Following efforts to end “greenwashing” in a crucial year for climate reporting, the G20-backed International Sustainability Standards Board on Thursday agreed first company sustainability baseline guidelines for companies describing how climate change affects their business.
The standards are anticipated to be put into use in annual reports beginning in 2024, subject to “balloting,” or standard checks before formal publication, beginning next January. Nations like Nigeria and Britain will adopt them.
Sustainability guidelines should prevent greenwashing
Billions of dollars have already poured into funds claiming their environmental credentials based on various voluntary private-sector methods, which has authorities worried about “greenwashing” or inflated claims about how environmentally beneficial something is.
Greenwashing is a marketing tactic that involves making misleading or false claims about the environmental benefits of a product, service, or company in order to appeal to consumers who are environmentally conscious.
Greenwashing is a concern because it can mislead consumers into thinking they are making environmentally responsible choices when they are not. It can also undermine the efforts of companies and organizations that are genuinely trying to be more sustainable by making it difficult for consumers to distinguish between truly environmentally responsible products and those that are simply using “green” marketing as a ploy to sell more products.
International companies must comply with sustainability guidelines
International companies are concerned that since the EU and the US are now writing corporate disclosures as new environmental, social, and governance (ESG) requirements take center stage, they will just wind up with a patchwork of official sector norms.
EY’s global vice chair for assurance Marie-Laure Delarue said that 2023 would be a turning point for ESG reporting.
Around 50,000 companies will implement the so-called ESRS (EU disclosure regulations), many of which will also be required to declare in accordance with ISSB standards.
ISSB and EU to make their climate-related disclosures interoperable
Regulators have put significant pressure on the ISSB and EU to make their climate-related disclosures “interoperable” in order to avoid conflicts that would raise compliance costs.
On Thursday, ISSB board members debated whether to allow businesses to cite their adherence to EU standards as a means of meeting ISSB requirements, thereby reducing reporting costs, and introducing some interoperability.
Board member Verity Chegar expressed fear that we would confuse both businesses and investors. If we only mention Europe, it will imply that we are not truly inclusive and global.
Given that EU standards could change, the board decided to include the use of EU regulations in an appendix to the ISSB guidelines.
I don’t believe it will always be necessary for us to resort to other standards, ISSB chair Emmanuel Faber said.
In the words of EY’s Delarue, cross-referencing was a “first step towards convergence” in norms but would be challenging for companies to put into practice.