Greenwashing - a practice used by some companies to boost their environmental credentials and woo ethical investment - has come under increased scrutiny following the launch of a new international standards body that aims to tackle unjustified and exaggerated claims.
Emissions. Photo: Roschetzky Photography / Shutterstock
Photo: Roschetzky Photography / Shutterstock
Finance Day at COP26 in Glasgow was marked by the formation of the International Sustainability Standards Board (ISSB), which aims to build on the existing mishmash of voluntary disclosure practices and replace them with a global standard baseline that could be used by investors as a means of gauging a company's climate impact.
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Voluntary disclosure - by which companies provide information about themselves beyond legal requirements - has thus far seen mixed results and the ISSB is looking to bring increased scrutiny to those companies giving an overly positive picture of their business practices and climate policies, in order to attract investors in the multi-trillion-dollar market for environmental, social and governance (ESG) targeted funds.
"We are really focused on greenwashing," said Ashley Alder, chair of IOSCO, the global umbrella body for securities regulators which helped set up the ISSB. "It's super important, and if you don't have basic information on a globally comparable basis, then you increase the risks of greenwashing enormously."
"[The new standards] are a baseline but they are not basic," he added.
Alder also told Reuters that IOSCO was mulling a possible assurance framework to ensure a rigorous system of checks to assess whether ISSB standards are being properly applied.
If IOSCO formally endorses the standards, its members - who make up 95% of the global securities market - would have an obligation to implement and enforce them.
The ISSB will have a global presence, covering all regions - the Americas, Asia-Oceania and EMEA (Europe, the Middle-East and Africa), with board and chair based in Frankfurt, and offices in Montreal, San Francisco and London providing technical support.
The new body's parent, the IFRS Foundation, said that arrangements are currently underway for the ISSB to begin its work early next year, and has already published a set of prototype climate disclosure standards to be discussed, before being put to public consultation in the second half of 2022.
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Erkki Liikanen, Chair of the IFRS Foundation Trustees, said: "Sustainability, and particularly climate change, is the defining issue of our time. To properly assess related opportunities and risks, investors require high-quality, transparent and globally comparable sustainability disclosures that are compatible with the financial statements.
"Establishing the ISSB and building on the innovation and expertise of the Climate Disclosure Standards Board, the Value Reporting Foundation and others will provide the foundations to achieve this goal."
ISSB's success largely depends on receiving support from major countries, with the EU leading the way having already gone ahead with its own disclosures, themselves even more ambitious and requiring companies to explain how their operations affect climate change.
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