Before the mad dash to the end of the year

Leading Financial Market Participants Call for Stronger Alignment of Regulatory & Standard Setting Efforts around Sustainability Disclosure

As the creation of both the IFRS Sustainability Disclosure Standards (IFRS-SDS) and European Sustainability Reporting Standards (ESRS) enters the final stretch, the World Business Council for Sustainable Development (WBCSD), the Principles for Responsible Investment (PRI), and the International Federation of Accountants (IFAC) have joined together to issue a call for standard-setters to align “key concepts, terminologies, and metrics on which disclosure requirements are built”. Beyond the very commonsensical call for alignment of different standards to avoid duplication and to maximize interoperability, the triumvirate formed by these three organizations of (over 200) companies, (over 4,900) investors, and (over 3 million) professional accountants is noteworthy. In particular, the inclusion of professional accountants “charged with transforming disclosure requirements into high-quality and decision-useful information” provides a very clear indication of tie that binds providers and seekers of capital, and where mandatory standardized corporate sustainability reporting practices are going to land.

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Exchange of views between the IFRS Foundation, the IASB, and the ISSB

Speaking of alignment and interoperability of the different sustainability reporting standards currently being developed, the European Parliament’s Committee on Economic and Monetary Affairs renewed its tradition of organizing an ‘exchange of views’, but this time with the Chair of the IFRS Foundation and those of its two pillars: the International Accounting Standards Board (IASB) and the International Sustainability Standards Board (ISSB). It seems most of the exchange focused on sustainability reporting. It is both noteworthy and reassuring to learn that collaboration is increasing between the ISSB and the European Financial Reporting Advisory Group (EFRAG) tasked with creating the European standards. It’s also reassuring to see that they are well aware that “the worst is being close without being identical”, indeed because where the two sets of standards are similar, they should be the same so that they are truly complementary. And while probably not putting the issue of materiality to rest, it’s reassuring to see them acknowledge that the two dimensions of materiality (financial materiality and impact materiality) are not mutually exclusive. We like to explain this as a matter of perspective and intention, and companies can choose to do both. Finally, it’s reassuring to know that they, too, are finding it difficult to follow the breakneck speed of development, which could be interpreted as a hint – or a plea? – to extend the timelines in order to do it right.

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California's Climate Corporate Accountability Act fails to pass

It was disappointing to learn that last week the California Senate failed to pass Senate Bill 260, the Climate Corporate Accountability Act (CCAA), which had been following due process for more than a year. This was a bold and forward-thinking piece of state legislation that encapsulated all the major trends in corporate sustainability reporting: regulation, standards, audit, and digitization. Indeed, this bill would have required all companies with more than one billion dollars in total revenues and doing business in California to provide audited reports of all their GHG emissions – scope 1, scope 2, and scope 3 – to the California Secretary of State’s office, by 2025. Subjected companies would have been required to use a California Air Resources Board-approved third-party auditor to conduct their carbon emissions inventory. Furthermore, reports would have had to be made available to the public on a digital platform. I could not find any (free) press coverage of this outcome (so thank you Tim Mohin for flagging it), so perhaps we’ll hear more about it in the coming weeks, including why there were so many NVR (no vote received), which prevented an absolute majority to be reached even though there were more votes in favour than against. A sober reminder that in a democratic process, if you want to change things, you need to vote.

See the vote results