ISSB Adoption In Full Swing

Author

Tim Mohin
31 May

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, CSSB - 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). 

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.  

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. 

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:

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

Image by Zbynek Burival On Unsplash

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. 

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. 

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