The International Sustainability Standards Board (ISSB) has voted to require businesses applying its future climate change standard to include so-called Scope 3 greenhouse gas (GHG) emissions in their disclosures.
In a tweet, the board’s chair Emmanuel Faber hailed the move as “rewriting economics”.
He wrote, “During our board week in Montreal, the ISSB confirmed in a final and unanimous vote to require disclosure of scope 3 GHG emissions as part of our re-deliberations finalising the climate standard for global capital markets.”
The board’s vice-chair, Sue Lloyd, emphasised, however, that the board would not require a big-bang application of the proposals.
She said, “I think it is really important that we have it on the public record that we are not just agreeing to (a) [and] (b) ‘cold’ but that we are agreeing on the basis that we have asked the staff to come back with recommendations for relief and support [that build] on the paper and our discussions.”
Industry experts believe that the decision marks a significant milestone in the development of climate and sustainability-elated reporting standards for companies, as investors and other stakeholders increasingly demand information on companies’ management of climate risks and impact.
Regulators in major jurisdictions around the world including Europe, UK and the US, among others, have introduced or are preparing mandatory sustainability reporting requirements for companies, and most will be heavily influenced by the ISSB standards.
Updating on its October meeting, the International Financial Reporting Standards (IFRS) Foundation, which created the ISSB, is developing the global baseline for sustainability disclosure that will be implemented early in 2023, said it had made significant progress on its draft requirements after considering feedback.
This news will be welcomed by many asset managers that said in their feedback to the ISSB that disclosure across all three scopes is necessary for investors to obtain a complete picture of climate-related risks and opportunities, and that methodologies for disclosing Scope 3 emissions in particular will improve rapidly, according to Morningstar’s report ESG Reporting: Asset Managers Express Divergent Views.
“The ISSB’s October decision to confirm mandatory disclosures of Scope 3 GHG helps give some certainty to users and preparers of corporate sustainability reporting,” says Lindsey Stewart, director of investment stewardship research at Morningstar.
He added, “But there remain many important matters to resolve, particularly on materiality, transition plans and targets, scalability (ensuring that the standards are fit for purpose for all sizes of company to apply as well as questions around “financed and facilitated” emissions that most impact the financial services sector. “
Stewart also noted that although there is widespread backing from global securities regulators for the work the ISSB is doing, it remains to be seen whether these standards will become mandatory reporting requirements in the world’s major capital markets.
HE said “Aside from that, even if the ISSB hits its “early 2023” deadline to finalise its first two standards, this implies an effective date for the first two standards of January 2025 under the usual standard-setting conventions, with the first full-year company reports issued under the new standards then appearing in early 2026.
While acknowledging that the ISSB is moving forward as fast as it can, this still leaves the world reliant on a patchwork of voluntary reporting frameworks for another three years, which is less than ideal.”
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