EU watchdog calls for common definition of corporate ‘sustainability’

By Huw Jones

LONDON (Reuters) – A new global standard setter for company sustainability reporting needs to ensure its definition of “sustainability” fits with other initiatives to stamp out “greenwashing”, the European Union’s securities watchdog said on Wednesday.

The new standard setter – the International Sustainability Standards Board or ISSB – was launched in November 2021 to combat greenwashing, or exaggerating green credentials.

The ISSB has proposed a set of global “baseline” company disclosure rules, which largely focus on the impact of climate change on companies.

But the ISSB is only one of several initiatives designed to stop greenwashing, or companies flattering their sustainability credentials as trillions of dollars flow into investments marketed as “green.”

The EU has already agreed on its own rules for companies to disclose the impact of environment, social and governance (ESG) issues on their business, and their own impact on the environment. The United States has also proposed its own disclosure rules.

Faced with three sets of norms, business has called for a common terminology to avoid confusion.

The EU’s European Securities and Markets Authority (ESMA) said the ISSB proposals do not clearly define what sustainability-related matters are being addressed.

“ESMA would recommend selecting a converged scope and definition of what is meant by ‘sustainability’ with other major standard-setting initiatives,” ESMA Chair Verena Ross said in a letter to the ISSB published on Wednesday.

ESMA’s Ross said a converged definition would help create a “truly interoperable standard-setting solution” for sustainability reporting.

“Lacking such a solution, we face the risk of a continued fragmentation of the sustainability reporting landscape with increasing costs and risks for the investment community as well as issuers operating internationally, and ultimately more difficulties to give effect to the much-needed sustainability transition,” Ross said.

Ross said given that some people draw a distinction between ESG and sustainability, it would be relevant to understand in what sense the ISSB refers to sustainability, and which topics in the wide ESG spectrum its standards intend to cover.

(Reporting by Huw Jones. Editing by Jane Merriman)