“In a Gentle Way You Can Shake the World”

ISSB Announces Working Group for Enhanced Cross-Jurisdictional Compatibility

Last week, the newly formed International Sustainability Standards Board announced a working group to enhance the compatibility of sustainability reporting initiatives around the world. The working group includes the Chinese Ministry of Finance, the European Commission, the European Financial Reporting Advisory Group, the Japanese Financial Services Authority, the Sustainability Standards Board of Japan Preparation Committee, the United Kingdom Financial Conduct Authority and the US Securities and Exchange Commission. It hopes to foster dialogue across the international community on key sustainability disclosure issues. 

The ISSB hopes to bring current proposals together, for example the US SEC’s and the European Financial Reporting Group’s (EFRAG), in order to align as closely as possible on a global climate disclosure baseline while the three consultation periods are still open. The ISSB has asked for feedback from the public as well as the working group to promote alignment “at a jurisdictional and international level to deliver the global baseline that has been welcomed by public authorities and market participants.” With this development also comes a new advisory body, the Sustainability Standards Advisory Forum, coming into effect next quarter to facilitate this cross-jurisdictional effort. 

This effort by the ISSB and the progress it has made to date are remarkable and reflect deft diplomacy. Unlike national jurisdictions that have the power to compel compliance with their rules, the ISSB can only set standards that can be adopted by countries or by companies on a voluntary basis. It carries a gentle feather rather than a big stick. As such, its power will be in its ability to pull countries in by defining a common purpose and a common reporting baseline that can be embraced broadly. Jurisdictions are free to build on the ISSB baseline - in fact the IFRS Foundation described the ISSB’s approach as one of establishing disclosure building blocks. 

Given the dynamic nature of sustainability reporting, as reflected in the sea of changes we have witnessed over the last year, the ISSB stands to play an important role in developing standards that can evolve with changing market conditions and investor needs. Its approach so far has revealed a desire to forge agreement among key jurisdictions and other stakeholders. Its standards are likely to take hold because of the care applied to their development. If they serve investor needs and reflect consensus regulatory reporting practices, they are likely to provide a path to harmonized reporting. This will benefit investors and issuers alike. I’d say they are off to a good start! 

Regulatory Developments of the Week:

EFRAG Joins the Party 

This past weekend, EFRAG released 13 new exposure drafts that make up the Draft EU Sustainability Reporting Standards (ESRS). These standards will ultimately shape the new EU Corporate Sustainability Reporting Directive (CSRD) which will apply to European and non-European companies that do business within the EU. For a comprehensive summary of this release, check out ‘The EFRAG Draft Standards Explained ’ from Tim Mohin. 

What do you need to know about this release? Unlike the ISSB and SEC proposals, for example, these standards focus on a broad range of ESG issues, from climate change, to affected communities, to business conduct. Each report also requires a general, strategy, and governance materiality assessment to determine and disclose the company’s material impacts, risks, and opportunities within each category (e.g., material biodiversity-related impacts for the biodiversity report). As many expected, this release is a remarkable step forward for advocates of double-materiality. 

In the climate change exposure draft , we see standards roughly rooted in the TCFD which is encouraging as we seek the global alignment of climate-related disclosures. On top of the materiality assessment requirement, the standards require the disclosure of climate change policies, targets and plans for mitigation and adaptation as well as performance measurements for emissions, energy consumption, and companies’ financial effects from climate risks. 

In total, the exposure drafts sum to just under 400 pages of content and are now open for consultation until August 8, 2022. 

Wondering about the cost of the SEC’s proposed climate rules?

Persefoni will be hosting a webinar on May 11th at 12 pm US EDT . The webinar: “Understanding the cost implications of the SEC’s proposed climate-related disclosure rule” will reveal new information from a study of the costs of carbon accounting and disclosure.  The information and policy implications will be discussed by  experts from Persefoni, Ceres, and ERM - the study authors.  Sign up for the webinar here , and you will also receive a copy of the study and a recording of the webinar.

Other Stories I’m Following:

• The California Air Resources Board has endorsed a controversial blueprint for achieving carbon neutrality by 2045, opting to prioritize minimizing job and economic losses instead of the quickest-possible path to net-zero emissions. CARB’s strategy, if implemented, would reduce the state’s emissions to below 1990 levels by 2045, five years earlier than the state government’s original goal of 2050. The plan, however, has come under fire from environmentalists and fossil fuel companies alike (talk about strange bedfellows). The former criticize the strategy as being too slow in achieving its goals, while the latter says more emphasis should be placed on carbon capture and removal methods, instead of on zero-emissions vehicles and energy sources. 
• A paper published in Nature reports that rising temperatures due to climate change will result in an explosion of viruses spread between animals and humans. The paper’s co-authors mapped out the predicted geographic movement of over 3,000 species given global warming, concluding that rising temperatures produce increased interaction between species and increased mixing of pathogens and parasites. This would result in both more zoonotic spillover events (diseases spread from animals to humans) and more cross-species infections, endangering wildlife populations. 
• This week, Politico’s The Long Game interviewed Bill Weihl, a corporate sustainability veteran who has worked on both Google and Meta’s climate and sustainability teams. Weihl left both companies because neither would engage meaningfully on broader climate policy in the US. Instead, he founded ClimateVoice , a non-profit engaging corporate workforces to urge companies to “all in” on climate policy advocacy. Right now, ClimateVoice has a campaign that scores 20 large US-based companies on whether they are obstructing, are cautious about, or are leading on the advocacy of the climate provision in the Build Back Better Act. 
• Carbon offsets projects with US public-owned forests come under scrutiny this week after Bloomberg Green’s recent coverage . According to findings in public records reviewed by Bloomberg, state and local governments are establishing large projects on public lands in the name of generating revenue in carbon credits, but these projects will actually have little to no benefits because the landowners don’t intend to change their tree management processes for the better. 
• South Asia is experiencing an extreme heatwave during one of the region’s hottest spring seasons on record. Temperatures have risen past 115 degrees F, their highest daily levels in nearly 125 years, putting millions of Indians and Pakistani who work outside or lack air conditioning in indoor facilities at risk to severe heat-related health impacts. The extreme temperatures highlight the risks faced by two of the most climate-vulnerable countries and forewarns more dangerous weather extremes in the future.