This blog is part of a quarterly series on the wide topic of Environmental, Social and Governance and covers items that have caught my attention.
Official announcements
- The IFRS Foundation and the European Financial Reporting Advisory Group (EFRAG) published the ESRS-ISSB standards interoperability guidance, aimed at illustrating the high level of alignment between the sustainability reporting standards recently issued by IFRS’ International Sustainability Standards Board’s (ISSB) and the European Sustainability Reporting Standards (ESRS). It aims to reduce complexity, fragmentation and duplication for companies applying both sets of standards, and to help companies “collect, govern and control decision-useful data once.” The document includes a description of the alignment of general requirements from the standards on key concepts such as materiality, presentation and disclosures for sustainability topics other than climate, in addition to detailed analysis of the alignment in climate-related disclosures, including what a company starting with either standard needs to know to enable compliance with both.
- The Hong Kong Monetary Authority (HKMA), Hong Kong’s central banking institution, published its Taxonomy for Sustainable Finance. Core principles include alignment with the Paris Agreement, offering a proof from greenwashing, offering interoperability with other taxonomies, particularly those from jurisdictions in Mainland China, the EU and the ASEAN, use of science-based criteria and thresholds, and recognition of the importance of the concepts of Do No Significant Harm (DNSH) and Minimum Social Safeguards (MSS).
- The IFRS Foundation’s International Sustainability Standards Board (ISSB) announced plans to launch new projects researching corporate disclosure on risks and opportunities in key sustainability-related areas including biodiversity, ecosystems and ecosystem services, and human capital. In a recent meeting, the board decided that its upcoming activities will prioritise activities including beginning new research and standard-setting projects, and supporting the implementation of IFRS S1 and IFRS S2, in addition to enhancing the industry-specific SASB standards, pursuing connectivity between the IFRS’ sustainability and financial disclosure standards and interoperability between its sustainability standards and others, and engaging with stakeholders.
- The Science Based Targets initiative (SBTi) Board of Trustees clarified that “no changes have been made to SBTi current standards,” following a sharp internal backlash to its recent announcement of plans to update its standard for corporate net zero target setting by extending the use of environmental attribute certificates (EACs), such as emissions reduction credits, to help address Scope 3 emissions. This follows reports of letters from SBTi staff responding to the board’s announcement, indicating that staff were “deeply concerned” about the statement, and reportedly calling for the resignation of the CEO and board members.
- The Sustainability Standards Board of Japan (SSBJ) announced the release of new exposure drafts for proposed standards for companies to report sustainability and climate-related information, based on the recently released sustainability disclosure standards by the IFRS Foundation’s International Sustainability Standards Board (ISSB). It marks the latest in a series of steps that may see Japanese listed companies facing mandatory standardised sustainability-related disclosure requirements. Over the past few years, regulators and exchanges in Japan have been increasingly raising the sustainability disclosure bar for companies, with the Tokyo Stock Exchange in 2021 revising the corporate governance code with a requirement for prime market-listed companies to begin providing climate-related disclosures based on the TCFD recommendations, and to report on sustainability initiatives on a ‘comply-or-explain’ basis, and the Financial Services Agency (FSA) implementing rules last year mandating the creation of a sustainability-related information section in the annual filings for all listed companies, with required disclosures covering governance, risk management, strategy, and indicators and targets.
- Singapore will implement mandatory climate-related reporting requirements for listed and large non-listed companies, with obligations for some to begin disclosing in line with the IFRS’ International Sustainability Standards Board (ISSB) standards starting as early as 2025. The new climate reporting obligations will be implemented in a phased approach, beginning with listed companies in 2025, followed by large, non-listed companies, defined as those with at least $1 billion in revenue and $500 million in assets in 2027.
The specific obligations for each group will also be phased in over time, with listed companies required to report on Scope 1 and 2 emissions in the first year, and on Scope 3, or value chain emissions, in 2026, and to obtain external limited assurance on Scope 1 and 2 GHG emissions two years after beginning reporting. Large non-listed companies will follow a similar timeline, although Scope 3 reporting will begin for these companies no earlier than 2029.
Resources, Reports and Announcements
- According to MSCI, public companies globally are increasingly disclosing on their greenhouse gas emissions footprints, with around 60% now reporting direct Scope 1 and 2 emissions, and more than 40% on at least some Scope 3 emissions. In addition, the report found that more companies are setting emissions reduction targets, and while the pace of goal-setting has slowed, the quality is increasing, with a sharp rise in science-backed decarbonisation targets.
- According to the EY’s CEO Outlook Pulse Survey, 54% of CEOs reported that sustainability is being given a higher priority by them and their boards than it was 12 months ago, while 23% said that sustainability has been deprioritised at their companies, mostly due to challenging economic or financial circumstances.
By region, respondents in the Americas were the most likely to report that sustainability has become a higher priority, at 62%, and the least likely to report de-prioritisation, at 16%, compared with 51% increasing prioritisation and 27% decreasing in Europe, and 49% increasing and 25% decreasing in Asia-Pacific.
Sustainability-related issues were more of a long-term focus area for CEOs, with only 16% including decarbonisation of business models and achieving net zero as a top-3 strategic priority over the next 12 months, compared with 47% prioritising investing in technology and AI to improve growth and productivity in the top spot. Over a 3-year horizon, however, decarbonisation was the most-often cited strategic priority, at 43%.
The increasing prioritisation – particularly over longer-term horizons aligns with last year’s survey, which found that while sustainability remained a top investment priority, it was also the most likely area to experience near-term budget cuts in the current inflationary and geopolitically unstable environment in order to meet short-term earnings goals.
- According to the latest report from Moody’s Investors Service issuance volumes of green, social, sustainability and sustainability-linked (GSSS) bonds rebounded sharply in Q1 2024 over the prior quarter, rising 36% to $281 billion, up from $207 billion in Q4 2023. With the following highlights:
- Green bonds continued to dominate at 60% of market volumes with $169bn
- Social bonds
