Global Sustainability Standards

Capping decades of ambition and anticipation, this week, the newly formed International Sustainability Standards Board (ISSB) released the final versions of its first two sustainability disclosure standards:

• S1 General Requirements for Disclosure of Sustainability-related Financial Information and?
• S2 Climate-related Disclosures.

Reflecting on this accomplishment as the former Chief Executive of the Global Reporting Initiative (GRI) and a veteran of more than twenty corporate sustainability reports, this is a major milestone. Some context:??

The corporate transparency movement for sustainability started in the late 1980s after the Exxon Valdez oil spill. Stakeholders asserted their ‘right to know’ about corporate activities that could impact them. The movement created the ‘Valdez Principles, which created the Ceres organization, which created the GRI, and now more than 95% of the companies in the S&P 500 voluntarily report sustainability matters.??

Along this journey, financial market participants recognized that the sustainability information in these voluntary reports can identify risks and opportunities for companies - but the reporting needs to be reliable and comparable for use in finance. And today, we have the first global sustainability disclosure standards for financial reporting.?

This is a big deal because, looking ahead, companies of all types will integrate their sustainability impacts into their finances, investors will have full visibility of how sustainability matters affect a company, and…finally…we can align our monetary system to the needs of people and the planet.??

Stepping off my soapbox, here is what happened this week: The ISSB finalized its first two standards after considering more than 1,400 comment letters. The new standards have been developed to work with any accounting requirements, but they are built on the concepts underpinning IFRS Accounting standards, already required for use by more than 140 jurisdictions.

Chairman Emmanuel Faber said: “The ISSB standards have been designed to help companies tell their sustainability story in a robust, comparable and verifiable manner. We have consulted closely with the market to ensure the standards are proportionate and will result in disclosures that are relevant for investment decision-making.”

The new standards are seen as a harmonization of the ‘alphabet soup of ESG standards.’ The ISSB has been coordinating with US, European, Chinese, and other national and international organizations, as well as companies and investors. The new standards are supported by the International Organization of Securities Commissions (IOSCO), the Financial Stability Board, the G20, and the G7 Leaders.

The Wall Street Journal declared the new Standards a global baseline and predicted that US-based multinational companies would use them even if they are more demanding than the SEC’s coming climate reporting rules. This is a bold prediction given that it’s unlikely the final SEC rule will require reporting on “scope 3” (complex emissions estimates in the company’s value chain), whereas the ISSB standards do include scope 3. But, with jurisdictions including Australia, Canada, Japan, Hong Kong, Malaysia, New Zealand, Nigeria, Singapore, and the U.K. preparing to implement the ISSB standards as soon as 2024, many multinationals will have to adopt them anyway.?

While the new mandatory disclosures will be phased in over the next few years, companies must prepare now. The necessary business process transformation can take several reporting cycles to meet the timing and rigor required for climate-related disclosure .?

European Standards Coming

As many readers know, the European Sustainability Reporting Standards (ESRS), which are more comprehensive than the ISSB, are about to drop as well. The EU consultation is set to close next Friday (July 7), and estimates are that ~50,000 companies will eventually have to report against these standards.??

While it’s unclear how closely aligned the two sets of standards will be, the standards organizations are working to make them “interoperable ."

Global Heatwaves, A Dangerous Trend

El Ni?o plus climate change is not a good mix. Dangerous heat waves have been occurring across the globe. "Most of the world's population has experienced record-breaking heat in recent days ," says University of California climate scientist Daniel Swain . Unprecedented heat events impacted China , Europe , and India . Ocean temperatures are the highest they've been in 40 years which has knock-on effects on global weather systems.

In the US, record-breaking heat in Texas and Louisiana, made five times more likely by climate change , reached dangerous heat index temperatures of 48C (120F). Climate adaptation trumped anti-renewable energy politics in Texas when increased solar power capacity, which has doubled since early 2022 , enabled the state to stave off any blackouts…so far.?

Geo-Engineering Climate Change??

As global temperatures continue to climb, some are considering geo-engineering - the technological manipulation of the environment - to mitigate climate change. In response, the European Commission this week called for international talks on governing the "unacceptable" risks posed by new geoengineering tech .?

Controversial technologies, such as sulfate aerosols and solar radiation modification, which both work by blocking solar rays, could have unpredictable unintended consequences. EU climate policy chief Frans Timmermans said, "Nobody should be conducting experiments alone with our shared planet ."

Battery Gold Rush

With record heat causing energy crises, countries are scrambling to utilize batteries to stockpile electrical power. Along with the solar energy previously mentioned, batteries have also played a huge role in keeping the lights on in Texas .?

In China, food and electronics companies are pivoting their business models to energy storage as they attempt to grab a piece of the $7 trillion the Chinese Government is investing in energy infrastructure by 2040 . The country needs to increase battery storage by 70-fold by 2030 to meet energy goals.?

The Indian government is jumping on the battery bandwagon with billions in subsidies for Indian companies setting up domestic battery cell manufacturing.?

Deforestation Surges

Despite an international agreement to stop and reverse deforestation by 2030, new research found deforestation increased by 10% in 2022 . Last year’s destruction resulted in 2.7 gigatons of carbon dioxide emissions, roughly equivalent to the annual carbon emissions of India - the world’s most populous country. However, a huge reversal in deforestation in Indonesia showed that bucking this terrible trend is possible.?

“ESG” - Don’t Say It, Just Do It?

BlackRock CEO Larry Fink distanced himself from the term ESG “because it's been entirely weaponized ” and because he is “ashamed of being part of this (culture war) conversation." He said that dropping references to ESG would not change BlackRock's stance on decarbonization, corporate governance, and social issues.

Fink’s leadership on these issues has been one of the main drivers of C-suites linking compensation to ESG performance. A new study revealed that 50% of CEOs now have pay tied to ESG, up from 15% a year before .?

The views expressed on this website/weblog are mine alone and do not necessarily reflect the views of my employer.?

Other Notable News:

• A climate summit in Paris may finally yield a breakthrough for climate financing for poorer nations that did little to contribute to climate change . A coalition spearheaded by Mia Mottley, Barbados' first female PM, has pledged support for a fundamental shake-up of the global financial system, which would ensure developing nations can adapt to climate change.
• Sustainable shoe company Allbirds released the design of their zero-carbon shoe , the “M0.0NSHOT.” The primary materials used for the shoe are carbon-negative regenerative wool and methane-capture bioplastic, and the company released a toolkit for other businesses to create their own versions.
• A new study links a rise in domestic violence to climate change . The study tracked hundreds of thousands of women in South Asia and found that an increase of 1C in average annual temperature was connected to a more than 6% rise in physical and sexual domestic violence.
• The world’s largest food maker Nestlé is stepping back from its carbon-neutral goals . Instead of using carbon offsetting to reach carbon-neutral status, they want to focus on decarbonizing their operations and supply chains to reach net zero by 2050.
• After pledging to lead the green transition South Korea has actually been holding it up . After promising to invest 2% of GDP per year, Seoul has recently reduced renewable energy subsidies and watered down demands for decarbonization in heavy industries.

Notable Podcasts:?

• This week’s Harvard Business School’s Climate Rising podcast highlighted a BCG Climate Vision 2050 podcast, “Sustainability at 36,000 feet.” The podcast looks 30 years into the future and shows how aviation managed to decarbonize and become sustainable through design, sustainable fuels, and better infrastructure.
• In this week’s episode of Outrage and Optimism , hosts Christiana Figueres , Paul Dickinson , and Tom Rivett-Carnac discussed some of the week’s climate news from the pre-COP meeting in Bonn. They also interviewed communications expert John Marshall , CEO of Potential Energy Coalition, on how to improve the marketing of climate change.