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ECB, IMF call on climate standard setters to align company disclosures
Global Banking & Finance Review®
Company
By Huw Jones
LONDON (Reuters) – A global standard setter for company climate disclosures should align with European and U.S. alternatives for easier implementation across jurisdictions and to avoid fragmenting information to investors, the European Central Bank and IMF have said.
The Frankfurt-based International Sustainability Standards Board (ISSB) has proposed global “baseline” reporting standards, which attracted over 1,300 responses https://www.ifrs.org/projects/work-plan/climate-related-disclosures/exposure-draft-and-comment-letters/#view-the-comment-letters just published.
The aim is for more rigorous reporting to make ‘greenwashing’ or inflated climate-friendly claims, harder.
While widely backing the creation of global norms, many call for better definitions of key concepts, a longer phase-in, and stress the need for them to be ‘interoperable’ with standards being written by the European Union and U.S. Securities and Exchange Commission.
For example, the basic term ‘climate-related’ is not sufficiently clear, said EY, one of the world’s Big Four accountants who will audit the ISSB disclosures.
Business says that without interoperability, it will be harder for jurisdictions to accept disclosures from companies using different norms to them, meaning costly duplication of reporting.
“Therefore, interoperability between the forthcoming ISSB standards and jurisdictional requirements remains one of the largest challenges that harmonization work ultimately faces… it is important to avoid further fragmentation,” the International Monetary Fund said.
The London Stock Exchange Group, whose listings will comply with ISSB disclosures, said multiple standards and approaches being developed at the same time risk fragmentation.
LSEG said it too has identified several key differences in definitions used by the EU and ISSB.
EU norms cover enviromental, social and governance (ESG) disclosures, as well as reporting on a company’s impact on the environment, known as double materiality.
ISSB rules focus largely on climate change’s impact on a company.
The ECB said that to meet users’ expectations, any international standard should comprise double materiality.
It urged the ISSB and other standard setters to “iron out” differences and come up with baseline standards which are widely implemented globally.
The clock is ticking as the EU aims to finalise its first batch of ESG disclosure rules by November, with the ISSB expected to finalise its own rules by year end.
(Reporting by Huw Jones; Editing by Emelia Sithole-Matarise)
Climate-related disclosure refers to the reporting of a company's environmental impact, particularly regarding climate change, to provide transparency to investors and stakeholders.
Interoperability in financial standards means that different reporting frameworks can work together seamlessly, allowing for consistent and comparable data across various jurisdictions.
Greenwashing is the practice of making misleading claims about the environmental benefits of a product, service, or company to appear more environmentally friendly than it actually is.
Double materiality is an accounting concept that considers both the financial impact of sustainability issues on a company and the impact of the company's activities on the environment and society.
Global reporting standards are frameworks established to guide companies in disclosing their sustainability practices and impacts, ensuring consistency and comparability across different regions.
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