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.
In October 2024, the Climate Financial Risk Forum (a financial services industry forum established jointly by the FCA and the Prudential Regulation Authority in 2019) published guides on three key areas of climate risk:
The Transition Plan Taskforce is set to conclude its work on October 31, 2024 with the migration of its key outputs to the IFRS Sustainability Knowledge Hub. This includes:
TPT Disclosure Framework
TPT Explore the Disclosure Recommendations
TPT Sector Summary
seven x TPT Sector Deep dives
technical mappings of IFRS S2 to TPT Disclosure Framework
technical mapping of TCFD to TPT Disclosure Framework
comparison of TPT Disclosure Framework to ESRS.
CDP launched a new platformto streamline and remove barriers to high-quality reporting on climate and nature. Open to 75,000 requested companies in addition to cities, states and regions, this will further ease the reporting burden and make it easier to disclose. With global mandatory climate disclosure legislation on the rise around the world, CDP has launched a new questionnaire aligned with IFRS S2, the ISSB's climate standard, as the foundational baseline for CDP's climate disclosure.
The CDP has also progressed critical alignment with other key standards like the Taskforce on Nature-related Financial Disclosures (TNFD) and the European Union standards (ESRS), harmonising them in one questionnaire and dataset.
It has also released a standalone questionnaire for SMEs tailored to their resources and needs, to build capacity across a critical component of the global value chain.
The ICMA published a paper on The role of commercial paper in the sustainable finance market. It found that estimated at as much as EUR 300 billion, the sustainable CP market is significant, even if it is a fraction of the sustainable bond market. Within it, Use of Proceeds CP is the more established product, while Sustainability-Linked CP is emerging. This market has developed by leveraging the well-established voluntary practices in the sustainable bond market represented by the Principles, as many of its recommendations are directly relevant or can be adapted for its purposes.
Resources, Reports and Announcements
HSBC and the IFC launched a new fund targeting SDG-aligned corporate bond issuers in emerging markets which will be categorised as Article 9 under the Sustainable Finance Disclosure Regulation (SFDR)
According to the annual report from RepRisk, greenwashing cases fell for first time in 6 years as regulatory scrutiny continues to build. The report found a 12% decrease in the number of companies associated with greenwashing risk in the year ending in June 2024, signalling a significant shift in corporate behaviour with the number declining for the first time since 2019. While the overall number of cases fell, the report noted a shift towards higher-risk incidents, with findings of a 30% increase in high-severity cases over the past year.
The IFRS Foundation published a new guide aimed at helping companies to voluntarily apply the International Sustainability Standards Board’s (ISSB) recently issued climate and sustainability-related disclosure standards and communicate their progress to investors. Voluntarily applying ISSB Standards—A guide for preparers aims to provide a tool for companies, particularly in jurisdictions without regulatory requirements to apply ISSB Standards, to meet investor demand to provide sustainability reporting in line with the new emerging standards. Several major investors, including BlackRock, Vanguard, Capital Group and Neuberger Berman have encouraged application of ISSB Standards through proxy voting guidelines.
KPMG’s 2024 CEO Outlook found that most CEOs remain upbeat on the impact of their sustainability efforts. In the U.S., for example, 60% of CEOs reported that they expect to see significant returns from their ESG investments in the next three to five years, including 24% expecting significant returns within one to three years. Additionally, 74% of CEOs said that they see their ESG strategy having the greatest impact on driving financial performance, and 26% see it having the greatest impact on attracting and retaining talent.
The survey also assessed CEOs’ perception of the top risks from failing to meet ESG expectations, with 24% of respondents globally citing giving their competitors an edge as the principal downside, followed by the threat to their own tenure at 21% and recruitment challenges at 16%.
S&P Global launched its S&P Global Climate Center of Excellence to help it provide actionable intelligence to its customers and partners, including investors, banks, companies, and sustainability solution providers. Its mission is to:
tackle complex methodological challenges in climate and environmental science to support long-term innovation
support the next generation of science-driven thought leadership to provide intelligence to the market
build external academic partnerships to inform cutting-edge research and innovation
partner across S&P Global to leverage in-house scientific and economic expertise and robust suite of data, analytics, insights and research to help drive transparency on climate and sustainability issues deemed critical by the markets
cultivate learning opportunities for employees to elevate science-based thinking on climate and sustainability issues throughout the company.
MSCI launched a new Carbon Credit Project Ratings to assess more than 4,000 projects, considering criteria ranging from the projects’ impact on climate, environment and society, to legal and ethical risks, such as financial crime, fraud, and sanctions. Under the new ratings, projects will be assessed scores on two primary categories, emissions impact and implementation integrity, grading each on a seven-point letter rating scale from AAA to CCC, with AAA indicating a high likelihood of achieving a 1 tonne emissions impact per credit and being implemented in a way that supports positive social and/ or environmental outcomes, while upholding legal and ethical standards.
Naresh Aggarwal
13 October 2024
