ISSB Adoption In Full Swing

Almost a year after the International Sustainability Standards Board (ISSB) released its first two standards, they announced this week that more than half of the world’s economy has adopted them.

The ISSB standards were created to consolidate and simplify sustainability disclosure standards and, indeed, they have acquired more than a few of the so-called “alphabet soup” of other ESG standards (SASB, IIRC, TCFD, CDSB - and if you know what all of those abbreviations spell out, you are reading the right newsletter ??). Their mantra from the start has been to create consistent, comparable and decision-useful ESG information.??

Shortly after the ISSB standards were released, the International Organization of Securities Commissions (IOSCO) endorsed them and asked its 130 member jurisdictions, which regulate more than 95% of the world's financial markets, to adopt them. A year on, at this year’s IOSCO annual meeting, ISSB standard setters announced that 20 jurisdictions representing 55% of the global GDP and more than half of global emissions have decided to adopt the standards or use them as a framework for their own standards. IOSCO Chair Jean-Paul Servais said, “I am encouraged by the fact that not even a year after our endorsement and call to action, so many jurisdictions are seeking to adopt or be informed by the ISSB Standards.”

China was the most recent jurisdiction to adopt an ISSB-aligned set of standards with the release this week of an exposure draft of China Sustainability Disclosure Standards. The International Financial Reporting Standards Foundation (IFRS - ISSB’s parent organization) also houses the financial disclosure standards used by ~140 countries, pointing to greater integration of ESG into financial statements long sought by investors.? Notably, the US Securities and Exchange Commission (SEC) has not formally adopted IFRS/ISSB standards but has largely modeled them in its new climate disclosure rule.?

To hasten adoption in other jurisdictions, the ISSB also released a Jurisdictional Guide to help countries fully or partially adopt their standards. ISSB Chair Emmanuel Faber said, “From major economies to emerging markets, jurisdictions around the world such as Brazil, Costa Rica, Japan, Nigeria, and the UK are recognizing the value of the ISSB Standards.”

ISSB Interoperability

The ISSB has long sought to clarify the “alphabet soup” of ESG standards. Where it has not acquired and integrated other standards, it has been working towards “interoperability” with them. In just the last few weeks, the ISSB has made major interoperability announcements with both the Global Reporting Initiative (GRI) and the European Sustainability Reporting Standards (ESRS).?

Interoperability guidance with the European standards was released earlier this month, and this week, GRI and ISSB announced guidance to deliver “seamless sustainability reporting.” Chair of the IFRS Foundation Trustees Erkki Liikanen said, “Together, we can reduce duplication, fragmentation, and complexity in the sustainability disclosure landscape.”

While interoperability gains momentum, the world is still divided over the issue of materiality.? While the European Union and other jurisdictions have adopted a more expansive definition (“double materiality”) that includes issues that impact people and the planet, the ISSB standards would include only the ESG issues that are financially material for the reporting company.??

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Biden’s Carbon Offsets Fix

It’s no secret that the voluntary carbon market (VCM) has experienced multiple crises in recent years, calling into question its validity and effectiveness. Now, the Biden administration has taken matters into its own hands, announcing a new set of guidelines that ensures the integrity of carbon credits and offsets.

The “Voluntary Carbon Markets Joint Policy Statement and Principles” comes at a time when the voluntary carbon market needs to regain some trust by ensuring offsets make good on their claims. The new principles aim to make carbon offsets quantifiable and ensure that they are not emissions reductions that would not have happened otherwise.?

Treasury Secretary Janet L. Yellen said, “Voluntary carbon markets can help unlock the power of private markets to reduce emissions, but that can only happen if we address significant existing challenges… the principles released today are an important step toward building high-integrity voluntary carbon markets,”?

While the principles are not enforceable, proponents say they could be key to scaling the market for high-quality offsets, unlocking a massive acceleration in emission reductions.?

EU Green Deal Locked Down?

Ahead of upcoming elections, which may result in a government less friendly to sustainability, the EU had a busy week formally adopting or furthering along four major sustainability policies, including:

• The EU’s new Corporate Sustainability Due Diligence Directive was finally adopted late last week. While weakened, the final version of the policy (which we summarized here) is still the high-water mark for supply chain ESG policy and will require both EU and non-EU companies to identify, report, and mitigate environmental and social impacts in their value chains.

• The EU’s securities regulator, the European Securities and Markets Authority (ESMA), released its final guidelines for investment funds, with names like sustainability and ESG tied to them. The rules require that at least 80% of investments must meet the fund’s defined sustainability characteristics to be labeled as "sustainable." According to a new analysis by Clarity AI, the new rules could force as many as 40% of sustainable labeled funds to change their name or sell assets. The UK also has an anti-greenwashing fund names rule, which will be phased in from today (Friday 31st of May). The UK’s rule matches the affected EU fund names and will likely have a similarly large impact on UK sustainability-labeled funds?
• The EU also approved its version of the US Inflation Reduction Act. The Net Zero Industry Act (NZIA) aims to ramp up domestic production of the green technologies the EU will need to meet its Green Deal and compete in the global clean-tech market.
• EU member states approved new sustainability rules for product design. The ecodesign framework requirements aim to encourage a circular economy by introducing product passports outlining the sustainability aspects of products and banning the destruction of unsold textiles and footwear, among other provisions.?

In other EU sustainability news, The European Financial Regulation Action Group (EFRAG) released a Q&A platform for the European Sustainability Reporting Standards. As companies grapple with reporting with the EU's Corporate Sustainability Reporting Directive (CSRD), EFRAG has been consistent in trying to get them the information they need to comply.??

Exxon Crushes Activist Investors

ExxonMobil prevailed against activist shareholders in a precedent-setting legal decision. After two investor groups introduced a shareholder resolution for the company to reduce emissions, Exxon sued them both. Even though both investors dropped their resolutions, Exxon pressed ahead to set the new precedent that will surely chill activist investors tackling a wide array of issues like executive compensation, voting rights, and other corporate governance concerns.?

The ruling is a 180-degree turn since just three years ago, ExxonMobil lost a stunning vote against a tiny activist shareholder, Engine One, and it could unlock wider attacks on shareholders' rights in the US. The rout continued overseas as Shell easily defeated a measure filed by a Dutch shareholder activist group, demanding that the oil giant drastically strengthen its climate targets.? Activist shareholders are shifting tactics and going after large asset managers such as BlackRock, Vanguard, and State Street, which have significant shares and voting rights at the targeted companies. ?

AI Increases Microsoft Emissions

In a harbinger of the future, increased reliance on power-hungry AI technology bumped up Microsoft’s carbon emissions by 30% between 2020 and 2023. The tech giant is pressuring its suppliers to help drive down emissions. Since scope 3 (value chain) emissions account for 96% of Microsoft's emissions, a new requirement for some key suppliers to use 100% carbon-free electricity requirement will help their climate targets get back on track.

Despite its outsized energy consumption, AI tech offers accelerated climate progress, from organizing and making sense of climate data to helping communicate climate information to the layperson. This article explains some of the ways AI can catalyze climate innovation.??

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

Other Notable News:

• New research from Rebeco finds that investors' use of climate has dropped in the US but stayed strong in Europe and Asia. Investors are shifting focus to climate tech solutions and companies' low-carbon transition strategies.?
• An open letter signed by 26 US Congressional representatives calls for the UN to update their conflict of interest rules to prevent COP29 in Baku from being overly influenced by fossil fuel interests.?
• A new US poll has revealed that the majority of US voters support climate litigation against oil and gas companies. Almost half would support going a step further and filing for criminal charges.?
• A new study found that renewable adoption between 2019 and 2022 saved the US $249 billion in healthcare and climate costs.?
• Two new studies on the Antarctic ice sheet reveal the extent to which climate change is impacting the continent. One revealed that in 2023, Antarctic sea ice declined by 770,000 square miles below average, an area bigger than Alaska. The other showed how strong tides are pushing seawater under the Thwaites Glacier, which is why its melting is outpacing models.?
• This new report from Quantis gives food and beverage companies clear, actionable guidance on how they can become more responsible and sustainable.
• Marine scientist, climate activist, and communicator Dr. Ayana Elizabeth Johnson spelled out her antidote to climate apathy and anxiety in this interview, where she previews her more positive climate book, “What if We Get It Right??

Notable Podcasts:?

• In this week’s episode of Bloomberg’s Zero: The Climate Race, they tell the story of how Microsoft’s plan to be Carbon Negative has been scuppered by going big on AI. The tech giant had an ambitious goal of being carbon-negative by 2030, but their emissions rose 30% between 2020 and 2023, largely due to the increased energy use from AI.
• In this week’s episode of Workiva’s ESG Talk, Garrett Quinn, chief sustainability officer at Smurfit Kappa Group, and global sustainability leader Robert Eccles joined host Andie Wood to explore the complexities of navigating sustainability and ensuring financial performance. They also discuss Smurfit Kappa's journey using the new framework from the Taskforce for Nature-related Financial Disclosures.
• I am excited to participate in this upcoming event to discuss the nexus of decarbonization and AI. My esteemed colleagues and I will cover the latest regulations and how they are driving the development of new technologies to improve our environment. Sign up here.

Notable Job Opportunities:

• Climate Impacts Intern (SU 2024), The Center for Climate Integrity · Washington DC, Remote, Part-time
• Sustainability Associate, Sumitomo Mitsui Banking Corporation, SMBC Group, New York, NY, Hybrid
• Corporate Responsibility Associate, MSCI Inc., New York, NY, Hybrid
• ESG Controller, Netflix, Los Gatos, California
• Sustainability Analyst, Intern, ESG OWL, Remote
• Clean Energy Consultant, Nova Solar, Northern Virginia
• Environmental Analyst, PLM Specialist, KAM Consultants Corp, New York City
• Sustainability Scientist, AWS Sustainability, Amazon Web Services (AWS) · Seattle, Washington