The International Sustainability Standards Board (ISSB) has released new requirements that will allow more accurate reporting of company sustainability commitments. Let's see what they require and when it's all coming into effect in this week's sustainability newsletter.
Current situation 📍
According to David Harris, head of sustainable finance strategic initiatives at London Stock Exchange Group, 42% of the world's top 4,000 companies do not provide data on Scope 1 and 2 carbon emissions. This usually means that companies can more easily hide behind vague sustainability commitments and sometimes even lie about the sustainability related investments that they make. These new rules bring more rigour to sustainability reporting, more aligned with financial reporting.
The organization placed special focus on and requires more detailed disclosures from banks on carbon emissions related to individual sectors such as oil and gas.
What are the new requirements?📜
The proposal mainly comes down to two points:
- No. 1 - General Requirements for Disclosure of Sustainability-related Financial Information
This is the general requirement for a company to disclose information about its sustainability‑related risks and opportunities that is useful to users of general purpose financial reports in making decisions relating to providing resources to the company.
This means that companies will have to disclose all of their sustainability related finances annually. The investments into clean technologies, investments into unsustainable technologies and everything in between.
Investors, shareholders and customers will be able to see, how much the company is actually doing to save the environment. This will put data behind sustainability marketing and vague statements of companies and inform consumers to make better decisions.
- No. 2 - Climate-related Disclosures
This point sets out the requirements for a company to disclose information about its climate‑related risks and opportunities, while building on the requirements described in IFRS S1. IFRS S2 requires the disclosure of information about both cross‑industry and industry‑specific climate‑related risks and opportunities.
Currently, companies focus on the negative financial effects that adapting to climate change has on their companies. However, there are also opportunities that it provides. According to the new regulations, companies will have to make a thorough analysis of both.
Climate‑related risks are associated with both physical risks (such as those resulting from increased severity of extreme weather) and transition risks (such as those associated with policy action and changes in technology).
Climate‑related opportunities refers to the potential positive effects arising from climate change for a company. Efforts to mitigate and adapt to climate change can produce opportunities for companies, such as opportunities to develop new products or capture new business.
You can read the complete executive summary document here.
G-20, Regulation and Fines 💸
The ISSB doesn't have the authority to impose any fines for following the proposal and it was created for recommendation purposes. However, the EU is already being implemented into the new greenwashing regulation that should come later this year. Other G-20 countries have also viewed the proposal favourably and it will be voted on to be implemented in all participating countries at the G-20 summit in September.
Interesting fact 🦩
Although the name suggests it only involves 20 countries, the G-20 also includes the EU and its 19 members. Together, these countries account for around 80% of the world's total GDP. It also frequently invites delegates from international organizations, such as the International Monetary Fund to participate in the meetings. Several other nations are typically invited to participate each year. As such, the G-20 actually represents a larger number of countries than the name implies.
See you next week!👋
Remember to use our greenwashing prevention tool to check, whether the marketing texts you're posting have any unintentional greenwashing.