New ISSB Rules Could End Corporate Greenwashing if Adopted, Chair Says

Under new rules for businesses set by the International Sustainability Standards Board (ISSB) and backed by the Group of Twenty (G20) nations, companies will be required to disclose their contributions to climate change, reported Reuters.

The previous lack of clear standards has led large companies to understate their carbon emissions and overstate their climate credibility, a tactic called “greenwashing.”

The new standards will provide universal climate and sustainability standards, but ISSB Chair Emmanuel Faber said it will be up to individual countries to require their use by companies in their annual reports beginning next year.

“Greenwashing… will end the day our standards have gained a sufficiently significant position in the markets,” Faber told AFP.

Faber said the purpose of the standards is to “reassure the financial market about the information it is given.”

The ISSB said the new standards will boost the “trust and confidence” in the information companies are providing, as well as “inform investment decisions” in order to create a “common language” for disclosure. The ISSB belongs to the International Financial Reporting Standards foundation.

“ISSB standards are designed to create a global baseline of sustainability-related financial language, on top of which jurisdictions might add specific building blocks,” Faber said, as GreenBiz reported.

So far, Nigeria, Brazil, Kenya, Chile, Egypt, South Africa, Singapore, Malaysia, Japan, Britain and Canada are considering using the new standards, Faber told Reuters.

The new rules stem from voluntary standards put together by the Task Force on Climate-Related Financial Disclosures (TCFD), an advisory body created by the G20.

“Endorsement shall be a real game changer for regulators around the world in considering the use of the ISSB framework,” said Jean-Paul Servais, chair of IOSCO, a global securities watchdog, as reported by Reuters.

More than 40 percent of the 4,000 biggest companies in the world do not disclose Scope 1 and 2 carbon emissions data, according to David Harris, head of sustainable finance strategic initiatives & partnerships at London Stock Exchange Group.

Harris pointed out that “capital markets are far less effective because you haven’t got a full picture,” Reuters reported.

The 2015 Paris Agreement goal of keeping global heating to 1.5 degrees Celsius above pre-industrial levels has led countries globally to adopt measures to achieve net zero by 2050.

“When you have lots of countries all making regulations and requirements at the same time, that’s a bit of a nightmare scenario for companies,” said Kate Levick, associate director for sustainable finance at think tank E3G, as reported by AFP.

The ISSB expects nations like Britain and Japan to make the new standards mandatory, while the European Union is putting together its own biodiversity rules that the committee hopes will be compatible.

The new standards use the Greenhouse Gas Protocol parameters on how companies measure their carbon dioxide emissions, both direct and indirect.

“[C]ompanies have been wrestling with a complex reporting landscape for some time,” Faber said, as GreenBiz reported. “This is a core reason why the ISSB was created. Our standards have been developed by consolidating voluntary initiatives.”

Levick says the new standards set forth by the ISSB will help minimize greenwashing, reported AFP.

“The disclosure requirements have been very carefully considered and thought out and designed with anti-greenwashing in mind,” said Levick, as AFP reported. “The whole idea of this is to hold firms accountable.”