IWA 48 - Framework for implementing ESG principles

At the end of last year, the International Organization for Standardization (ISO) published two documents worth noticing in sustainability work. They are:

• IWA 48:2024 Framework for implementing environmental, social and governance (ESG) principles, and

• ISO/UNDP PAS 53002 Guidelines for contributing to the United Nations Sustainable Development Goals (SDGs)

This article is about the first one and next week I will write about the latter one. Whether you are pro-ESG or anti-ESG, this document is a much-awaited universal effort to synchronize ESG principles. Or, as the document puts it, this document starts the journey to developing generic ESG KPIs.

Availability

• The document is freely available here.

• The ISO introduction page is here.

The definition of the ESG

The document describes ESG as follows: Environmental, Social and Governance (ESG) is a strategic and operational framework that aims to assist organizations, of any size and type, to implement and report on their activities, products, services and commitment to support the achievement of sustainable development, social justice and good governance. Adopting ESG brings a clearer focus on an organization’s impacts on the environment and society, including contribution to the delivery of the United Nations (UN) Sustainable Development Goals (SDGs)[1], as well as evaluating the impacts of the environment and society on the organization.

What is ESG and what does it include

The document encourages a double materiality approach to reporting both financial and non-financial impacts. Hence, the parts of the ESG acronym also include sustainability matters holistically:

• Environmental (E): climate change mitigation and adaptation, sustainable resource use and energy efficiencies, circular economy, prevention of pollution and waste management, protection of the environment, biodiversity and restoration of natural habitats.

• Social (S): internal and external social factors and impacts, including human rights, labor practice, decent work, consumer issues, community relations and engagement (including involvement in, influencing and embedding the organization’s ESG activities), privacy and data protection, health, well-being and safety, supply chain management, other human capital and social justice issues.

• Governance (G) of the organization, including the governing of the environmental (E) and social (S) categories: corporate board composition and structure, strategic sustainability oversight and compliance, executive compensation, anti-corruption, responsible political involvement, fair competition, promoting social responsibility in the value chain, respect for property rights and interrelationship with communities and society.

Principles of ESG:

1. Integrity - commonly shared ethics;

2. Outcomes-focused - direct and indirect, strategic and operational outcomes;

3. Equity – shared values and a balance of stakeholders’ interests;

4. Risks and opportunities – strategic view including operations and value chain;

5. Evidence-based – scientific and analytic approach; and

6. Maturity – ESG should be integrated into DNA and core values.

ESG Risks and opportunities

The document builds on widely used ISO 31000 and, thus, the risk assessment process is familiar to many:

1. Establishing the organization’s strategies and priorities;

2. Identification, evaluation and treatment of ESG risks and opportunities; and

3. Monitoring and reporting of ESG risks and opportunities.

The ESG risks and opportunities are determined in the context of:

• ESG factors and associated impacts;

• Double materiality (financial materiality and/or impact materiality);

• Significance and magnitude of each impact;

• Whether they are direct or indirect impacts;

• Interested parties’ views of actual and/or perceived risks and opportunities; and

• Opportunities and associated benefits.

The response to the assessment can be determined by:

• Evaluating the assessment;

• Dependency on the risks and opportunities appetite;

• Considering and respecting all relevant interested parties’ knowledge and understanding;

• Considering the inherent characteristics of the system; and

• Adopting a systems-thinking approach to the consequences of the actions taken i.e. understanding the knock-on effects too.

Accountability and transparency

This chapter consists of the identification and engagement of interest parties by guiding to ask the following questions:

• Who might be affected by the decisions or activities?

• How to identify all the relevant interests and who will likely express concerns?

• Are those expressing the concerns invoking a representative voice and are any interests being missed out or disadvantaged or excluded inappropriately?

• Who has been involved when similar concerns needed addressing?

• Who can help address specific impacts?

• Who can affect the organization’s ability to act responsibly?

• What are the legal requirements and other requirements?

Materiality

As mentioned above, the document encourages a double materiality approach. An actionable approach to identify material impacts should include the following steps:

1. Engagement of all relevant interested parties;

2. Identification, management, transparency and credibility of data and information;

3. Description of impacts, associated risks and opportunities;

4. Assessment of the ESG impacts;

5. Creation of a materiality matrix; and

6. Reviewing and updating strategy, risk and opportunity appetite and actions, carried out regularly and consistently.

The ESG material assessment should include the following steps:

1. Define the scope and objectives;

2. Identify relevant ESG impacts to be covered;

3. Engage interested parties;

4. Assess and prioritize the ESG impacts;

5. Validate results;

6. Integrate into strategies and reporting;

7. Communication and reporting; and

8. Review and update.

KPI measurement framework for ESG standardized reporting

The document claims to provide the first set of KPIs for ESG standardized reporting. For each letter of the ESG, the document provides detailed guidance and steps to identify KPIs. Generally, the guides include:

• KPI measurement framework for the E / S / G;

• Actions; and

• KPIs.

The KPI measurement framework for ESG standardized reporting has four steps to complete:

1. E and S: Identifying risks and opportunities and G: Establishing or refining a framework;

2. Evaluating and assessing E/S/G impacts;

3. Establishing desired outcomes and implementation strategies and programmes/actions; and

4. E and S: Reporting, disclosure and communicating information and G: Accountability and reporting.

The KPIs are categorized as primary and secondary priorities:

• Profile indicators: 5;

• Environment: 7 + 4;

• Social: 9 + 2; and

• Governance: 9 + 1.

Additionally, the Governance section has useful parts to develop and evaluate ESG program:

• Leadership;

• Sample ESG questions for a constructive challenge structure;

• Stages of ESG maturity and cultural attitudes; and

• Communications.

The last three chapters are:

• Compliance and conformity – links to CASCO and ISO 17000;

• Reporting – reporting principles, strategy and assurance;

• Continual improvement – a set of questions to evaluate progress; and

• Annex A - Assurance and conformity assessment - ISO principles.

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Disclaimer: I do not work for any of the organisations mentioned in this article or the report. Additionally, I do not have any other connection to them either. I am a GRI-certified professional and have worked with enterprise risk management frameworks. Thus, I am interested in sharing best practices and sources.