New sustainability rules attacked to protect profits across the planet

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The organization that aims to set global climate reporting requirements in the coming decades has come under fire for putting corporate interests above those of the planet.

In the coming months, the International Sustainability Standards Board will publish rules for companies to disclose the growing financial risks they face from climate change, environmental degradation and social inequality. This rulebook is set to become the leading global standard for sustainability reporting, which will eventually be used by asset managers, lenders and insurers to generate trillions of dollars in green investments.

The ISSB has authority because its founder, the IFRS Foundation, developed the financial reporting standards that are now used in more than 140 countries. The ISSB process was accelerated in response to the urgency of the climate crisis and the demand for information on environmental, social and governance issues.

But sustainability advocates and accountants say the ISSB’s proposals currently do not meet what is needed to protect the environment.

A controversial point is that while the ISSB proposals require companies to disclose the material impact of external ESG risks on their business, they do not explicitly require companies to provide detailed information about the impact of their activities on the environment and the society. For example, this seemingly mysterious but striking idea of ​​”dual materiality” has been adopted by the EU in its disclosure rules. The idea is to give investors a clearer picture of the overall business impact.

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That gap in ISSB’s proposals “is of great concern to me,” said Celine Bak, who was a member of the Climate Disclosure Standards Board’s technical working group, which was later incorporated into ISSB. “It sets an extremely dangerous precedent that social and environmental issues matter only to the extent that they affect profitability, and that will have reverberating effects.”

Andrew Steel, global head of Sustainable Fitch, agrees that risk should be measured on two sides: the societal impact on a company and the company’s impact on society. “Often these aspects are interrelated, and so it may be underestimating the negative or positive impact to look at them from one perspective,” Steel wrote in an email.

ISSB will receive comments on its proposals through Friday and plans to finalize the standards by the end of the year, pending feedback.

“It’s not that the IFRS doesn’t consider double materiality to be important,” said a spokesperson for the IFRS Foundation. The ISSB said it has already received more than 800 letters of comment on its proposals. In the coming months, the board plans to review the submissions and address issues, such as double materiality, raised in those letters.

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ISSB says its reporting standards aim to focus on environmental and social issues that can affect a company’s value, so investors can make more informed decisions about where to put their money. The standards are voluntary, although most countries are expected to adopt them because they have IFRS. Some countries may impose their own stricter requirements.

To bolster its position, the ISSB organization recently signed an agreement with the Global Reporting Initiative, whose corporate impact reporting standards are the most widely used worldwide.

“GRI is about non-financial materiality, we are about financial materiality,” Emmanuel Faber, ISSB chairman and former CEO of food company Danone SA, said in an interview. “We bring a range of … solutions for companies to report against the full materiality spectrum.”

Some observers also criticize the ISSB proposals for failing to oblige companies to chart a clear path to keep global temperature increases to 1.5 degrees Celsius, in line with the warnings of the Intergovernmental Panel on Climate Change.

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Companies should be encouraged to “align their plans and objectives with this goal by adopting clear timelines and milestones,” said Laurent Babikian, joint global director of capital markets at CDP, a nonprofit that operates a global disclosure system. an e-mail.

According to IFRS, this goes beyond its mission. “It is not the place for IFRS to say to an individual jurisdiction, ‘You have to have this climate target,'” the IFRS spokesperson said.

The ISSB organization was founded last year in response to requests from ESG investors frustrated by the wide variations in corporate reports and the multitude of disclosure frameworks. ISSB’s board members include leading accounting and sustainability experts, including former BlackRock Inc. director of ESG integration Verity Chegar.

The ISBB proposals are based on existing reporting guidelines from the Task Force on Climate-related Financial Disclosures and the Sustainability Accounting Standards Board (which has since been consolidated into ISSB). TCFD is chaired by Michael Bloomberg, the founder of Bloomberg News mother Bloomberg LP.

Photo: Emmanuel Faber. Photographer: Christopher Goodney/Bloomberg

Copyright 2022 Bloomberg.

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