The Summer of Interoperability

ESG reporting keeps getting easier!?

Most would disagree with this statement because of all the new reporting regulations and standards. But, it seems like every other week this summer, we have reported on another quantum leap in the convergence of ESG disclosures.

The ISSB announced in July that its standards would have a high degree of interoperability with the European Sustainability Reporting Standards (ESRS).

This week, a joint statement from the widely used Global Reporting Initiative standards (full disclosure: I am the former CEO of GRI) and the ESRS has confirmed a further “high level of interoperability. Reducing any complexity in disclosure and the possibility of double reporting.” The statement says that companies that currently use the GRI standards will be “well prepared to report under the ESRS.”?

If you are a sustainability practitioner, this is reason to celebrate. The fact is that most companies use the GRI standards to report their sustainability results. This announcement means that thousands of companies will have an easier time with compliance - at least in Europe. The rest of the world is gravitating to the ISSB standards.?

So, if the GRI standards are interoperable with ESRS, and ESRS standards are interoperable with ISSB…everything should work together…right??

OK. By now, we are all confused.? But the good news is that all major standards bodies are “interoperable” - can real convergence be far behind???

What should ISSB’s Next Focus Be?

At the end of last week, the ISSB closed their consultation period, where they asked the public’s opinion on the priorities for their future work. The main issue at hand was what should be the disclosure topic of the next ISSB standard.

Official results aren’t available yet, but the most vocal stakeholders want ISSB to focus on human capital and human rights. A group of asset owners, industry associations, and other stakeholders have warned against separating these two topics into distinct standards. Instead, they say they should be consolidated into one standard to avoid overlaps and confusion.?

Europe’s ESG standard-setting body, the European Financial Reporting Advisory Group (EFRAG), also said separating the two would perpetuate “misunderstandings about how they interrelate.”?

In their comment letter, EFRAG suggested that ISSB prioritize updating the Sustainability Accounting Standards Board (SASB) standards as a guide to build their own sector-specific standards - interoperability rides again!?

The Materiality Schism

Another issue that came up in the ISSB consultation was the hotly contested issue of materiality. Allianz was the loudest voice asking ISSB to switch to double materiality, saying it’s “absolutely essential” for the ISSB’s materiality definition to include “inside-out impacts. Adding that “investors are (increasingly) interested in a company’s impact on the planet and people, irrespective of concrete/immediate financial effects.”

ISSB was established to develop disclosure standards for financial reports. This distinction diverges from the ESRS and the GRI, which are concerned about both our planet and the bottom line of the reporting companies.?

But maybe these points of view are not divergent. According to Allianz and other investors, such as California pension fund CalPERS, companies' impacts on the environment and society are essential data points for investment decisions.

Africa’s First Climate Summit

Africa’s first climate summit, in Kenya, came to a close this week. The overwhelming sentiment of the event was that Africa is not hapless and in need of aid.

Instead, the continent wants investment from developed nations to unlock their green potential. Kenyan President William Ruto, who hosted the event, said that Africa had 60% of the global renewables potential and a third of the minerals needed to electrify the global economy, but around 600 million Africans lacked reliable electricity. Adding that Africa “must go green fast, before industrializing, and not vice versa.”?

The result of the event was the Nairobi declaration. The declaration asks for a global carbon tax, for developed nations to meet their unfulfilled pledge of giving $100 billion annually to developing countries, and a pledge of $23 billion for green growth and climate mitigation and adaptation efforts across the continent.

Costs of Invasive Species

A new UN report revealed that at least 3,500 invasive species across the planet cost $423B every year and threaten global biodiversity. From mice and crawfish to non-native grasses that exacerbated last month's Maui wildfire, the report says that invasive species regularly cause extinctions and can permanently damage the healthy functioning of ecosystems.?

Thankfully, the report also revealed that eradication projects of invasive species have a high success rate of 88%. But, it also said that countries should focus on controlling the movement of species over eradication.?

To help investors and companies better assess their nature-related risks, including invasive species, the upcoming Task Force on Nature-Related Financial Disclosures (TNFD) developed a common definition for ‘nature positive.’ Nature positive is the new catch-all term for biodiversity - like ‘net-zero’ is for climate - but more work is needed to define the term to avoid greenwashing.?

It’s STILL HOT

It should come as no surprise that scientists this week confirmed this summer was the hottest on record. The global average temperature from June, July, and August was 16.8C (62.2F) - 0.66C above average.?

As August gave way to September, 60 million Americans are under heat alerts again this week, and the costs of climate-related disasters are spiraling while FEMA’s disaster relief fund is dwindling. Polarized US politics may delay the needed funds and even shut down the US government entirely.?

Rachel Cleetus with the Union for Concerned Scientists said, “It’s just an extraordinary, harrowing summer when it comes to extreme events, many of which bear the fingerprints of climate change.”

A new report from the WMO revealed that heat waves also negatively affect air quality. WMO Secretary-General Petteri Taalas said, "Heatwaves worsen air quality, with knock-on effects on human health, ecosystems, agriculture, and indeed our daily lives,"?

Have Your Say on ESG and Climate News

With so much ESG and climate news, you may think we miss some important stories. Our community now has more than 34,000 subscribers (THANK YOU), so it’s time to let you have your say on the ESG and Climate stories that are top of mind. Post your stories with hyperlinks here, and we will pick the best to feature in the next editions.? Who knows, maybe no one ever reads this far…but let’s give it a go for a couple of weeks - don’t let us down ;)? ?

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

Other Notable News:

• Biden halts drilling in Alaska wildlife refuge. The Biden administration this week banned oil and gas drilling in the Arctic Wildlife Refuge and will cancel all oil and gas leases issued under the Trump administration. The move will protect over 13 million acres of vital wildlife refuge.
• California's SB 253 gets a huge endorsement. Apple has shared its support for the bill, agreeing with its inclusion of Scope 3 and data auditing, saying that the bill will encourage companies to speed up their efforts toward carbon neutrality.
• Oregon announced it is suing a dozen of the country's largest fossil fuel companies, such as Chevron and Exxon, and their consultant, Mckinsey, for $50 million in damages from the 2021 heat dome.?
• A Bloomberg report reveals that 90% of CEOs plan to increase spending on ESG data this year. The vast majority of the respondents believe that ESG data investment is critical to keeping up with competitors or developing a competitive advantage.
• A new report from the Transition Pathway Initiative revealed that more banks are considering climate risks and setting goals. Still, less than 5% of banks have set net zero commitments across all of their financial products.
• The European Central Bank’s Frank Elderson has warned lenders of impending climate lawsuits and suggested they implement credible Paris-aligned transition plans to avoid future litigation.
• Recent CDP research indicated that only Brazil, the EU, and Indonesia have nature disclosure regulations, despite 193 countries committing to disclose their risks at COP15.
• A new report from the UNDP, “From Fragmentation to Integration: Embedding Social Issues in Sustainable Finance,” aims to advance the consideration of social risks and opportunities in public and private sector finance strategies.

Notable Podcasts and Events:?

• On September 19 - During UN Climate Week - I will be discussing the current and future state of climate disclosure in a joint webinar titled Navigating Sustainability Reporting - with BCG and CDP. Register here.
• In this week’s episode of the BBC’s Climate Question, host Graihagh Jackson goes to the Danish island Bornholm to learn lessons on how this small island in the Baltic Sea, with 40,000 inhabitants, is well on its way to meeting its goals of being carbon neutral by 2025 and zero waste by 2032.
• In this week’s climate comedy podcast, The Climate Deniers Playbook episode, the hosts explore the common misconception among climate naysayers that more carbon dioxide means more food for plants, which must be a good thing.?
• NPR’s “Consider This” covered carbon capture technology in the oil and gas sector -? When Big Oil Gets In The Carbon Removal Game, Who Wins?