression Matrix 2. High-level content review: section names/topic areas of different standards For clarity throughout the remainder of this report, the term “IFC D&T Framework” will be 3. Detailed content review: text of topic areas identified in the high-level review used when referring to all components of the framework (i.e., the D&T Toolkit, Corporate The purpose and key steps for each analysis stage Governance Methodology, Performance Standards, are summarized in Figure 1 and outlined in further and Climate Governance Progression Matrix). detail in the corresponding sections below and Appendix B. 1.3.2 Analysis approach A hierarchical approach to the analysis was taken, comprising the following key stages: Figure 1.3. Summary of the analysis approach. > Analyze the objectives and scope of each reporting standard against the IFC D&T Framework, to understand the overall Strategic strategic alignment between standards and IFC D&T Framework. Alignment Review > Assess aligned components as identified in the strategic review, drawing out specific topic areas and clauses of similarity. High-level Content > Identify clauses of similarity and alignment across the standards. Review > Review the text of comparable clauses and categorize their depth of alignment against IFC D&T Framework clauses. Detailed Content > Assess materiality of gaps and appropriate actions to redress the gaps. Review Elevating Environmental, Social, and Governance Reporting in Emerging Markets 8 1.3.3 Stakeholder engagement Challenges, Support and Tools, and Collaboration. The stakeholder engagement outcomes have been As part of this benchmarking exercise, the report integrated with the benchmarking results. team conducted several interviews and sent out surveys to stakeholders including standard setters, 1.3.4 Presentation of results IFC D&T Framework users, and stock exchanges. This engagement exercise enabled the report team The following sections present the results of the to gather stakeholder feedback, collate and analyze strategic alignment, high-level and detailed content the feedback, and integrate the findings in this review stages of the analysis: document. > The outcomes of the strategic alignment review and the high-level content review are presented in The stakeholder engagement phase of the report Section 2, showing a comparison of the purpose aimed to: and approach of the IFC D&T Framework, IFRS, ESRS, and GRI standards respectively. > Capture common themes of feedback received in both the interviews and online survey. > The outcomes of the detailed content review are presented in: > Gain an understanding of how best to support emerging markets with ESG reporting – Section 3, showing a comparison of the requirements. general reporting requirement sections for each standard against the IFC D&T Toolkit and the IFC Corporate Governance Methodology; Sixteen interviews took place remotely using and Microsoft Teams (MS Teams) between June 3 and July 25, 2024, with different institutions using the – Section 4, showing the topic-related sustainability disclosure requirements of each IFC D&T Framework or ISSB, GRI, ESRS standards, standard in comparison with the IFC ESG or involved in the wider ESG reporting ecosystem. Standards and the IFC Climate Governance The report team adopted a hybrid approach to Progression Matrix. gathering feedback, by sending a written survey out to attendees following the interviews. The detailed assessment results have been separated in this way to emphasize the difference This hybrid approach allowed the report team to in the guidance provided by the IFC D&T Toolkit capture information and common themes from and the IFC ESG Standards. Where the Toolkit different stakeholders via the MS Teams interviews, is concerned with general guidance in the four along with quantitative data provided by survey pillars of Governance; Strategy; Risks, Impacts and responses. Opportunities Management; and Performance, Metrics and Targets, the ESG Standards describe IFC Transcripts of the interviews were summarized clients' responsibilities for managing environmental to provide an overview of the major topics of and social risks in specific environmental, social, and discussion, with the mention of key themes governance topic areas. mapped against each interviewee to generate percentages of how frequently they were discussed. For each section, a detailed table provides the user A summary of the common responses and findings with the specific guidance compared in the analysis, from the interviews has been categorized into the with a following summary table providing an following four overarching themes - Standards, overview of the level of alignment between the IFC Elevating Environmental, Social, and Governance Reporting in Emerging Markets 9 D&T Framework components and each standard, NO alignment/similarities: respectively. indicates that the topic is not mentioned in the IFC D&T > In the summary tables, each standard (ISSB, EU, Framework.. GRI) is separated into the four main pillars of Governance, Strategy, Risk Management, and Beyond the requirements: Metrics and Targets. indicates that the IFC D&T Framework provides more detailed guidance in > The key below indicates how closely the IFC D&T that topic. Framework components will take users towards meeting the requirements of each pillar of the framework or standard under consideration: 1.3.5 Prioritization of the standards STRONG alignment/similarities: Given the granular nature of both the IFC D&T indicates that the IFC D&T Framework Framework and the comparison with ISSB, EU and component will either align the user GRI standards, prioritizing elements of the analysis fully with the respective standard or is has been important to ensure that the research and missing only some minor guidance. its outputs remain focused on providing actionable recommendations for IFC’s emerging market SOME alignment/similarities: indicates that the IFC D&T Framework company users, while reviewing considerable covers certain requirements in the volumes of content. topic, but is lacking regarding others, or needs to provide major additional Accordingly, we have applied the following guidance to allow the user to align prioritization hierarchy to the analysis, to ensure an fully. emphasis on recommendations which address the standards expected to be applicable to most users of WEAK alignment/similarities: the IFC D&T Framework and expected international indicates that the IFC D&T Framework standards of greatest significance within the mentions topics from the other emerging global ESG reporting regime: standards briefly but is significantly lacking in guidance to allow the user > IFRS S1 and S2 to align with the requirements of the standard. > ESRS Standards > GRI Standards > Further detailed assessment presented in Appendix A provides two additional keys: Elevating Environmental, Social, and Governance Reporting in Emerging Markets 10 2 2. STRATEGIC ALIGNMENT REVIEW: PURPOSE AND APPROACH OF DIFFERENT STANDARDS 2.1 Introduction This section explores the alignments between the strategic purpose and approach of the IFC D&T Framework and each of the IFRS, ESRS, and GRI standards. This is the highest level of analysis from this research, with comparisons given between the following aspects of strategic aims: Purpose Sector focus Scope ESG topics addressed Intended users Geographic applicability Intended audience Materiality approach Elevating Environmental, Social, and Governance Reporting in Emerging Markets 11 2.2 Results of the benchmarking analysis: strategic alignment review Table 2.1 provides the high-level purpose and approaches of each standard side-by-side. Table 2.2 shows the level of alignment between the IFC D&T Framework and the other framework or standards for each topic under strategic purpose/approach. Table 2.1. Summary of strategic purpose and approach of different international ESG frameworks and standards. IFC DISCLOSURE & TRANSPARENCY INTERNATIONAL FINANCE REPORTING EUROPEAN SUSTAINABILITY REPORTING GLOBAL REPORTING INITIATIVE (GRI) FRAMEWORK (IFC D&T FRAMEWORK) ISSB STANDARDS (IFRS S1 AND S2) STANDARDS (ESRS) PURPOSE The IFC D&T Framework consists of 4 elements: Aim to align organizations and investors on Set the standards that companies, as required Focuses on corporate social responsibility with > IFC Disclosure & Transparency Toolkit the financial impacts of ESG. Industry-specific by the Corporate Sustainability Reporting equal weight on environmental, social, and standards focus on material aspects of an Directive (CSRD) regulation, shall use to report governance factors. > IFC Corporate Governance Methodology organization’s sustainability performance. environmental, social and, governance aspects. Applies to organizations of any size, sector, and > IFC Performance Standards on Environmental The ESRS is part of the pathway to promote the Written to align with other international location, regardless of whether public or private. and Social Sustainability transition to a sustainable EU economy, and the standards, thereby providing a global ESG Also informs other stakeholders (investors and > IFC Climate Governance Progression Matrix benchmark. EU commitment to achieve climate neutrality by stock exchanges), which utilize the disclosure The combined aim of these is to support 2050 (European Green Deal, 2019). standards. predominantly companies in emerging markets, and identify, manage, and report their environmental, social and governance impacts and risks. Also inform other stakeholders (investors and stock exchanges), which utilize the disclosure standards. SCOPE The IFC D&T Framework aims to support Global baseline standards aimed at all companies Companies subject to the CSRD regulation Global economic performance, environmental companies of all sizes and stakeholders in of all sizes, sector agnostic, the IFRS S1 and S2 will have to report according to the European and social reporting standards for business emerging markets. It is sector agnostic, although provide general ESG requirements and a climate- Sustainability Reporting Standards (ESRS), operations. specific guidance is available for certain sectors related standard, respectively. tailored to EU policies while building on and (EHS Guidelines). Covers environment, social, contributing to international standardization governance, transparency, and disclosures. initiatives. Provide environmental, social, and governance standards to enable relevant businesses to report the requirements of the EU CSRD. INTENDED Companies that are based in or have significant Any corporation can use the standards to guide its The users will be those that follow the Public and private companies, cities, government USERS operations in emerging markets, plus other disclosures. requirements of the CSRD regulation, i.e. large agencies, NGOs. (including relevant stakeholders, such as legislators, IFRS has partnered with the World Bank since companies in the EU subject to CSRD; listed No specific results on GRI website or standards relevance to regulators, and capital-market gatekeepers. companies on EU-regulated markets, except listed 2017 to provide greater support to developing document for “emerging markets,” but members emerging market microenterprises and relevant companies from economies in their use of IFRS Standards. directory includes over 70 countries and standards users) non-EU countries. used in over 100 countries. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 12 IFC DISCLOSURE & TRANSPARENCY INTERNATIONAL FINANCE REPORTING EUROPEAN SUSTAINABILITY REPORTING GLOBAL REPORTING INITIATIVE (GRI) FRAMEWORK (IFC D&T FRAMEWORK) ISSB STANDARDS (IFRS S1 AND S2) STANDARDS (ESRS) INTENDED Companies, stock exchanges, market regulators Regulators and investors. EU Member states, EU and non-EU companies, Multiple stakeholder groups (business partners, DISCLOSURE and investors predominantly in emerging investors, and other stakeholders. civil society organizations, consumers, customers, AUDIENCE markets, IFC (in making investment decisions). employees and other workers, governments, local communities, non-governmental organizations, shareholders and other investors, suppliers, trade unions, and vulnerable groups). SECTOR FOCUS Sector agnostic, with numerous sector specific Sector agnostic, with 77 industry-specific Sector agnostic. Sector agnostic. EHS (environmental, health and safety) standards consolidated by the Sustainability guidelines. Accounting Standards Board (SASB). ESG TOPICS Corporate governance, including the following General requirements In addition to the cross-cutting standards, laid out General requirements ADDRESSED parameters - commitment, board structure and Climate by the ESRS 1 a ESRS 2 – General requirements and Economic performance function, control environment, disclosure and general disclosures, the following topic standards (Other topics under development, following Environmental transparency, minority shareholder treatment and are addressed by the ESRS. revision of industry -specific SASB Standards) Social governance of stakeholder engagement. Environment: Which include: climate change, occupational > Climate change (E1) health and safety, data privacy, stakeholder IFC Performance Standards on Environmental and > Pollution (E2) engagement, human rights, waste management, Social Sustainability cover: > Water and marine resources (E3) economic impacts. > assessment & management E&S risks & impacts > Biodiversity and ecosystems (E4) > Resource use and circular economy (E5) > labor & working conditions Social: > resource efficiency & pollution prevention > community health, safety & security > Own workforce (S1) > land acquisition & involuntary resettlement > Workers in the value chain (S2) > biodiversity conservation & sustainable > Affected communities (S3) management of living natural resources > Consumers and end-users (S4) > indigenous peoples Governance: > cultural heritage > Business conduct (G1) Together, the elements of the IFC D&T Framework also include: business model, risk analysis and response, sustainability opportunities and risks, board of directors, stakeholder engagement, financial performance. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 13 IFC DISCLOSURE & TRANSPARENCY INTERNATIONAL FINANCE REPORTING EUROPEAN SUSTAINABILITY REPORTING GLOBAL REPORTING INITIATIVE (GRI) FRAMEWORK (IFC D&T FRAMEWORK) ISSB STANDARDS (IFRS S1 AND S2) STANDARDS (ESRS) GEOGRAPHICAL International with focus on emerging market International – the standards are intended for all Companies located or listed in an EU member International - the standards are intended for all APPLICABILITY companies, Equator Principles signatories, and global regions including emerging markets and state. Non-EU companies with significant global regions including emerging markets. Most International Financial Institutions (IFIs). provide a global baseline for capital markets. undertakings in the EU. users are, however, from developed markets. No specific results on GRI website or standards document for “emerging markets,” but members directory includes over 70 countries and standards used in over 100 countries. MATERIALITY The D&T Framework explores the double Single: sustainability matters that present Double materiality – how sustainability matters GRI is predominantly a reporting standard, APPROACH materiality concept, with the IFC D&T Toolkit financial risk to the company, impact relevant businesses in the EU and how rather than a framework to manage impact or Risks, Impacts, and Opportunities Management i.e., information is material if omitting, obscuring their operations, in turn, affect people and planet. risk. It is recognized within the GRI guidance reporting guidance and the IFC PSs exploring or misstating it could be reasonably expected to that sustainability reporting helps to make in detail, through the different ESG topics, the influence investor decisions. financial materiality judgements. GRI emphasizes impacts to environment and people. stakeholder engagement to determine material issues. DATE CURRENT IFC Disclosure & Transparency Toolkit (2018) with June 2023 Adopted on 31 July 2023 June 2022 VERSION update in 2023 PUBLISHED IFC Corporate Governance Methodology (2018) IFC Performance Standards on Environmental and Social Sustainability (2012) IFC Climate Governance Progression Matrix (2023) Elevating Environmental, Social, and Governance Reporting in Emerging Markets 14 Table 2.2. Level of alignment of strategic purpose and approach of different international ESG frameworks and standards in comparison to the IFC D&T Framework. INTERNATIONAL EUROPEAN FINANCE SUSTAINABILITY REPORTING ISSB REPORTING GLOBAL STANDARDS (IFRS STANDARDS REPORTING S1 AND S2) (ESRS) INITIATIVE (GRI) PURPOSE SCOPE INTENDED USERS (INCLUDING RELEVANCE TO EMERGING MARKET USERS) INTENDED DISCLOSURE AUDIENCE SECTOR FOCUS ESG TOPICS ADDRESSED GEOGRAPHICAL APPLICABILITY MATERIALITY APPROACH STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities Elevating Environmental, Social, and Governance Reporting in Emerging Markets 15 2.3 Key findings Below is an outline of the key observations regarding the level of alignment of the strategic purpose and approaches between the IFC D&T Framework and each of the ISSB/ESRS/GRI standards. For each subsection, an explanation is given as to why the alignment level indicated in the table above was chosen. PURPOSE The IFC D&T Framework has some alignment with the aims of the ISSB to aid organizations in identifying and managing the impacts of ESG topics. ISSB main driver is the focus on financial aspects. The ESRS reporting standards focus more on setting the reporting standards for disclosing ESG topics, with GRI focusing on corporate social responsibility. Each has some overall alignment with the IFC D&T purpose in varying aspects. SCOPE The IFC D&T Framework has some alignment with the ISSB scope as it is aimed at all companies, is sector agnostic and provides general requirements, as well as specific climate-disclosure guidelines. The ESRS standards are tailored to EU policies but also contribute to international standardization initiatives; therefore, some level of alignment was concluded. GRI’s scope regarding global economic performance, and environmental and social reporting standards for business operations aligns well with IFC but lacks specific mention of emerging markets and some ESG aspects, which IFC covers. INTENDED USERS The ISSB has been working with the World Bank Group to provide greater support to developing economies in using their standards, aligning well with IFC. The ESRS reporting standards focus primarily on EU companies but do include relevant companies with undertakings in EU member states, whereas IFC covers everything and covers more organizations. The GRI does not specifically mention emerging markets but does list over 100 countries using the standards; therefore, some alignment is seen. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 16 INTENDED AUDIENCE All the standards/frameworks are intended for investors, including vulnerable groups, shareholders, customers, and employees, as well as others mentioned by the ISSB, ESRS and GRI that are not specifically referenced by IFC. SECTOR FOCUS All the standards/frameworks are sector agnostic and, hence, the IFC D&T Framework aligns well with them. The IFC D&T Framework also includes numerous sector-specific guidelines, which are similar to those of GRI. Therefore, a high level of alignment was given for all. ESG TOPICS ADDRESSED IFC has stronger alignment with the ESRS and GRI in covering a range of topics under each ESG aspect, particularly aligning with pollution, water resources and affected communities. The ISSB has general requirements and climate disclosures, but is still developing other topics; therefore, IFC covers all topics as well as additional aspects, such as biodiversity, land acquisition, indigenous peoples, and cultural heritage. GEOGRAPHIC APPLICABILITY IFC and ISSB align well with a focus on emerging markets in all global regions. The ESRS reporting standards focus primarily on companies located or listed in an EU member state, however non-EU companies with significant undertakings in the EU are also applicable; therefore, a high level of alignment with IFC is still present. GRI does not have a focus on emerging markets but is intended for all global regions and lists the standards being used in over 100 countries; therefore, a high level of alignment is again concluded. MATERIALITY APPROACH IFC’s materiality approach focuses on a company’s risks and opportunities, as identified by IFC D&T Toolkit recommendations, and has a strong emphasis on the impact on the environment and people established by IFC PSs. This aligns with the aspect of the ESRS reporting standards concerned with how “operations affect people and planet.” The ISSB has a single material aspect, which focuses on sustainability matters that present financial risk to the company, aligning with IFC well. GRI aligns less with IFC, as it is not intended as a framework for managing impact or risk but does recognize sustainability reporting in the process of making financial materiality judgements. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 17 63% of interviewees mentioned materiality as being an important focus for reporting. The variation between single and double/impact and financial materiality requirements between the various standards was highlighted as a complexity to overcome. STAKEHOLDER VIEWS ON EACH STANDARD ISSB: Is seen as beneficial, especially in emerging markets, due to its engagement with stakeholders and proportionality mechanisms. EU: The mandatory nature of the ESRS standards was recognized by the interviewees as a potential concern, as there could be fragmented regional/national requirements in large value chains. GRI: Interviewees recognized the focus on stakeholder engagement and impact materiality. The GRI standards are widely used and recognized globally amongst the emerging market stakeholders. IFC: Is seen as broader in scope and as a more meaningful provider of guidance on general strategy/issues on corporate governance than other standards. New standards for sustainability reporting must account for jurisdictional requirements/ policy requirements/different sectors.” 81% of interviewees said that multiple and varying reporting requirements are a challenge for emerging market users. 75% of interviewees discussed interoperability or harmonization between reporting standards. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 18 Respondents to the survey believe that the IFC D&T Framework is most aligned with GRI, as 33.3% voted “very” and 50% voted for “somewhat” aligned. Although at least one respondent did think that the IFC D&T Framework is “very” aligned with the ISSB and ESRS, 33.3% said that it is “not very” aligned. Recent changes to the four-pillar system of the IFC D&T Framework to better align with the ISSB may alter this perception in the future. Figure 2.1. Responses to the Question: Please rate how aligned you think the IFC D&T Framework is with the following reporting standards from your personal perspective. Options Very Somewhat Not very Not at all Don't know ISSB ESRS GRI 100% 100% Elevating Environmental, Social, and Governance Reporting in Emerging Markets 19 3 3. GENERAL SUSTAINABILITY REPORTING REQUIREMENTS 3.1 Introduction The ISSB, ESRS, and GRI standards are all comprised of general reporting requirements. These requirements outline the necessary elements needed to fulfil the reporting stipulations, and often include information on the purpose, scope, and goals of the reporting. The sections within the overall standards that cover general requirements are more strategic and aimed at organizational- level ESG management, i.e., the ISSB S1 - general requirements for a complete set of sustainability-related financial disclosures; ESRS 1 and 2, and GRI General Disclosures. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 20 When preparing to meet these standards, reporting requirements, the IFC D&T Framework understanding the general disclosure requirements (Figure 3.1) in many ways encompasses the general is highly important to ensuring the compliance and reporting disclosures of the above standards in its success of the published report. Created in part to own general requirements. supplement and align with the global sustainability Figure 3.1. IFC D&T corporate value creation pillars. Performance, Metrics and Targets Guidance on how to disclose metrics and targets, financial statements, sustainability performance and assurance. Governance Resources on how to disclose the structure and functioning of the board and management, control environment, governance of stakeholder engagement and climate governance. Risks, Impacts and Opportunities Guidance companies, banks, stock exchanges, and regulators on how to disclose practices regarding risk management and materiality assessment. Strategy Guidance on how to disclose material information about strategy overview and context, business model, stakeholder engagement, strategic objectives, sustainability risks and opportunities, material issues and climate. Source: Beyond the Balance Sheet Disclosure and Transparency Toolkit | IFC Beyond the Balance Sheet (accessed on 26 February 2024). Elevating Environmental, Social, and Governance Reporting in Emerging Markets 21 3.2 Results of the benchmarking analysis: high-level content review 3.2.1 ISSB/IFRS S1 comparison with IFC D&T > Climate-related Disclosures, IFRS Sustainability Framework Standard S2. As of July 2024, the ISSB standards are currently This section covers the General Requirements made up of two standards: for Disclosure of Sustainability-related Financial Information – IFRS Sustainability Standard S1. The > General Requirements for Disclosure of table below shows a high-level summary of our Sustainability-related Financial Information, IFRS findings when comparing the levels of alignment Sustainability Standard S1; and between IFRS S1 and the IFC D&T Framework. Table 3.1. IFRS S1 level of alignment comparison with IFC D&T Framework. IFC D&T RISK METRICS FRAMEWORK GOVERNANCE STRATEGY MANAGEMENT AND TARGETS D&T TOOLKIT: N/A N/A N/A GOVERNANCE D&T TOOLKIT: STRATEGY D&T TOOLKIT: RISKS, IMPACTS AND N/A N/A N/A OPPORTUNITIES D&T TOOLKIT: PERFORMANCE, N/A N/A N/A METRICS AND TARGETS IFC CORPORATE GOVERNANCE METHODOLOGY PS1 - ASSESSMENT AND MANAGEMENT OF ENVIRONMENTAL AND SOCIAL RISKS AND IMPACTS STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities Elevating Environmental, Social, and Governance Reporting in Emerging Markets 22 opportunities also have strong alignment with From the analysis of the IFRS S1 Standard, the PS1 requirements. following observations were made: > The IFC D&T Framework has strong alignment > The IFC D&T Framework has weak to strong with most of the requirements of the alignment with the governance requirements of sustainability-related risk and opportunities, the IFRS S1 Standard, through Governance and and the risk management elements of the IFRS Strategy elements of the D&T Toolkit and the S1 Standard. Performance Standard 1 (PS1) also Corporate Governance Methodology. There is provide clear guidance regarding impacts, risks also alignment through Performance Standard 1 and opportunities identification and mitigation (PS1), mostly under the requirements of the policy management. and management programs. > The D&T Toolkit displays only weak alignment > The Strategy section of the D&T Toolkit has with IFRS S1 Standard on metrics and targets. strong alignment with the Strategy elements However, Performance Standards 1 to 8 provide of the IFRS S1 Standard. Elements of IFRS S1 clear guidance on topic-related sustainability relating to understanding a company’s strategy requirements and thresholds to be met. for managing sustainability-related risks and Organizations incorporating the IFC D&T Framework into their wider sustainability reporting framework would have a good base, should they wish to align with ISSB IFRS S1 reporting, specifically in Strategy, Risk Management and Metrics and Targets topics, though the organization would need to do further work to fully align with the ISSB’s metrics and target data requirements. For further details on the comparison of the standards, refer to Appendix A. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 23 3.2.2 ESRS 1 & 2 alignment and comparison with the scope of the CSRD, and which outline the general IFC D&T Framework reporting requirements of the CSRD. As such, ESRS 1 and 2 are the focus when comparing general Made up of 12 standards, the ESRS standards are sustainability reporting requirements. comprised of cross-cutting, as well as environmental, social, and governance standards. ESRS 1 and ESRS The table below shows a high-level summary of our 2 make up the cross-cutting standards which are findings on the levels of alignment between ESRS mandatory to report on should an entity fall under 1&2 and the IFC D&T Framework. Table 3.2. ESRS 1 and 2 level of alignment comparison with IFC D&T Framework. IFC D&T RISK METRICS FRAMEWORK GOVERNANCE STRATEGY MANAGEMENT AND TARGETS D&T TOOLKIT: N/A N/A N/A GOVERNANCE D&T TOOLKIT: N/A N/A N/A STRATEGY D&T TOOLKIT: RISKS, IMPACTS AND N/A N/A N/A OPPORTUNITIES D&T TOOLKIT: PERFORMANCE, N/A N/A N/A METRICS AND TARGETS IFC CORPORATE GOVERNANCE METHODOLOGY PS1 - ASSESSMENT AND MANAGEMENT OF ENVIRONMENTAL AND SOCIAL RISKS AND IMPACTS STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities Elevating Environmental, Social, and Governance Reporting in Emerging Markets 24 sustainability risks and mitigation, and internal When analyzing the two reporting standards in control/risk management systems. Elements further detail, the following observations were to allow understanding of a company’s strategy made: for managing sustainability-related risks and opportunities also display strong alignment with > The IFC D&T Framework utilizes the four-pillar reporting structure of Governance, Strategy, PS1 requirements. Risk and Impact, Metrics and Targets, providing > The IFC D&T Framework mostly aligns with a good comparison with the ESRS 1 and 2 Cross- the general requirements of ESRS, other than cutting General Requirements and Disclosures. in areas such as time horizons, sustainability information, sustainability statements, > Governance reporting requirements can be found across the Governance section of the D&T Toolkit transitional provisions, metrics and targets, and and the IFC Corporate Governance Methodology. workers in the value chain. They are also, to some extent, covered by > The D&T Toolkit provides only weak alignment Performance Standard 1 (PS1), mostly under the with ESRS on metrics and targets. However, requirements of the policy and management Performance Standards 1 to 8 bring clear programs. guidance on topic-related sustainability requirements and thresholds to be met and have > Strong alignment was found between the IFC D&T Framework and sections of the ESRS some to strong alignment with the ESRS topical related to stakeholders (risks and impacts), standards reporting requirements (reviewed in roles of management in sustainability matters, Section 4). When reporting on the IFC D&T Framework, organizations will be collecting data and information which can be utilized when reporting on the ESRS, specifically on governance and strategy topics. As the ESRS request a more granular level of detail regarding metrics and targets, further work will need to be conducted to ensure alignment on this topic, though the IFC Framework provides a good base from which to start. For further details on the comparison of the standards, refer to Appendix A. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 25 3.2.3 GRI alignment and comparison with IFC requirements, the general standards of GRI 2 and D&T Framework GRI 3 were compared against all relevant elements of the IFC D&T Framework. The GRI framework is made up of a series of standards that cover both governance and strategy The table below shows a high-level summary of (GRI 2), material topics (GRI 3), and is supported our findings, setting out the levels of alignment by standards that span economic performance between the GRI standards and the IFC D&T (GRI 200s), the environment (GRI 300s), and social Framework. matters (GRI 400s). For the purpose of evaluating the alignment between the GRI and IFC’s general disclosure Table 3.3. GRI disclosure requirements level of alignment comparison with IFC D&T Framework. IFC D&T RISK METRICS FRAMEWORK GOVERNANCE STRATEGY MANAGEMENT AND TARGETS D&T TOOLKIT: N/A N/A N/A GOVERNANCE D&T TOOLKIT: N/A STRATEGY D&T TOOLKIT: RISKS, IMPACTS AND N/A N/A N/A OPPORTUNITIES D&T TOOLKIT: PERFORMANCE, N/A N/A METRICS AND TARGETS IFC CORPORATE GOVERNANCE N/A METHODOLOGY PS1 - ASSESSMENT AND MANAGEMENT OF ENVIRONMENTAL N/A AND SOCIAL RISKS AND IMPACTS STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities Elevating Environmental, Social, and Governance Reporting in Emerging Markets 26 > Most of the relevant guidance is provided by Further analysis of the two standards revealed the sections of the IFC D&T Toolkit and IFC Corporate following observations: Governance Methodology, and sections in GRI 3: > The IFC D&T Toolkit provides good alignment Material Topics. with GRI 2: General Disclosures and 3: Material > The D&T Toolkit provides some alignment Topics. with GRI on metrics and targets. However, > The IFC D&T Framework provides reasonably Performance Standards 1 to 8 bring clear strong alignment with most of the general guidance on topic sustainability requirements organizational, governance and strategic and thresholds to be met. requirements of GRI 2: General Disclosures. Reporting on the IFC D&T Framework provides organizations a good foundation on which to base their GRI reporting requirements when considering general disclosure requirements. Much of the information gathered to meet IFC’s general sustainability requirements will be applicable when conducting GRI reporting. For further details on the comparison of the standards, refer to Appendix A. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 27 3.2.4 Stakeholder views Governance was the pillar seen to have the best reporting guidance currently in the IFC D&T Framework, with 38% of the votes in the survey. Strategy, and Metrics and Targets were seen to be equal at 23%, with Risk Management receiving only 15% of the share, indicating a desire for improvements by stakeholders. Figure 3.2. Responses to the Question: Which of the four pillars do you think currently provides the best reporting guidance in the IFC D&T Framework? 23% 23% Strategy Governance Risk Management 15% Metrics and Targets None of the above 38% 33% of respondents ranked Governance and 33% ranked Strategy as the most important pillar to emerging market users for sustainability reporting. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 28 The stakeholders believed that the ISSB was the most useful to emerging market users for accessing sustainability reporting guidance, as 33.3% chose it as their first choice and 50% chose it as their second choice. Neither the ISSB nor IFC were rated fourth in this question, with the ESRS and GRI having an equal number of fourth place choices. However, GRI was also voted first by the same number of stakeholders as the ISSB, demonstrating the wide range of interviewee requirements and views on applicability of standards/ frameworks to their organization. Figure 3.3. Responses to the Question: Please rank the following standard/framework setters on how useful they are to emerging market users for sustainability reporting guidance. Rank Options First Choice Last Choice 1 ISSB 2 IFC 3 GRI 4 ESRS Survey respondents believed that Metrics and Targets is the least useful pillar to emerging market users for sustainability reporting, with 50% voting for it in fourth place. Governance and Strategy were voted first by 33.3% of stakeholders, respectively, with Strategy not placed fourth in any responses. Figure 3.4. Responses to the Question: Please rank the following pillars on how useful they are to emerging market users for sustainability reporting. Rank Options First Choice Last Choice 1 Governance 2 Strategy 3 Risk Management 4 Metrics and Targets Elevating Environmental, Social, and Governance Reporting in Emerging Markets 29 The stakeholders reported facing several challenges in ESG reporting, particularly for emerging market firms and regulators: > Transition to Mandatory Reporting: Moving from non-mandatory to mandatory reporting is a significant challenge, requiring time and input from stakeholders. Regulators/ audit/ assurance/ data providers/ those connected to the corporate reporting environment need time to develop pragmatic solutions to achieve the level of reporting required. > Data Availability: Access to reliable data is a common issue, especially for smaller companies and those in emerging markets. Storage mechanisms for past data and reports are also required for SMEs to improve accountability and reliability of reported information. 50% of interviewees said that data availability is a challenge for organizations when completing reports. > Time Constraints: The lack of time to develop and implement new reporting systems is a major challenge for emerging markets. Reporting through multiple standards/frameworks requires additional resources that may not be accessible to smaller organizations. > Regulatory and Compliance Issues: Different jurisdictions have varying requirements, which can create confusion and additional burdens for companies. ESG reporting is not a harmonized system at an international level, and it is difficult to navigate frameworks, so a common understanding is needed. It is important to have the ability to report without undue costs in [the] financial reporting sphere proportionate to size/ capabilities/ processes/ resources available.” – Survey respondent Elevating Environmental, Social, and Governance Reporting in Emerging Markets 30 4 4. TOPIC-RELATED SUSTAINABILITY DISCLOSURE REQUIREMENTS 4.1 Introduction On top of the general reporting requirement sections, the ISSB, ESRS and GRI standards are comprised of topic-specific sustainability disclosure requirements. These requirements cover a report’s disclosures on the following topics: >> Environment (including climate) >> Social >> Governance While the IFC D&T Toolkit is concerned with the Standards) describe the reporting requirements general guidance regarding governance; strategy; undertaken by IFC clients for managing their risks, impacts and opportunities; and performance, environmental and social risks. In addition, the IFC the IFC PSs and the IFC Corporate Governance Climate Governance Progression Matrix (IFC Climate Methodology (known collectively as IFC ESG Governance) is a tool to assist boards of directors in Elevating Environmental, Social, and Governance Reporting in Emerging Markets 31 identifying and overseeing climate-related risks and different perspectives to create a strong base from opportunities. which organizations may report the ISSB, ESRS and GRI requirements with greater ease. The IFC ESG Standards and IFC Climate Governance were built with the goal of helping organizations The sections below present the comparison of the develop a strong base on the above four topic-related sustainability disclosure requirements sustainability and climate topics. While the ISSB, for each standard against the IFC ESG Standards and ESRS and GRI standards approach the topics of IFC Climate Governance, to provide a high-level view environment, social and governance through of the level of alignment. different lenses, the IFC ESG Standards and IFC Climate Governance aim to amalgamate these Table 4.1. ISSB/IFRS S2 - IFC ESG Standards and Climate Governance alignment and comparison summary. ENVIRONMENT GOVERNANCE CLIMATE SOCIAL IFC ESG STANDARDS AND CLIMATE GOVERNANCE PS1 - Assessment and Management of Environmental and N/A Social Risks and Impacts PS2 - Labor and Working Conditions N/A N/A N/A PS3 - Resource Efficiency and Pollution Prevention N/A PS4 - Community Health, Safety, and Security N/A N/A N/A N/A PS5 - Land Acquisition and Involuntary Resettlement N/A N/A N/A N/A PS6 - Biodiversity Conservation and Sustainable N/A N/A N/A Management of Living Natural Resources PS7 - Indigenous Peoples N/A N/A N/A PS8 - Cultural Heritage N/A N/A N/A N/A IFC CLIMATE GOVERNANCE PROGRESSION MATRIX N/A N/A N/A STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities Elevating Environmental, Social, and Governance Reporting in Emerging Markets 32 4.2 Results of the benchmarking analysis: detailed content review 4.2.1 ISSB/IFRS S2 alignment and comparison with > The IFC D&T Framework, mostly in the form of IFC ESG Standards and IFC Climate Governance the IFC’s Climate Governance Progression Matrix, has some alignment with the IFRS S2 Climate- related Disclosures (IFRS S2 Climate Standard) The ISSB standards include the IFRS S2 and the climate-resilience elements of the IFRS Climate-related Disclosures, created in line standards. with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). > The IFC DRAFT D&T Toolkit has references which With S2 making up half of the ISSB standards, the link directly to an excerpt from the IFRS S2 ISSB has strong reporting guidelines built in for Climate Standard. climate-related disclosures and, by extension, > The IFC D&T Framework provides some good environmentally focused disclosures. coverage of most of the requirements of the climate-related risks and opportunities. Table 4.1, on Page 32, shows a high-level summary > Regarding the IFC PSs, standards 1 and 3 have of our findings, setting out the levels of alignment some alignment with the ISSB climate-related between IFRS S2 and the IFC ESG Standards and IFC reporting requirements, whilst the information Climate Governance. within the other Performance Standards is not comparable with the environmental disclosure From the detailed comparison of ISSB alignment requirements set out by the ISSB. with the IFC ESG Standards, the following observations were made: The data collected when using the IFC Climate Governance and requirements from IFC’s PSs 1 and 3 can be re-used by organizations also reporting on the ISSBs IFRS S2 Standards, helping to reduce the workload required to identify new data points. For further details on the analysis of the standards, refer to Appendix B to Appendix E, which provide detailed comparisons per topic. 4.2.2 ESRS alignment and comparison with IFC The table below shows the high-level summary ESG Standards and IFC Climate Governance results of comparing these detailed standards with the IFC ESG Standards and determining the levels of The ESRS were created as technical standards to alignment between them. supplement the CSRD, which aimed to enable entities to publish high-standard, non-financial reporting on environmental, social, and governance topics. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 33 Table 4.2. ESRS ESG Topics - IFC ESG. CIRCULAR ECONOMY WATER AND MARINE BUSINESS CONDUCT RESOURCE USE AND OWN WORKFORCE BIODIVERSITY AND CONSUMERS AND WORKERS IN THE COMMUNITIES VALUE CHAIN ECOSYSTEMS RESOURCES POLLUTION END-USERS ESRS E4 – ESRS S4 – ESRS E5 – ESRS G1 – AFFECTED ESRS S2 – ESRS E3 – ESRS S3 – ESRS S1 – ESRS E2 - ESRS E1 - CLIMATE IFC ESG STANDARDS AND CLIMATE GOVERNANCE PS1 - Assessment and Management of N/A Environmental and Social Risks and Impacts PS2 - Labor and Working Conditions N/A N/A N/A N/A N/A N/A PS3 - Resource Efficiency and Pollution N/A N/A N/A N/A N/A N/A Prevention PS4 - Community Health, Safety, and N/A N/A N/A N/A N/A N/A N/A N/A Security PS5 - Land Acquisition and Involuntary N/A N/A N/A N/A N/A N/A N/A N/A N/A Resettlement PS6 - Biodiversity Conservation and Sustainable Management of Living Natural N/A N/A N/A N/A N/A N/A N/A Resources PS7 - Indigenous Peoples N/A N/A N/A N/A N/A N/A N/A N/A N/A PS8 - Cultural Heritage N/A N/A N/A N/A N/A N/A N/A N/A N/A IFC CLIMATE GOVERNANCE N/A N/A N/A N/A N/A N/A N/A N/A N/A PROGRESSION MATRIX IFC CORPORATE GOVERNANCE N/A N/A N/A N/A N/A N/A N/A N/A N/A METHODOLOGY STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities Elevating Environmental, Social, and Governance Reporting in Emerging Markets 34 improvement on these topics. The IFC PSs Deeper analysis of the two standards revealed the focus on the identification, management and following observations: monitoring of project-related risks and impacts. > The IFC PSs find stronger alignment with the IFC PS 1 sets out requirements for business- ESRS environmental and social standards. operations-level assessment and management Although the PSs, except for Performance systems. The IFC PSs set a minimum bar to be Standard 1: Assessment and Management of met, as opposed to a requirement for on-going, Environmental and Social Risks and Impacts, targeted improvement (which is required were historically project-orientated, they can and by the ESRS). The IFC PSs include the use of have been applied to help corporates understand environmental and social action plans (ESAPs) to the environmental and social matters in relation set out how and when relevant aspects will be to their broader corporate operations and in met if a project has yet to meet all the relevant corporate sustainability reporting. In contrast, standards requirements. the ESRS is designed specifically for corporate > The requirements of the EU CSRD and the ESRS use. are complex and multi-faceted. The IFC D&T > Both the ESRS and IFC PSs consider Framework covers many elements of both EU environmental and social risk, and impact requirements well, but in other areas there is mitigation and management. The ESRS somewhat less alignment. The most relevant require the consideration of these for business difference is the target-setting reporting operations, in which impact refers to positive requirements of the ESRS. and negative sustainability-related impacts > The IFC D&T Framework has strong alignment in from a business’s operations, and risks and its guidance on some core governance matters opportunities refer to sustainability-related such as business conduct, control environment, financial risks and opportunities. The ESRS and board structure and function. ESRS, requirements on corporate environmental and however, provides more clarity on reporting social impact, risk and opportunities include requirements related to payment practices, comparative reporting relative to a base year, political influence and lobbying, and corruption and on-going targets (beyond legal minimum and bribery avoidance. requirements) to encourage continued Reporting on the IFC PSs would enable organizations to gather significant data points which could be reused when reporting on the ESRS Standards. While not all ESRS Standards will be applicable for each organization, the IFC PSs provide a strong foundation of relevant information which can be useful when reporting against almost all ESRS Standard requirements. For further details on the analysis of the standards, refer to Appendix B to Appendix E, which provide detailed comparisons per topic. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 35 4.2.3 GRI alignment and comparison with IFC material topics (GRI 3), and supported by a series Performance Standards on Environmental and of standards around economic performance (GRI Social Sustainability and IFC Climate Governance 200s), the environment (GRI 300s), and social matters (GRI 400s). The Global Reporting Initiative (GRI) is a well- established corporate sustainability reporting The table below shows a high-level summary of framework. It is used by many companies globally, our findings when comparing the GRI Standards including many in emerging economies. with the IFC PSs, setting out the levels of alignment between the two: The GRI framework is made up of a series of different standards around governance and strategy (GRI 2), Table 4.3. GRI - IFC Performance Standards on Environmental and Social Sustainability and IFC Climate Governance alignment and comparison summary. ENVIRONMENT GOVERNANCE CLIMATE SOCIAL IFC PSs AND CLIMATE GOVERNANCE PS1 - Assessment and Management of Environmental and N/A Social Risks and Impacts PS2 - Labor and Working Conditions N/A N/A N/A PS3 - Resource Efficiency and Pollution Prevention N/A PS4 - Community Health, Safety, and Security N/A N/A N/A N/A PS5 - Land Acquisition and Involuntary Resettlement N/A N/A N/A N/A PS6 - Biodiversity Conservation and Sustainable N/A N/A N/A Management of Living Natural Resources PS7 - Indigenous Peoples N/A N/A N/A PS8 - Cultural Heritage N/A N/A N/A N/A IFC CLIMATE GOVERNANCE PROGRESSION MATRIX N/A N/A N/A STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities Elevating Environmental, Social, and Governance Reporting in Emerging Markets 36 manage and mitigate environmental and social From the analysis of these two standards, the risks and impacts. following observations were made: > There is good alignment, in particular, between > The IFC PSs provide some alignment with some the IFC PSs and the GRI Environment (300s) of the GRI Environment (300s) and Social sections, across most of the environment (400s) standards, but somewhat less so for GRI topics covered by the GRI. There are, however, Economic Performance (200s) standards. This differences on how issues of energy are is against a background of the GRI standards as considered by the IFC Performance Standards reporting standards, rather than requirements; and the GRI section on energy. whereas IFC requires its clients to apply its PSs to There is some alignment between the IFC PSs and the GRI Social (400s) sections with many social related topics covered both by the PSs and the GRI. These include topics such as occupational health and safety, child labor, forced or compulsory labor, security practices, rights of indigenous peoples, and local communities; however, there are differences between the two sets of requirements on topics such as employment, labor/management relations, training and education, freedom of association and collective bargaining, public policy, customer health and safety, marketing and labeling, and customer privacy. The IFC PSs, particularly Performance Standard 1, enable organizations to be partially prepared for GRI topic-related sustainability reporting due to similar information being requested, however the GRI Standards require a deeper level of disclosure. For further details on the analysis of the standards, refer to Appendix B to Appendix E, which provide detailed comparisons per topic. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 37 5 5. OVERALL FINDINGS Throughout this report, the IFC D&T Framework has been benchmarked against the IFRS Foundation’s ISSB Standards, the CSRD’s ESRS Standards, and GRI Standards, to identify the areas of alignment between IFC and those various standards. The three-tiered approach, looking at (i) the strategic purpose of each of the standards, (ii) general sustainability reporting requirements, and (iii) topic-related sustainability disclosure requirements, enabled a deeper comparison to help understand precisely where IFC aligns with the global standards. Our overall findings show: > Updates by IFC to the various components of that of the ISSB requirements. The IFC Corporate the D&T Framework have developed stronger Governance Methodology has strong alignment alignment with the ISSB Standards. The four- with IFRS governance reporting requirements. pillar system of “Governance,” “Strategy,” “Risks, > The IFC D&T Framework has strong alignment Impacts and Opportunities,” and “Performance, with multiple areas of the ESRS General Metrics and Targets,” now adopted by IFC, creates Sustainability Requirements. In general, the confidence in its users that the guidance will ESRS are more prescriptive and provide clearer allow them to align their reporting well with information about what is expected to be Elevating Environmental, Social, and Governance Reporting in Emerging Markets 38 disclosed. The IFC ESG Standards have some base year allowing progress measuring and alignment with the ESG topics of the ESRS change, and targets monitoring over time. Environmental and Social Standards. The IFC Definition of short-, medium-, and long-term for Corporate Governance Methodology has strong reporting purposes and risks and opportunities alignment with ESRS governance reporting categorization, and how these definitions are requirements. However, ESRS provides more linked to the entity’s strategic planning horizons clarity on reporting requirements related to and capital allocation plans. payment practices, political influence and > Reporting the resilience of the undertaking's lobbying, and corruption and bribery avoidance. strategy and business model(s) regarding its > The IFC D&T Toolkit has some alignment with capacity to address its material impacts and most of the general organizational, governance, risks, and to take advantage of its material and strategic requirements of GRI 2: General opportunities. Disclosures and GRI 3: Material Topics. The > The concept of transition plans and approaches IFC PSs have strong alignment with some to reporting them. Environment (GRI 300s) and Social (GRI 400s) Standard topics, but further guidance would be > Explicit reference to incentive schemes linked to required for IFC users to align reporting with the sustainability. Economic Performance (GRI 200s) topics, which currently has weak alignment. On the other hand, compared to the ISSB Standards, the IFC ESG Framework provides, through its The ESRS and the ISSB Standards bring additional Performance Standards, greater detail on best- components to sustainability reporting, aligned practice standards to enhance sustainability with recent global trends and wider society desire performance on ESG topics, i.e. labor and working for more transparent and risk-driven information. conditions, resource efficiency and pollution Some of these are highlighted here below: prevention, community health, safety and security, land acquisition and involuntary resettlement, > Value chain outputs and outcomes, in terms biodiversity conservation, indigenous peoples and of current and expected benefits for customers cultural heritage. The IFC D&T Framework aligns and investors, as well as sustainability-related better with the ESRS and the GRI Standards when goals in terms of groups of products and services, supplier and customer categories, geographical referring to these ESG topics. Together with the areas, and relationships with stakeholders. World Bank EHS Guidelines, IFC D&T Framework users have comprehensive and in-depth industry- > Links to past, present, and future within the specific standards to support environmental and reporting period and the establishment of a social good practice. The key outputs from the stakeholder engagement interviews and survey are summarized below: Elevating Environmental, Social, and Governance Reporting in Emerging Markets 39 5.1 Key Outputs The key outputs from the stakeholder engagement interviews and survey are summarized below: 81% of interviewees said that multiple and varying reporting requirements are a challenge for emerging market users. 75% of interviewees discussed interoperability or harmonization between reporting standards. 63% of interviewees mentioned materiality as being an important focus for reporting. The variation between single and double/impact and financial materiality requirements between the various standards was highlighted as a complexity to overcome. 56% of interviewees suggested that collaboration between standard setters would benefit users. 50% of interviewees said that data availability is a challenge for organizations when completing reports. 19% of interviewees recommended that a reporting template would be a useful tool for emerging market users to overcome barriers in understanding what they need to report. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 40 33% of survey respondents ranked Governance and 33% ranked Strategy as the most important pillar to emerging market users for sustainability reporting. 16.7% 33.3% Strategy Governance Risk Management 16.7% Metrics and Targets 33.3% 33% of survey respondents ranked the ISSB as the most useful standard/framework for emerging market users, with 50% ranking the ISSB as the second most useful 16.7% 33.3% First Choice Second Choice Third Choice 50.0% Options Very Somewhat Not very Not at all Don't know GRI ESRS Elevating Environmental, Social, and Governance Reporting in Emerging Markets 41 6 6. SUPPORT, TOOLS, AND FURTHER COLLABORATION The interviews highlighted the importance of ESG reporting standards and frameworks, the challenges faced by organizations in emerging markets, the need for greater support and tools, and the value of collaboration. The transition to mandatory reporting, data processes in place, accessing the data required by availability, and regulatory compliance are these standards can be difficult for SMEs. Data significant challenges, while clear guidance, storage mechanisms are required, allowing for capacity building, and digital tools are essential continuous reference to previous reports and for successful adoption and implementation improvement in the data provided. of new standards. Emerging market users face greater challenges in accessing the resources Complying with multiple regulatory requirements and capital required to adhere to several complex across the value chain is a significant challenge for and demanding reporting requirements. The smaller organizations, with varying jurisdictional move to mandatory reporting will, therefore, reporting guidance affecting the consistency have larger impacts on these users, with value and quality of ESG reports being produced. Users chains potentially located in multiple and varying in emerging markets require clear guidance to jurisdictions. Without established ESG reporting understand which standards and frameworks they Elevating Environmental, Social, and Governance Reporting in Emerging Markets 42 should report in line with, and which aspects of the The interviewees emphasized the need for various ESG report are relevant to their organization and forms of support and tools from IFC to help its value chain. Capacity building was identified emerging markets adopt new standards: as a crucial aspect of this, with opportunities for > Guidance and Clarity: Providing clear guidance providing feedback ensuring that the ideas and and advice is crucial for companies to understand concerns of users is understood and acted upon by and comply with new standards. Bringing clarity the standard-setting bodies. The previous work of to the market - stakeholders do not always IFC in building capacity in emerging markets was understand that two standards, e.g., ISSB and highlighted by interviewees, with future training GRI, can be complimentary. programs needing to follow a similar structure. > Capacity Building: Engaging with stakeholders and building capacity through training and Collaboration and interoperability between support is essential. Engagement in capacity different standards bodies is crucial for creating building is required to identify and address gaps a cohesive and effective reporting environment. in support, rather than just addressing the issue Examples of this have already been achieved, of interoperability. In-person or interactive such as the partnership between IFC and IFRS to sessions were mentioned frequently. highlight alignment between the two frameworks. > Digital Tools: Developing digital tools, Collaboration with IFC users was also suggested such as templates and taxonomies, can help by some interviewees, integrating feedback streamline reporting processes and make mechanisms into the planned training and standards more accessible. A straightforward stakeholder engagement activities to ensure the source of information, e.g., bite-sized chunks needs of organizations are addressed. Developing of information provide easily accessible key tools and support in the local language of IFC users points of research and will take less time for was also important, ensuring that the complexities stakeholders to engage with. of ESG reporting are conveyed accurately. [For a digital tool] a simple approach is preferred, but you need to keep useful information – you can’t make it too simple.” – Survey respondent 50% of interviewees thought that stakeholder engagement is important for improving the interoperability of standards and creating a simplified ecosystem of requirements. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 43 19% of interviewees recommended that a reporting template would be a useful tool for emerging market users to overcome barriers in understanding what they need to report. The need to improve collaboration between the Stakeholders responded that an interactive digital different standards organizations and stakeholders tool would be the most useful format to share was a recurring theme mentioned by interviewees: the outputs from this research report, with 83.3% voting that it would be “extremely useful” and no one > Interoperability: Working towards voting that it would be “not useful.” The idea of PDF interoperability between standards like ISSB, brochures was well received, with 33.3% voting that ESRS, and GRI is seen as beneficial for creating a they would be “extremely useful” and 50% saying cohesive reporting environment. Interoperability is preferred over generating new ideas. that they would be “somewhat useful.” 33.3% of respondents said that alternative formats would be > Knowledge Partnerships: Collaboration with “extremely useful,” including: public authorities and capacity-building partners is already happening and is seen as crucial for > Interactive webinars and workshops, supporting sustainability reporting in emerging newsletters, roadmap markets. > Awareness-raising events throughout the > Digital Tools and Frameworks: Developing countries digital tools that benchmark, guide, and support > Infographics, videos reporting in line with multiple standards is a key goal. There is a need to provide information to > Partnerships with other organizations help organizations understand the connections between impacts and financial data. 38% of interviewees suggested that interactive sessions and/or webinars are a useful way of communicating with users of the IFC D&T Framework. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 44 In-person training would be the most effective to provide feedback in webinars and workshops method to improve alignment across the different being mentioned in interviews, as well as in this frameworks, and an interactive digital tool would be survey. In-person training was emphasized as the an extremely useful format to share the outputs of preferred method by a number of stakeholders in this report’s research outputs. the interviews and was reinforced in the responses above. Webinars were deemed to be useful for These responses align with the desires of engaging with a greater number of stakeholders interviewees for greater collaboration, as well as across differing time zones; but, if possible, simplifying the process of providing sustainability in-person training with more opportunities for reporting guidance. Human interaction was interaction was preferred. preferred mostly over written text, with the ability Figure 6.1. Responses to the Question: Please rate the following formats to facilitate wider communication of the report research outputs. 13% 25% Webinars In-person Training Other 63% Figure 6.2. Responses to the Question: Please rate the following formats to facilitate wider communication of the report research outputs. Options Extremely useful Somewhat useful Neutral Not very useful Not useful PDF Brochures Interactive Digital Tool Excel Spreadsheets Other (type below) 100% 0% 100% Elevating Environmental, Social, and Governance Reporting in Emerging Markets 45 As the landscape of ESG reporting continues to shift disclosure alignment, can assist emerging market and develop, emerging market companies and other organizations in tracking and responding to these IFC D&T Framework users will need to assess the changes to continue to lower the reporting burden impact on their disclosure alignment proactively. for companies in emerging markets. IFC, ever-present in its objective to facilitate Elevating Environmental, Social, and Governance Reporting in Emerging Markets 46 Appendices A. DETAILED GENERAL REQUIREMENTS COMPONENTS ALIGNMENT WITH IFC D&T FRAMEWORK Table A.1 provides details on the alignment level between the IFC D&T Framework and IFRS S1, ESRS E2 and GRI Standards. Working through the IFC Toolkit per section, the IFC Corporate Governance Methodology, and the Climate Governance Progression Matrix, the table provides a detailed understanding of the similarities and differences between the Toolkit and the standards. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 47 Table A.1. Mapping IFRS S1, ESRS 2 and GRI based on the structure of the IFC D&T Framework. STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements IFC D&T FRAMEWORK IFRS S1 AND S2 ESRS 1 AND 2 GRI GENERAL DISCLOSURE GOVERNANCE > Leadership, culture, and commitment to Strong alignment on the board's duties, Strong alignment with the ESRS 2 basis for Strong alignment with the GRI General Disclosures sustainability responsibilities, and role in overseeing sustainability preparation and the objective of the sustainability for the definition of reporting period and suggestion > The company’s objectives and principles and climate-related risks and opportunities within statements and reporting within the company’s of frequency of reporting. (D&T Toolkit / Reporting strategy, risk, and performance. IFC’s Climate sustainability objectives and principles, and Guidance). > The board’s role Governance Progression Matrix provides good disclosure and transparency. Scope of the company’s codes and policies regarding > Rights and treatment of stakeholders and international practice details on this area. Strong alignment over the ESRS 2 Governance pillar, corporate governance, sustainability and ethics shareholders Some alignment on how the entity integrates regarding the board’s duties, responsibilities and role (D&T Toolkit / Governance / Leadership, Culture, and > Governance of sustainability and stakeholder sustainability-related, climate-related risks and overseeing the companies’ sustainability matters. Commitment to Sustainability). engagement opportunities into its strategic objectives, similar to Strong alignment with ESRS 2 Impact, risk, and Some alignment on the entities included in > Consideration of sustainability issued in board D&T Toolkit Strategic Objectives, KPIs & Targets. opportunity management on compliance with laws sustainability reporting (D&T Toolkit / Reporting decision-making, business activities, and and regulation aspects. Guidance); however, less alignment if the strategy Strong alignment with ESRS 2 Strategy pillar organization consists of multiple entities. > Disclosure and transparency regarding business model and value chain on code of Explains the approach used for consolidating the > Compliance with environmental and social conduct and supply chain management. information. laws, regulations, and expectations Weak alignment on contact point for questions > Code of conduct for the company and its about the report or information. supply chain >> Elevating Environmental, Social, and Governance Reporting in Emerging Markets 48 STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements IFC D&T FRAMEWORK IFRS S1 AND S2 ESRS 1 AND 2 GRI GENERAL DISCLOSURE > Structure and functions of the board Strong alignment between IFRS S1 and D&T Toolkit Strong alignment over the ESRS 2 Governance Strong alignment of the organizational structure > Qualifications and independence / Risks, Impacts, and Opportunities Management / pillar, regarding the board’s duties, responsibilities, that defines roles, responsibilities, and authority Management of Material Sustainability Issues when and role overseeing the company’s sustainability to implement the ESMS (Performance Standard > Nomination and appointment discussing the roles of management and the board matters. However, the ESRS takes a broader outlook 1 - Assessment and Management of Environmental > Qualification and skills in overseeing the assessment of sustainability- on this, covering administrative, management, and Social Risks and Impacts). > Independence related risks and opportunities. and supervisory bodies, as opposed to board-level Fully covers the process of nominating and > Diversity, equity, and inclusion Both the D&T toolkit and the ISSB cover the role of oversight; nevertheless, it is the focus of IFC. appointing directors. Also, the roles of the board, > Board work and committees management in assessing and managing climate- nomination committee, and shareholders in related issues, including whether the organization nominating and appointing. Covers diversity, > Board evaluation has assigned climate-related responsibilities to competencies and independence criteria (D&T Toolkit > Management’s role management-level positions or committees, how / Governance / Structure & Functioning of the Board and > Governance of sustainability management monitors climate-related issues, Management). > Oversight of sustainability issues at board and how climate-related issues are addressed in Weak alignment when describing the governance level regard to the company’s products and services structure and committees but is more focused on (Climate Governance Progression Matrix - Section > Oversight coordinated among the corporate risk (D&T Toolkit / Governance / Structure & Functioning C). This is particularly poignant when considering governance, risk, and audit committees of the Board and Management). how management assesses and manages short-, > Oversight by a stand-alone committee or medium-, and long-term materiality of climate- subcommittee dedicated to sustainability related risks and opportunities for the company (Climate Governance Progression Matrix - Section A). Some alignment on how the climate-related adaptation and mitigation are incorporated into the company’s risk governance framework in both reports (Climate Governance Progression Matrix - Section C). Weak alignment on the specific mention of the use of controls and procedures to support the oversight of sustainability-related risks and opportunities. Additionally, while IFC references the ISSB standard, the recommendations are more closely aligned with the TCFD (D&T Toolkit / Strategy / Climate Disclosure - Strategy). >> Elevating Environmental, Social, and Governance Reporting in Emerging Markets 49 STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements IFC D&T FRAMEWORK IFRS S1 AND S2 ESRS 1 AND 2 GRI GENERAL DISCLOSURE > Control environment and risk Strong alignment in identifying the need for Some alignment over the risk management and Some alignment where describing the governance > Internal control system companies to disclose their process to identify, internal controls under the ESRS 2 Governance and management processes, controls, and assess and manage sustainability-related and pillar. Whilst the D&T toolkit provides guidance procedures in place to ensure compliance with > Internal audit function climate-related risks and opportunities in the short, over externalities such as lobbying and political policies and codes of ethics or conduct (D&T Toolkit > Risk governance medium, or long term. The board, risk management contributions, which are key aspects to companies / Governance / Leadership, Culture, and Commitment > Risk appetite committee, or other specialized committee should operating in emerging economies, the ESRS 2 focus to Sustainability). Compliance is the process > Risk assessment and management oversee that management conducts an annual on the upstream and downstream value chain data through which companies demonstrate that they scenario analysis to evaluate the company’s and information availability. have conformed to specific requirements in laws, > Risk oversight resilience (Climate Governance Progression Matrix regulations, contracts, strategies, and policies (D&T > Diversity, equity, and inclusion - Section A). Toolkit / Governance /Control Environment). > Compliance Weak alignment on taking risk into account in The report needs information on training that > Subsidiary governance decisions on major transactions and the trade-offs the organization provides on implementing the > Dividend and tax disclosure associated with risks and opportunities, or on the commitments (D&T Toolkit / Governance / Leadership, specific inputs and parameters used by the entity, Culture, and Commitment to Sustainability). > Lobbying and political contributions or how scenario analysis is used (how the entity Weak alignment on reporting of examples of assesses the effects of the risks). non-compliance and fines incurred (D&T Toolkit / Governance /Control Environment). > Minority shareholders Minority shareholders is not a subject covered Some alignment is found with the ESRS 2 No alignment on describing the processes for the > Ownership and control by the IFRS S1 and S2. The IFC D&T Framework Governance pillar in incentive schemes and highest governance body to ensure that conflicts covers in detail the integration of the company’s references to be considered in the company’s of interest are prevented and mitigated. Reports > Significant direct shareholders sustainability-related performance and minority- remuneration report. whether conflicts of interest are disclosed to > Indirect or deemed ownership shareholders’ governance and rights. stakeholders. > Groups and control chains The IFC D&T Toolkit covers in more detail the integration of the company’s sustainability- > Controlling shareholders related performance and minority- shareholders’ > Compensation governance and rights. > Policy > Actual compensation > Rights of minority shareholders > Board nomination and other minority shareholder rights > Change of control > Related-party transactions > Policy and management process > Details on RPTs >> Elevating Environmental, Social, and Governance Reporting in Emerging Markets 50 STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements IFC D&T FRAMEWORK IFRS S1 AND S2 ESRS 1 AND 2 GRI GENERAL DISCLOSURE > Governance of stakeholder engagement The IFC D&T Toolkit covers in more detail the Strong alignment with ESRS 2 Strategy pillar Strong alignment with describing the policy and > Commitment, policy, and strategy governance of stakeholder engagement. regarding the interests and views of stakeholders, strategy for stakeholder engagement at board including affected communities covered by both and management levels, including identification, > Governance and management frameworks. approach for priority groups, and grievance > Stakeholder identification mechanisms. Describes constituencies identified > Communication and grievance as key company stakeholders and the process of identifying material stakeholders. Describes mechanisms to ensure that stakeholders receive relevant information to address their interests and concerns (D&T Toolkit / Governance / Stakeholder Engagement). Weak alignment on how commitments are communicated to workers, business partners, and other relevant parties. Weak alignment on describing how the stakeholders, who are the intended users of the grievance mechanisms, are involved in the design, review, operation, and improvement of these mechanisms. > Climate Governance Progression Matrix Assessed in the Section 4.1 comparing with the IFRS S2 Assessed in the Section 4.1 comparing with the ESRS E1 Assessed in the Section 4.1 comparing with the GRI STRATEGY > Strategy Some alignment on the risks and opportunities The IFC Toolkit sections on Strategy, Business No alignment on the management overview of > Management overview recognized through scenario analysis and processes Model, External Environment, and Stakeholder the company’s long-term strategy for addressing to incorporate them into the company’s strategy Engagement show strong alignment with the ESRS. significant sustainability-related risks and > Description of the company’s long-term and financial plans (D&T Toolkit / Strategy / Climate In general, ESRS 2 disclosure requirements are more opportunities affecting the company’s business strategy Disclosure - Strategy). prescriptive and provide clearer information about model, value chain, and financial results. > Explanation of the company’s strategy for Describes sustainability- and climate-related risks what is expected to be disclosed. addressing significant sustainability-related and opportunities facing the company and how they Strong alignment with the disclosure requirements risks and opportunities affect the company’s business model, strategy, and related to strategy, business model, and value chain; > Description of the impact of sustainability risk profile (Climate Governance Progression Matrix and material impacts, risks, and opportunities, and risks and opportunities affecting the - Section A & D). their interaction with strategy and business model. company’s business model, value chain, and financial results Weak alignment on the effect of sustainability- related risks and opportunities on decision making. Weak alignment was also noted where the entity’s business model and value chain sustainability- related risks and opportunities are concentrated. >> Elevating Environmental, Social, and Governance Reporting in Emerging Markets 51 STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements IFC D&T FRAMEWORK IFRS S1 AND S2 ESRS 1 AND 2 GRI GENERAL DISCLOSURE > Business model No alignment noted on business model resources Strong alignment with the disclosure requirements Strong alignment, as covers all sections under > Resources and input and input processes, products and services, and related to strategy, business model, and value chain; business model and environment (D&T Toolkit / structure and relationships. and material impacts, risks, and opportunities, and Strategy / Strategy Overview). Describes how the > Business process their interaction with strategy and business model. company is structured. Describes the relationships, > Products and services In general, ESRS 2 disclosure requirements are more resources, and inputs that are key for the business to > Structure and relationships succeed (D&T Toolkit / Strategy / Business Model). prescriptive and provide clearer information about what is expected to be disclosed. Weak alignment on reporting the total number of employees, and a breakdown of this total by gender and by region (D&T Toolkit / Strategy / Business Model). > External business environment No alignment noted on external business Strong alignment with the disclosure requirements Strong alignment, as covers all sections under > Company markets environment including company markets, external related to strategy, business model, and value chain. business model and environment (D&T Toolkit / environment, sustainability, and internal drivers. In general, ESRS 2 disclosure requirements are more Strategy / Strategy Overview). > External environment > Sustainability prescriptive and provide clearer information about what is expected to be disclosed. > Internal drivers > Stakeholder engagement No alignment on stakeholder engagement. Strong alignment with the disclosure requirements Strong alignment on the policy and strategy for > Mapping, identification, and relations related to interests and views of stakeholders. stakeholder engagement at board and management In general, ESRS 2 disclosure requirements are more levels, including identification, approach for priority > Interests and concerns prescriptive and provide clearer information about groups, and grievance mechanisms. Describes > Process and outcome constituencies identified as key company what is expected to be disclosed. > Integration in strategy stakeholders and the process of identifying material stakeholders. Describes mechanisms to ensure that stakeholders receive relevant information to address their interests and concerns (D&T Toolkit / Governance / Stakeholder Engagement). > Strategic objectives, KPIs and Targets Specifically, qualitative and quantitative information Strong alignment with the disclosure requirements Some alignment with strategic objectives reporting > Objectives are not laid out in the D&T toolkit. This includes related to strategy, business model and value requirements, and guidance and objectives. specifics around: the capacity to adjust strategy and chain. KPIs and targets are also considered within > KPIs and Targets Some alignment with KPIs and Targets reporting business model; areas of uncertainty; information the ESRS minimum disclosure requirement topics: requirements, providing an overview of on the inputs the entity used, or key assumptions metrics in relation to material sustainability matters performance against goals and targets related to made and; the reporting period analyzed. and tracking effectiveness of policies and actions the organization's material topics. through targets. >> Elevating Environmental, Social, and Governance Reporting in Emerging Markets 52 STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements IFC D&T FRAMEWORK IFRS S1 AND S2 ESRS 1 AND 2 GRI GENERAL DISCLOSURE > Climate Governance Progression Matrix Strong alignment, as both stipulate that the Assessed in Section 4.2 of this report, which provides a Some alignment in the processes used to identify Strategy board, risk management committee, or other comparison with ESRS E1. climate-related risks and opportunities, as well as specialized committee oversees that management their influence on business, strategy, and financial conducts an annual scenario analysis to evaluate planning. Investors would be able to evaluate the company’s resilience, including a 1.5°C to 2°C or appropriately the impacts of climate change on a lower scenario (Climate Governance Progression company’s business model by understanding how Matrix - Section C). it identifies and manages climate-related risks and how it takes advantage of opportunities (D&T Toolkit / Risks, Impacts, and Opportunities Management / Climate Disclosure - Risk Management). Note that this is mostly content taken from TCFD recommendations and not original IFC content. RISKS, IMPACTS AND OPPORTUNITIES > Management of material sustainability issues The IFC D&T toolkit includes direct reference to IFRS Risk management system approach has some No alignment regarding management of material and GRI definitions of materiality and assessment alignment with the ESRS Impact, Risk, and sustainability issues. > Management systems in place processes. Opportunity Management pillar. The concept of Environment and Social Management Systems Strong alignment is noted in the expectation that (ESMS), used in the Performance Standards, provides disclosures should include the method for assessing a means to anticipate, mitigate, and avoid/minimize material sustainability opportunities and risks; and sustainability impacts. In a similar fashion to the address how often the assessment is performed, 'Policies' as defined in ESRS, the ESMS also provide as well as the roles of management and the board a good vehicle to integrate plans and standards in overseeing the assessment (D&T Toolkit / Risks, into project-level operations, as well as integrate Impacts, and Opportunities Management / Management stakeholder consultation into project delivery. of Material Sustainability Issues). Notably, the ESMS guidance in its current form The expectation that management assesses does not align fully with the ESRS given its focus and manages short-, medium-, and long-term on a single aspect of materiality. Furthermore, the materiality of climate-related risks and opportunities project-level focus of the ESMS would need to be is noted in both standards. The company’s actions broadened to cover corporation-level planning. and responses to climate-related risks and Weak alignment is seen regarding the link between opportunities are proportionate to materiality of materiality and the identification of risks and climate change to the company (Climate Governance opportunities by the ESRS minimum disclosure Progression Matrix - Section C). requirements for policies adopted to manage material sustainability matters and actions and resources in Some disparity is noted as the ISSB does not include relation to material sustainability matters. IFC definitions of materiality clearly separated from that of other standards. Their definition of In general, ESRS 2 disclosure requirements are more prescriptive and provide clearer information materiality appears to be a collection of other about what is expected to be disclosed regarding organizations' information. opportunities, policies, and actions. >> Elevating Environmental, Social, and Governance Reporting in Emerging Markets 53 STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements IFC D&T FRAMEWORK IFRS S1 AND S2 ESRS 1 AND 2 GRI GENERAL DISCLOSURE > Risk management Some alignment, with reports including Risk management system approach has some Some alignment in disclosure, which should include > Risk assessment sustainability-related risks and opportunities that alignment with the ESRS Impact, Risk, and the method for assessing material sustainability could affect the entity's prospects (D&T Toolkit / Opportunity Management pillar. Similarities are opportunities and risks; and address how often > Risk response and mitigation Risks, Impacts, and Opportunities Management), as identified within the description of the process to the assessment is performed, as well as the roles > Sustainability-related risks well as a description of sustainability-related risks identify and assess material issues and to integrate of management and the board in overseeing and opportunities facing the company and how risk management and internal controls. the assessment (D&T Toolkit / Risks, Impacts, and they affect the company's business model, strategy, Opportunities Management / Management of Material and risk profile (D&T Toolkit / Risks, Impacts, and Sustainability Issues). Opportunities Management / Management of Material Weak alignment on specifying the stakeholders and Sustainability Issues). experts involved in the assessment. The organization’s processes for managing climate- related risks should be described, as well as the processes for identifying, assessing, and managing climate-related risks that are integrated into the organization’s overall risk management (D&T Toolkit / Risks, Impacts, and Opportunities Management / Climate Disclosure - Risk Management). Both consider the risk mitigation processes for each significant risk, as well as disaster-recovery and business-continuity plans. The ISSB standards and IFC D&T Toolkit appear to align less concretely when considering future plans of how to respond to significant risks. Differences between the two reports also appear when considering the extent to which, and how, the processes for identifying, assessing, prioritizing and monitoring sustainability-related risks and opportunities are integrated into and inform the entity’s overall risk management process. It must also be noted that while IFC references the ISSB standard, the recommendations are more closely aligned with the TCFD (D&T Toolkit / Risks, Impacts, and Opportunities Management / Climate Disclosure - Risk Management). >> Elevating Environmental, Social, and Governance Reporting in Emerging Markets 54 STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements IFC D&T FRAMEWORK IFRS S1 AND S2 ESRS 1 AND 2 GRI GENERAL DISCLOSURE > Climate Governance Progression Matrix Reports on targets set for addressing climate-related Assessed in Section 4.2 of this report, which provides a Processes used to identify climate-related risks and – Risk management risks and opportunities, objective and period comparison with ESRS E1. opportunities, as well as their influence on business, they apply to, progress toward achieving targets strategy, and financial planning. Investors would and net zero, and interim targets and how they be able to evaluate appropriately the impacts of compare with Paris Agreement, disclosed (Climate climate change on a company’s business model Governance Progression Matrix - Section C). by understanding how it identifies and manages climate-related risks and how it takes advantage of opportunities. (D&T Toolkit / Risks, Impacts, and Opportunities Management / Climate Disclosure - Risk Management). >> Elevating Environmental, Social, and Governance Reporting in Emerging Markets 55 STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements IFC D&T FRAMEWORK IFRS S1 AND S2 ESRS 1 AND 2 GRI GENERAL DISCLOSURE PERFORMANCE, METRICS AND TARGETS > Performance Metrics and Targets Overview Some alignment in that any report should introduce Some alignment is verified between the IFC D&T Some alignment regarding statements of income, > Operational and financial results financial and sustainability targets and KPIs with Framework guidance and the ESRS. Whilst IFC balance sheet, statement of cash flows (D&T Toolkit / links to the high-level priorities and long-term details the financial elements of the performance Performance Metrics and Targets / Financial Statements). > Liquidity and capital requirements strategy. Both consider it best practice to suggest overview, the ESRS presents detailed topic > Investments and initiatives that strategic objectives should be translated into disclosure requirements for ESG components, > Intangibles specific and measurable targets or goals (D&T building connection to the double materiality > Material changes and future trends Toolkit / Strategy / Strategic Objectives, Key Performance aspects of impacts, risks, and opportunities. Indicators, and Targets). > Forward-looking information Climate-related metrics and targets, quantitative where possible and based on accepted methodologies, are set and publicly disclosed (Climate Governance Progression Matrix - Section A). Net-zero climate targets adopted and/or the company is a member of an internationally recognized net-zero initiative (Climate Governance Progression Matrix - Section A). Both reports describe the impact of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning (D&T Toolkit / Strategy / Climate Disclosure - Strategy). Alignment noted on the performance overview, which presents an analysis of financial, operational and sustainability performance. Both the ISSB standards and D&T Toolkit discuss the material changes in operational or financial performance and driving forces, including ESG impacts (D&T Toolkit /Performance Metrics and Targets / Performance Overview). IFC does not specify performance against each target individually, while the IFRS do. >> Elevating Environmental, Social, and Governance Reporting in Emerging Markets 56 STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements IFC D&T FRAMEWORK IFRS S1 AND S2 ESRS 1 AND 2 GRI GENERAL DISCLOSURE > Financial statements and performance Some alignment regarding the impact of climate- Some alignment is verified between the IFC D&T Some alignment regarding statements of income, related risks and opportunities on the organization’s Framework guidance and the ESRS. Whilst IFC balance sheet, statement of cash flows (D&T Toolkit / businesses, strategy, and financial planning should details the financial elements of the performance Performance Metrics and Targets / Financial Statements). be referenced (D&T Toolkit / Strategy / Climate overview, the ESRS presents detailed topic Briefly mentions tax disclosures in the Disclosure Disclosure - Strategy). disclosure requirements for ESG components, and Transparency section of the Model Structure of This should extend to include discussions of the building connection to the double materiality Annual Report table (D&T Toolkit / Model Structure of products and services available, supply / value aspects of impacts, risks, and opportunities. Annual Report). chain, adaptation and mitigation activities, and Weak alignment with the level of guidance provided. investment in research and development to name a few (D&T Toolkit / Strategy / Climate Disclosure - Strategy). Some alignment on the likelihood and magnitude of the impact of significant risk events on operational and financial performance over the short, medium or long term (D&T Toolkit / Risks, Impacts, and Opportunities Management). > Sustainability performance Some alignment in recommendation that ESRS 2 disclosure requirements are more prescriptive Some alignment regarding contribution to companies should disclose GHG Scope 1 (direct) and and have been used as example within the toolkit sustainable development. Sustainability Scope 2 (indirect) emissions on an intensity and on how to disclose KPI and target elements in the performance reporting should also provide an absolute basis (Climate Governance Progression sustainability report. account of a company's contribution to broader Matrix - Section D). The ESRS specifically states that the performance, societal and sustainability goals (e.g., Sustainable The ISSB goes a step further and specifically metrics, and targets disclosures shall be presented Development Goals, Paris Climate Agreement) (D&T measures its greenhouse gas emissions in alongside disclosures prescribed by the topical (ESG) Toolkit / Performance Metrics and Targets / Sustainability accordance with the Greenhouse Gas Protocol: ESRS. Performance). A Corporate Accounting and Reporting Standard Weak alignment regarding how to track the Needs a clearer strategy for contributing to (2004). This applies to projects producing less than effectiveness of policies and actions through targets, sustainable development. 25,000 tons of CO2, as well. considerably more prescriptive within the ESRS 2 requirements. > Financial statement audit and sustainability No alignment on financial statement audit and No alignment on financial statement audit and No alignment on financial statement audit and assurance sustainability assurance. sustainability assurance. sustainability assurance. > Audit of financial information > Resources > Sustainability assurance > Oversight of audit and assurance processes >> Elevating Environmental, Social, and Governance Reporting in Emerging Markets 57 STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements IFC D&T FRAMEWORK IFRS S1 AND S2 ESRS 1 AND 2 GRI GENERAL DISCLOSURE > Sustainability performance and extra financial Some alignment on the extra financial analysis Weak alignment regarding time-bound outcome- No alignment regarding sustainability performance analysis helping to identify channels for how sustainability oriented targets, policy objective requirements, and extra financial analysis. impacts financial performance, focusing on which within the ESRS is required to address the impacts on the main elements of company material impacts, risks, and opportunities. valuation, such as revenue and costs, assets and liabilities, cost of capital and scenario planning (D&T Toolkit / Performance Metrics and Targets / Sustainability Performance). While this topic is mentioned by IFC, more details could be included. > Financial impact of climate change Some alignment on how the board oversees Assessed in Section 4.2 of this report, which provides a Some alignment surrounding the processes used that management has set an internal price on comparison with ESRS E1. to identify climate-related risks and opportunities, carbon to understand how climate change affects as well as their influence on business, strategy, the company now and in the future (Climate and financial planning. Investors would be able Governance Progression Matrix - Section B). to evaluate appropriately the impacts of climate change on a company’s business model by understanding how it identifies and manages climate-related risks and how it takes advantage of opportunities (D&T Toolkit / Risks, Impacts, and Opportunities Management / Climate Disclosure - Risk Management). > Climate Governance Progression Matrix Assessed in Section 4.1 of this report, which provides a Assessed in Section 4.2 of this report, which provides a Assessed in Section 4.3 of this report, which provides a comparison with IFRS S2. comparison with ESRS E1. comparison with GRI. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 58 B. DETAILED “CLIMATE” COMPARISON BETWEEN ISSB, ESRS, GRI AND IFC D&T FRAMEWORK As climate is a topic of great worldwide importance, many reporting standards have integrated climate disclosures into their reporting requirements. The ISSB standards include the IFRS S2 Climate-related Disclosures, created in line with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). The CSRD provides a framework for the information that companies within its scope should report. This relates to information regarding both a company’s impact on climate-related topics and the impact of climate on the company and its finances, in accordance with ESRS E1 (climate change). In a similar fashion, the GRI framework is supported by a series of standards around environmental matters relating to the impact of climate change. IFC also includes climate-related disclosures within its disclosure requirements through its PSs. Made up of eight standards, the PSs describe the responsibilities of IFC’s clients for managing climate risks, among others. The table below showcases a high-level view of the alignment and comparisons between the ISSB, ESRS, and GRI standards and the IFC D&T Framework on climate topics. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 59 Table B.1. ISSB/ESRS/GRI alignment and comparison with IFC D&T Framework. STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements IFC D&T FRAMEWORK IFRS S2 ESRS E1 GRI Climate Governance Progression Matrix Strong alignment regarding how the board Strong alignment regarding the structure and Some alignment between both standards oversees that management has set an internal functioning of the board of directors. regarding the processes used to identify climate- price on carbon to understand how climate Some alignment regarding the scope of the related risks and opportunities, as well as their change affects the company now and in the resilience analysis and how the resilience influence on business, strategy, and financial future (Climate Governance Progression Matrix analysis has been conducted, including the use planning. Investors would be able to evaluate - Section B). of climate scenario analysis and results. appropriately the impacts of climate change on Reports on targets set for addressing climate- a company’s business model by understanding Strong alignment about how companies shall related risks and opportunities, objective and how it identifies and manages climate- describe the process to identify and assess period they apply to, progress toward achieving related risks and how it takes advantage of climate-related impacts, risks, and opportunities; targets and net zero, and interim targets and opportunities. Noting that this is mostly content climate-related physical risks in own operations how they compare with Paris Agreement taken from TCFD recommendations transcribed and along the value chain; and climate-related disclosed (Climate Governance Progression to IFC documents. transition risks and opportunities in own Matrix - Section C). operations and along the value chain. Both reports stipulate that the board, risk Some alignment regarding reporting of management committee, or other specialized gross scope 1, 2 and 3, but lacks further committee oversees that management conducts recommendations to assess and report GHG an annual scenario analysis to evaluate the intensity based on net revenue. company’s resilience, including a 1.5°C to 2°C or In general, the ESRS E1 is more prescriptive and lower scenario (Climate Governance Progression provides clear instruction on how companies Matrix - Section C). shall disclose whether the performance of members of the administrative, management, and supervisory bodies has been assessed against the GHG emission reduction targets reported under Disclosure Requirement E1-4. ESRS E1 specifies GHG-related performance metrics and requires evidence of effective tracking of policies and actions through targets. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 60 C. DETAILED “ENVIRONMENTAL” COMPARISON BETWEEN ISSB, ESRS, GRI AND IFC PERFORMANCE STANDARDS ON ENVIRONMENTAL AND SOCIAL SUSTAINABILITY Covering topics ranging from pollution, water management, and biodiversity, the environmental disclosure requirements across the ISSB, ESRS and GRI standards cover broad subject matters, as well as setting disclosure requirements based around risks and impacts. The IFC Performance Standards on Environmental and Social Sustainability, made up of eight standards and the Corporate Governance Methodology, describe IFC clients’ responsibilities for managing environmental risks. Using these as our basis of comparison, the following sections compare the three standards with the IFC ESG Standards. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 61 C.1 ISSB/IFRS S1 alignment and comparison with IFC Performance Standards on Environmental and Social Sustainability Table C.1. ISSB/IFRS S1 - IFC Performance Standards on Environmental and Social Sustainability components alignment and comparison. IFC PSs ISSB/IFRS S1 AND IFRS S2 > PS1 - Alignment with ISSB/IFRS S1 paragraph 33: Regarding performance indicators and targets tracked over defined time periods as part of wider environmental Assessment and Management of Environmental and Social Risks and and social action plans which define desired outcomes and actions to address risks and impacts. (Performance Standard 1 - Assessment and Management of Impacts Environmental and Social Risks and Impacts). > PS2 - N/A Labor and Working Conditions > PS3 - Alignment with ISSB/IFRS S2 paragraph 29a: When quantifying direct and indirect (Scopes 1,2,3) emissions from projects. Quantification conducted annually in Resource Efficiency and Pollution Prevention accordance with internationally recognized methodologies and good practice (Performance Standard 3 - Resource Efficiency and Pollution Prevention). > PS4 - N/A Community Health, Safety, and Security > PS5 - N/A Land Acquisition and Involuntary Resettlement > PS6 - Biodiversity Conservation and Sustainable Management of Living N/A Natural Resources > PS7 - N/A Indigenous Peoples > PS8 - N/A Cultural Heritage Elevating Environmental, Social, and Governance Reporting in Emerging Markets 62 C.2 ESRS topic standards alignment and comparison with IFC ESG Standards Table C.2. ESRS Environmental Topic Standards - IFC Performance Standards components alignment and comparison. STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements ESRS E2 – ESRS E3 – ESRS E4 – ESRS E5 – IFC PSs POLLUTION WATER AND MARINE RESOURCES BIODIVERSITY AND ECOSYSTEMS RESOURCE USE AND CIRCULAR ECONOMY GOVERNANCE > PS1 - Some alignment regarding the Some alignment regarding the Some alignment regarding the Some alignment regarding the Assessment and implementation of a robust environmental implementation of a robust environmental implementation of a robust environmental implementation of a robust environmental Management of and social assessment and management and social assessment and management and social assessment and management and social assessment and management Environmental and Social system, supported by a sustainability system, supported by a sustainability system, supported by a sustainability system, supported by a sustainability Risks and Impacts policy, promoting adequate level of policy, promoting adequate level of policy, promoting adequate level of policy, promoting adequate level of management of impacts, risks, and management of impacts, risks, and management of impacts, risks, and management of impacts, risks, and opportunities of sustainability matters. opportunities of sustainability matters. opportunities of sustainability matters. opportunities of sustainability matters. > PS2 - N/A N/A N/A N/A Labor and Working Conditions > PS3 - The ESRS E2 topic disclosure The ESRS E3 topic disclosure N/A The ESRS E5 topic disclosure requirements Resource Efficiency and requirements have some alignment with requirements have some alignment with have some alignment with the PS3 Pollution Prevention the PS3 elements, which partially cover the PS3 elements, specifically related to elements, specifically related to actions elements such as actions and resources actions and resources related to water and resources related to resource use and related to pollution of air, water and soil, and marine resources, targets related to circular economy, and targets related to targets, and substances of concern. water and marine resources, and water resource use and circular economy. Weak alignment was found regarding the consumption. Weak alignment was found regarding the description of the processes to identify Weak alignment was found regarding the description of the processes to identify and assess material pollution-related description of the processes to identify and assess material resource use and impacts, risks, and opportunities, policies and assess material water and marine circular economy-related impacts, risks, related to pollution and, potential resources-related impacts, risks, and and opportunities, policies related to financial effects from material pollution- opportunities, policies related to water resource use and circular economy, and related risks and opportunities. The and marine resources and potential potential financial effects from resource ESRS E2 is, in general, more prescriptive financial effects from water and marine use and circular economy-related risks regarding what is required to be resources-related risks and opportunities. and opportunities. The ESRS E5 is, in disclosed, if material. The ESRS E3 is, in general, more general, more prescriptive regarding what prescriptive regarding what is required to is required to be disclosed, if material. be disclosed, if material. >> Elevating Environmental, Social, and Governance Reporting in Emerging Markets 63 STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements ESRS E2 – ESRS E3 – ESRS E4 – ESRS E5 – IFC PSs POLLUTION WATER AND MARINE RESOURCES BIODIVERSITY AND ECOSYSTEMS RESOURCE USE AND CIRCULAR ECONOMY > PS4 - Some alignment regarding identification N/A N/A N/A Community Health, and management of safety of hazardous Safety, and Security materials. > PS5 - N/A N/A N/A N/A Land Acquisition and Involuntary Resettlement > PS6 - N/A N/A The ESRS E4 topic disclosure requirements N/A Biodiversity Conservation have strong alignment with the PS6 and Sustainable elements, specifically related to the Management of Living description of processes to identify and Natural Resources assess material biodiversity and ecosystem- related impacts, risks, and opportunities; actions and resources related to biodiversity and ecosystems; and targets related to biodiversity and ecosystem. Some alignment is found regarding the interaction of the material impacts, risks, and opportunities with strategy and business model, and potential financial effects. Reporting elements regarding transition plan on biodiversity and ecosystems find weak alignment between the PS6 and the requirements from the ESRS E4. The ESRS E4 is, in general, more prescriptive regarding what is required to be disclosed, if material. > PS7 - N/A N/A N/A N/A Indigenous Peoples > PS8 - N/A N/A N/A N/A Cultural Heritage Elevating Environmental, Social, and Governance Reporting in Emerging Markets 64 C.3 GRI alignment and comparison with IFC Performance Standards on Environmental and Social Sustainability Table C.3. GRI Environmental Standards - IFC Performance Standards on Environmental and Social Sustainability component alignment and comparison. STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements IFC PSs GRI > PS1 - Some alignment with GRI 308: Supplier Environmental Assessment on how the process may comprise a full-scale environmental and social impact Assessment and Management of Environmental and Social Risks and assessment, a limited or focused environmental and social assessment, or straightforward application of environmental siting, pollution standards, design Impacts criteria, or construction standards. Weak alignment on the specific information on suppliers. > PS2 - No alignment with GRI environment topics. Labor and Working Conditions > PS3 - Some context provided in IFC Performance Standard 3 - Resource Efficiency and Pollution Prevention) to align with GRI 302: Energy. Resource Efficiency and Pollution Prevention Alignment with GRI 303: Water and Effluents by discussing measures that avoid or reduce water usage so that the project’s water consumption does not have significant adverse impacts on others. Weak alignment on quantification of water consumption. Some alignment with GRI 306: Waste, as IFC discusses waste generation and where waste cannot be recovered or reused, the client will treat, destroy, or dispose of it in an environmentally sound manner that includes the appropriate control of emissions and residues resulting from the handling and processing of the waste material. But weak alignment on the inputs, activities, and outputs that lead or could lead to impacts from waste generation. Also, specifics on management processes. A description of the processes used to determine whether the third party manages the waste in line with contractual or legislative obligations. Also, total weight of waste generated, diverted, and directed to disposal in metric tons, and a breakdown of this total by composition of the waste. > PS4 - Some alignment with GRI 410: Security Practices and GRI 413: Local Communities. Community Health, Safety, and Security Some alignment with GRI 414: Supplier Social Assessment. > PS5 - No alignment with GRI environment topics. Land Acquisition and Involuntary Resettlement > PS6 - Some alignment with GRI 304: Biodiversity through guidance on how operations should avoid damage to protected areas and impacts on biodiversity. Biodiversity Conservation and Sustainable Management of Living Invasive species, habitat conversion, and ecosystem services covered. Natural Resources Some alignment on specific details on operational sites in or next to protected areas and areas of high biodiversity value and construction or use of manufacturing plants, mines, and transport infrastructure. Reduction of species. Species affected, duration of impacts, reversibility of impacts. > PS7 - Alignment with GRI 411: Rights of Indigenous Peoples and GRI 413: Local Communities. Indigenous Peoples Some alignment with GRI 414: Supplier Social Assessment. > PS8 - Some alignment with GRI 414: Supplier Social Assessment. Cultural Heritage Elevating Environmental, Social, and Governance Reporting in Emerging Markets 65 D. DETAILED “SOCIAL” COMPARISON BETWEEN ESRS, GRI AND IFC PERFORMANCE STANDARDS ON ENVIRONMENTAL AND SOCIAL SUSTAINABILITY Covering topics ranging from own workforce to affected communities, the social disclosure requirements across the ISSB, ESRS and GRI standards cover broad subject matters, as well as setting disclosure requirements based around risks and impacts. The following sections compare the social requirements of each set of standards to the IFC PSs. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 66 D.1 ESRS alignment and comparison with IFC Performance Standards on Environmental and Social Sustainability Table D.1. ESRS Social Topic Standards - IFC Performance Standards on Environmental and Social Sustainability components alignment and comparison. STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements ESRS S1 – ESRS S2 – ESRS S3 – ESRS S4 – IFC PSs OWN WORKFORCE WORKERS IN THE VALUE CHAIN AFFECTED COMMUNITIES CONSUMERS AND END-USERS > PS1 - Some alignment regarding the Weak alignment. PS1 recommends Strong alignment. Affected communities No alignment found with IFC PS Assessment and implementation of a robust that “where the client can reasonably is a theme consistently covered by the requirements. The ESRS S4 requires Management of environmental and social assessment exercise control, the risks and impacts IFC PS4 and supported by requirements disclosure regarding policies related Environmental and Social and management system, supported by a identification process will also consider from other PSs such as PS1 stakeholder to consumers and end-users; targets Risks and Impacts sustainability policy, promoting adequate those risks and impacts associated with engagement requirements, PS2 supply related to managing material negative level of management of impacts, risks, primary supply chains.” chain requirements, PS5 displacement impacts, advancing positive impacts, and opportunities of sustainability requirements, and the entirety of the and managing material risks and matters. requirements from PS7 and PS8. opportunities; processes to remediate negative impacts and channels for consumers and end-users to raise concerns; and taking action on material impacts on consumers and end-users, and approaches to mitigating material risks and pursuing material opportunities related to consumers and end-users, and effectiveness of those actions. Weak alignment of these requirements can be found in the IFC Climate Governance Progression Matrix, regarding the processes for engaging with consumers and end-users about impacts. >> Elevating Environmental, Social, and Governance Reporting in Emerging Markets 67 STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements ESRS S1 – ESRS S2 – ESRS S3 – ESRS S4 – IFC PSs OWN WORKFORCE WORKERS IN THE VALUE CHAIN AFFECTED COMMUNITIES CONSUMERS AND END-USERS > PS2 - The ESRS S1 topic disclosures find strong Weak alignment. Workers in the value Strong alignment. Affected communities N/A Labor and Working alignment with the PS2 elements related chain is a topic only touched on briefly is a theme consistently covered by the Conditions to processes to remediate negative by IFC when it comes to the value chain IFC PS4 and supported by requirements impacts and channels for own workers element.“To protect workers, including from other PSs such as PS1 Stakeholder to raise concerns; action on material vulnerable categories of workers such engagement requirements, PS2 supply impacts on own workforce, and as children, migrant workers, workers chain requirements, PS5 displacement approaches to mitigating material risks engaged by third parties, and workers in requirements, and the entirety of the and pursuing material opportunities the client’s supply chain.” The Company requirements from PS7 and PS8. related to own workforce, and should change supply chains if it were to effectiveness of those actions; adequate believe that the supplier is using child, wages; social protection; persons with forced or unsafe labor. No targets or disabilities; health and safety indicators metrics given to measure performance. and; incidents, complaints and severe The ESRS S2 is more prescriptive human rights impacts and incidents. regarding what is required to be Some alignment is found for disclosures disclosed, if material. related to material impacts, risks, and opportunities and their interaction with strategy and business model; targets related to managing material negative impacts, advancing positive impacts, and managing material risks and opportunities; collective bargaining coverage and social dialogue and compensation indicators (pay gap and total compensation). Weak alignment is found related to processes for engaging with own workers and workers’ representatives about impacts, characteristics of the company’s employees; diversity indicators; training and skills development indicators and; work-life balance indicators. > PS3 - N/A N/A N/A N/A Resource Efficiency and Pollution Prevention >> Elevating Environmental, Social, and Governance Reporting in Emerging Markets 68 STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements ESRS S1 – ESRS S2 – ESRS S3 – ESRS S4 – IFC PSs OWN WORKFORCE WORKERS IN THE VALUE CHAIN AFFECTED COMMUNITIES CONSUMERS AND END-USERS > PS4 - N/A N/A Strong alignment. Affected communities N/A Community Health, is a theme consistently covered by the Safety, and Security IFC PS4 and supported by requirements from other PSs such as PS1 Stakeholder engagement requirements, PS2 supply chain requirements, PS5 displacement requirements, and the entirety of the requirements from PS7 and PS8. > PS5 - N/A N/A Strong alignment. Affected communities N/A Land Acquisition and is a theme consistently covered by the Involuntary Resettlement IFC PS4 and supported by requirements from other PSs such as PS1 Stakeholder engagement requirements, PS2 supply chain requirements, PS5 displacement requirements, PS6 Ecosystem Services requirements, and the entirety of the requirements from PS7 and PS8. > PS6 - N/A N/A Strong alignment. Affected communities N/A Biodiversity Conservation is a theme consistently covered by the and Sustainable IFC PS4 and supported by requirements Management of Living from other PSs such as PS1 Stakeholder Natural Resources engagement requirements, PS2 supply chain requirements, PS5 displacement requirements, PS6 Ecosystem Services requirements. and the entirety of the requirements from PS7 and PS8. > PS7 - N/A N/A Strong alignment. Affected communities N/A Indigenous Peoples is a theme consistently covered by the IFC PS4 and supported by requirements from other PSs such as PS1 Stakeholder engagement requirements, PS2 supply chain requirements, PS5 displacement requirements, PS6 Ecosystem Services requirements, and the entirety of the requirements from PS7 and PS8. >> Elevating Environmental, Social, and Governance Reporting in Emerging Markets 69 STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements ESRS S1 – ESRS S2 – ESRS S3 – ESRS S4 – IFC PSs OWN WORKFORCE WORKERS IN THE VALUE CHAIN AFFECTED COMMUNITIES CONSUMERS AND END-USERS > PS8 - N/A N/A Strong alignment. Affected communities N/A Cultural Heritage is a theme consistently covered by the IFC PS4 and supported by requirements from other PSs such as PS1 Stakeholder engagement requirements, PS2 supply chain requirements, PS5 displacement requirements, PS6 Ecosystem Services requirements, and the entirety of the requirements from PS7 and PS8. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 70 D.2 GRI alignment and comparison with IFC Performance Standards on Environmental and Social Sustainability Table D.2. GRI Social Standards - IFC Performance Standards on Environmental and Social Sustainability components alignment and comparison. STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements IFC PSs GRI > PS1 - Strong alignment with GRI 413: Local Communities, as IFC mentions the process may comprise a full-scale environmental and social impact assessment, Assessment and Management of Environmental and Social Risks and a limited or focused environmental and social assessment, or straightforward application of environmental siting, pollution standards, design criteria, or Impacts construction standards. External communications. Grievance mechanisms. Less alignment on information on works councils, occupational health and safety committees, and suppliers. > PS2 - Strong alignment with GRI 403: Occupational Health and Safety on how the client will provide a safe and healthy work environment, taking into account Labor and Working Conditions inherent risks in its particular sector and specific classes of hazards in the client’s work areas, including physical, chemical, biological, and radiological hazards, and specific threats to women. Less alignment on a list of the standards/guidelines. A description of the scope of workers, activities, and workplaces covered by the occupational health and safety management system, and an explanation of whether and, if so, why any workers, activities, or workplaces are not covered. Strong alignment with GRI 405: Diversity and Equal Opportunity on how the client will not make employment decisions on the basis of personal characteristics unrelated to inherent job requirements. Less alignment with the percentage of employees and individuals within the governance bodies in each diversity category. Strong alignment with GRI 406: Non-discrimination on how the client will not make employment decisions on the basis of personal characteristics unrelated to inherent job requirements. The client will base the employment relationship on the principle of equal opportunity and fair treatment and will not discriminate with respect to any aspects of the employment relationship, such as recruitment and hiring, compensation (including wages and benefits), working conditions and terms of employment, access to training, job assignment, promotion, termination of employment or retirement, and disciplinary practices. Less alignment on specifics of policies and procedures. Strong alignment with GRI 408: Child Labor on how the client will not employ children in any manner that is economically exploitative or is likely to be hazardous or to interfere with the child’s education, or to be harmful to the child’s health or physical, mental, spiritual, moral, or social development. The client will identify the presence of all persons under the age of 18. Where national laws have provisions for the employment of minors, the client will follow those laws applicable to the client. Less alignment on specific information on the operations and suppliers considered to have significant risk of incidents. Measures taken by the organization to contribute to effective abolition of child labor. Some alignment with GRI 409: Forced or Compulsory Labor as it mentions not engaging in forced labor. Less alignment with information on operations and suppliers considered to have significant risk for incidents of forced or compulsory labor. Measures taken by the organization in the reporting period intended to contribute to the elimination of all forms of forced or compulsory labor. >> Elevating Environmental, Social, and Governance Reporting in Emerging Markets 71 STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements IFC PSs GRI > PS3 - Strong alignment with GRI 413: Local Communities, as IFC mentions that the client will evaluate the risks and impacts to the health and safety of the Resource Efficiency and Pollution Prevention Affected Communities during the project life cycle and will establish preventive and control measures consistent with good international industry practice (GIIP), 1 such as in the World Bank Group Environmental, Health and Safety Guidelines (EHS Guidelines) or other internationally recognized sources. > PS4 - No alignment with GRI social topics. Community Health, Safety, and Security > PS5 - No alignment with GRI social topics. Land Acquisition and Involuntary Resettlement > PS6 - No alignment with GRI social topics. Biodiversity Conservation and Sustainable Management of Living Natural Resources > PS7 - Some alignment with GRI 411: Rights of Indigenous Peoples, as it mentions that the client will identify, through an environmental and social risks and Indigenous Peoples impacts assessment process, all communities of indigenous peoples within the project area of influence who may be affected by the project, as well as the nature and degree of the expected direct and indirect economic, social, cultural (including cultural heritage), and environmental impacts on them. However, specific reporting guidance is needed. > PS8 - No alignment with GRI social topics. Cultural Heritage Elevating Environmental, Social, and Governance Reporting in Emerging Markets 72 E. DETAILED “GOVERNANCE” COMPARISON BETWEEN ESRS, GRI, AND IFC ESG STANDARDS An important topic in any standard, governance helps guide organizations in shaping their strategy to integrate sustainability topics at all levels. The following sections compare the three standards with the IFC ESG Standards. E.1 ESRS alignment and comparison with IFC ESG Standards The following elements covered within ESRS G1 have some to strong alignment with the IFC D&T Toolkit Governance pillar, the IFC Corporate Governance Methodology and the IFC Climate Governance Progression Matrix: > Business conduct policies and corporate culture > Management relationship with suppliers > Whistleblower protection mechanisms and > Animal welfare However, ESRS G1 provides more prescriptive guidance regarding the following elements: > Payment practices, specifically with regard to late payment to small- and medium-enterprises (SMEs) > Engagement by the undertaking to exert its political influence, including lobbying > Avoiding corruption and bribery. See the table below for further details. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 73 Table E.1. ESRS Governance Topic Standard - IFC ESG Standards components alignment and comparison. STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements IFC PSs ESRS G1 – BUSINESS CONDUCT > PS1 - Some alignment regarding the implementation of a robust environmental and social assessment and management system, supported by a sustainability Assessment and Management of Environmental and Social Risks and policy, promoting adequate level of management of impacts, risks, and opportunities of sustainability matters. Impacts > PS2 - Protection of whistle-blowers disclosure requirements have some alignment with PS2 standards. Labor and Working Conditions > PS3 - N/A Resource Efficiency and Pollution Prevention > PS4 - N/A Community Health, Safety, and Security > PS5 - N/A Land Acquisition and Involuntary Resettlement > PS6 - Animal welfare disclosure requirements have some alignment with PS6 standards. Biodiversity Conservation and Sustainable Management of Living Natural Resources > PS7 - N/A Indigenous Peoples > PS8 - N/A Cultural Heritage > IFC Corporate Governance Methodology Strong alignment on the board's duties and responsibilities. Strong alignment in identifying the need for companies to disclose their process to identify, assess and manage sustainability-related and climate-related risks and opportunities in the short, medium, or long term. Some alignment on how the entity integrates sustainability-related, climate-related risks and opportunities into its strategic objectives. Weak alignment on the specific mention of the use of controls and procedures to support the oversight of sustainability-related risks and opportunities. Weak alignment on taking risk into account in decisions on major transactions and the trade-offs associated with risks and opportunities, or on the specific inputs and parameters used by the entity, or how scenario analysis is used (how the entity assesses the effects of the risks). Elevating Environmental, Social, and Governance Reporting in Emerging Markets 74 E.2 GRI alignment and comparison with IFC ESG Standards Table E.2. GRI Governance Standards - IFC ESG Standards component alignment and comparison. STRONG alignment/similarities SOME alignment/similarities WEAK alignment/similarities NO alignment/similarities Beyond the requirements IFC PSs GRI > PS1 - Strong alignment with GRI 2: Governance through guidance on describing the organizational structure that defines roles, responsibilities, and authority to Assessment and Management of Environmental and Social Risks and implement the ESMS (Performance Standard 1 - Assessment and Management of Environmental and Social Risks and Impacts). Impacts Strong alignment with GRI 2: Strategy, Policies and Practices through guidance on the grievance mechanisms that the organization has established or participates in. Strong alignment with GRI 3: Material Topics through guidance on how the client will establish and maintain a process for identifying the environmental and social risks and impacts of the project. Also, management programs that, in sum, will describe mitigation and performance improvement measures and actions that address the identified environmental and social risks and impacts of the project. > PS2 - N/A Labor and Working Conditions > PS3 - N/A Resource Efficiency and Pollution Prevention > PS4 - N/A Community Health, Safety, and Security > PS5 - N/A Land Acquisition and Involuntary Resettlement > PS6 - N/A Biodiversity Conservation and Sustainable Management of Living Natural Resources > PS7 - N/A Indigenous Peoples > PS8 - N/A Cultural Heritage > IFC Corporate Governance Methodology Strong alignment of the organizational structure that defines roles, responsibilities, and authority to implement the ESMS. Fully covers the process of nominating and appointing directors. Also, the roles of the board, nomination committee, and shareholders in nominating and appointing. Strong alignment with describing the policy and strategy for stakeholder engagement at board and management levels, including identification, approach for priority groups, and grievance mechanisms. Some alignment where describing the governance and management processes, controls, and procedures in place to ensure compliance with policies and codes of ethics or conduct. Weak alignment on how commitments are communicated to workers, business partners, and other relevant parties. Weak alignment on describing how the stakeholders, who are the intended users of the grievance mechanisms, are involved in the design, review, operation, and improvement of these mechanisms. Elevating Environmental, Social, and Governance Reporting in Emerging Markets 75 The material in this work is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. 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