Dive Brief:

• The International Sustainability Standards Board released standards for reporting on climate risk, corporate governance and other sustainability-related factors, providing uniform guidelines to companies and investors stymied by the patchwork of conflicting frameworks currently used worldwide.
• By promoting voluntary standards issued Monday, the ISSB seeks to ensure investors and other stakeholders can better assess the corporate risks and opportunities posed by climate change and other points of sustainability.
• “The global economy needs common reporting standards to reduce fragmentation and drive comparability in climate-related financial data,” Mary Schapiro, head of the Task Force on Climate-related Financial Disclosures, said in a statement. “The ISSB standards provide a global baseline for companies to disclose decision-useful, climate-related financial information,” according to Schapiro, chair of the Securities and Exchange Commission from 2009 until 2012.

Dive Insight:

Investors with $130 trillion in assets under management have asked companies to disclose their climate risks, according to SEC Chair Gary Gensler. Regulators and Democratic lawmakers are calling for more transparency on climate risk and other points of sustainability, triggering a backlash from Republican legislators, business organizations and more than a dozen state attorneys general.

CFOs who try to answer the growing pressure for information on sustainability must choose from several inconsistent reporting frameworks that vary in detail and scope. The patchwork opens opportunities for companies to “greenwash,” or take advantage of ambiguities to exaggerate their sustainability credentials.

The SEC, like the ISSB, seeks to achieve uniformity and consistency in sustainability reporting. The agency has postponed twice a final rule mandating that companies describe on Form 10-K their levels of greenhouse gas emissions and strategy toward reducing climate risk. It plans to release the rule later this year.

Both the proposed SEC rule, published in March 2022, and the ISSB guidelines build on reports recommended by TCFD, which describes 11 types of disclosures across four “pillars”: governance, strategy, risk management, and metrics and targets.

The SEC also encourages use of the Greenhouse Gas Protocol, an accounting and reporting standard for GHG emissions.

The ISSB framework, scheduled for enactment in January, “represents a milestone in raising the status and promoting the standardization of sustainability-related financial reporting globally,” Sustainable Fitch said in a report Tuesday.

The standards will likely “become the de facto global baseline amid growing market demand for a solution to the current patchwork of disclosure rules across jurisdictions and the uneven quality of reported information,” Sustainable Fitch said.

At the same time, “many companies are likely to struggle with the levels of granularity” required by the ISSB, especially businesses in North America and the Asia/Pacific region, Sustainable Fitch said.

The ISSB requires companies to measure their exposure to climate risk, the costs of shifting to reduced use of fossil fuels, their plans to manage climate-related risks and any opportunities from carbon reduction.

Under the guidelines, companies also need to set emission reduction targets, disclose whether executive compensation is tied to reductions in GHG emissions and describe the use of any carbon offsets and how reduced carbon emissions align with business strategy.

“The ISSB standards have been designed to help companies tell their sustainability story in a robust, comparable and verifiable manner,” ISSB Chair Emmanuel Faber said in a statement.

“We know that better information leads to better economic decisions,” he said, calling the guidelines “just the starting point as we consult on our future priorities beyond climate.”

The ISSB, backed by the Group of Seven and the International Organization of Securities Commissions, is considering creating guidelines for corporate reporting on human capital, biodiversity, human rights and ecosystems.

The board identified the new topics for standard-setting “based on the information needs of investors,” it said in April. It has opened a period for public comment on its priorities ending September 1.