ECB, IMF call on climate standard setters to align company disclosures

LONDON: A global standard setter for company climate disclosures should align with European and US alternatives for easier implementation across jurisdictions and to avoid fragmenting information to investors, the European Central Bank and IMF have said.

The Frankfurt-based International Sustainability Standards Board (ISSB) has proposed global “baseline” reporting standards, which attracted over 1,300 responses.

The aim is for more rigorous reporting to make ‘greenwashing’ or inflated climate-friendly claims, harder.

While widely backing the creation of global norms, many call for better definitions of key concepts, a longer phase-in, and stress the need for them to be ‘interoperable’ with standards being written by the European Union and US Securities and Exchange Commission.

For example, the basic term ‘climate-related’ is not sufficiently clear, said EY, one of the world’s Big Four accountants who will audit the ISSB disclosures.

Business says that without interoperability, it will be harder for jurisdictions to accept disclosures from companies using different norms to them, meaning costly duplication of reporting.

“Therefore, interoperability between the forthcoming ISSB standards and jurisdictional requirements remains one of the largest challenges that harmonization work ultimately faces... it is important to avoid further fragmentation,” the International Monetary Fund said.

The London Stock Exchange Group, whose listings will comply with ISSB disclosures, said multiple standards and approaches being developed at the same time risk fragmentation.

LSEG said it too has identified several key differences in definitions used by the EU and ISSB.

EU norms cover enviromental, social and governance (ESG) disclosures, as well as reporting on a company’s impact on the environment, known as double materiality.

ISSB rules focus largely on climate change’s impact on a company.

The ECB said that to meet users’ expectations, any international standard should comprise double materiality.

It urged the ISSB and other standard setters to “iron out” differences and come up with baseline standards which are widely implemented globally.

The clock is ticking as the EU aims to finalise its first batch of ESG disclosure rules by November, with the ISSB expected to finalise its own rules by year end.