Campaigner action has prompted companies and rulemakers to deliver better climate-related disclosure
Campaigner action has prompted companies and rulemakers to deliver better climate-related disclosure © Alex Kraus/Bloomberg

Global business leaders who flocked to last November’s COP26 climate conference jostled to position themselves as environmental champions, with promises of aggressive action to put the world on course for net zero carbon emissions.

Amid the bullish pledges in Glasgow, however, sceptical observers voiced fears of “greenwashing” — groundless environmental claims by businesses seeking to launder their image without making serious changes.

“Greenwashing is the new climate denial,” wrote Laurence Tubiana, chief executive of the European Climate Foundation and a key architect of the 2015 Paris Agreement.

“It is dangerous. It is, in fact, more insidious than climate denial because — without accountability rules — it is harder to identify.”

Such warnings are now helping to accelerate action by global companies and regulators to deliver wider and more consistent standards of climate-related disclosure.

One eye-catching moment came during the Glasgow summit, with the announcement of the International Sustainability Standards Board — a new body that will establish a single framework that regulators around the world can use to set rules on sustainability disclosures.

“People forget that we didn’t always have financial accounting standards,” says Janine Guillot, a senior adviser to the ISSB. “Those standards gave companies and investors a common language for talking about financial performance, which is now so standardised that we take it for granted. What we’re trying to do with the ISSB is develop a similar common language for measuring sustainability performance,” she explains.

Chaired by former Danone chief executive Emmanuel Faber, the ISSB plans to unveil its new guidelines this year. It remains to be seen how, and to what extent, its framework will be embraced by global regulators.

European authorities are separately drafting a sustainability disclosure directive that will apply to most listed companies on the continent.

And, while the ISSB rules will require companies to disclose sustainability-related matters that could affect their enterprise value, the European framework will ask them also to report their wider impacts on the environment and society — even if there is no obvious link with the value of the business.

However, despite being seen as more proactive than their peers in improving green disclosure, European regulators have been criticised over the details of some of their rules.

At the centre of the controversy has been the European green taxonomy — a set of rules that officially define what sorts of activities are considered sustainable, in order to steer investment towards them.

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The European Commission has drawn fire for a new plan to include nuclear energy and some forms of natural gas power within this taxonomy, raising concerns that it will undermine the credibility of the EU’s push for a new wave of sustainable investment.

“Some of the new criteria have weaknesses that make them not well suited to sustainable finance products,” warns Nathan Fabian, chair of a panel of experts set up by Brussels to advise on the new rules.

But while the detail of the EU taxonomy remains under debate, asset managers have been expected to report on their alignment with it since January. This has put them in “an impossible position”, according to sustainable investment analysts at investment bank Jefferies.

US regulators had been slower than their European counterparts to develop climate-related rules. Now, though, they are showing signs of movement under the Biden administration.

Gary Gensler, the head of the Securities and Exchange Commission, has instructed his regulators to draw up draft rules requiring companies to disclose information on their climate risks. Proposals had been expected last October, but the timing has slipped.

The delay has drawn criticism from influential Democratic senator Elizabeth Warren, who is pushing for rules that would force companies to disclose all the emissions that result from their activities — including those attributable to their suppliers and customers.

While the SEC is considering this, corporate lobbyists have pushed back against the suggestion. They argue that it is not yet possible to provide such estimates with confidence and that mistakes could leave them liable to lawsuits.

Amid the fierce political polarisation surrounding climate policy in the US, some prominent Republicans are also pushing back against the SEC’s climate disclosure plans.

“Bending to the will of activist investors and money managers to compel climate-related disclosures, especially ones that favour ‘green’ companies or punish ‘brown’ ones, will lead to failure,” said Missouri Attorney General Eric Schmitt in a written submission to the US regulator.

Meanwhile, progress on climate disclosure rules in other leading markets continues to vary widely.

In the UK, 1,300 large companies will be required from April to report information under the framework set out by the Taskforce for Climate-Related Financial Disclosures, an initiative spearheaded by former Bank of England governor Mark Carney.

Chinese central bank governor Yi Gang said last year that China also intends to impose mandatory climate disclosures on companies. However, it will only do so after testing the system with a limited set of banks and businesses.

Still, the overall trend towards enhanced sustainability disclosures is causing a rise in demand for consulting and other services to help companies comply with the emerging regulations. This is prompting the big global professional services firms to invest heavily in an area of business that now looks like a main growth driver.

Simon Mundy
Simon Mundy

“Companies really understand that this is going to happen,” says Bernhard Lorentz, head of climate strategy for Deloitte.

“They’re really trying to understand not just what the regulatory standards are now, but what they will be in two or three years. And the faster they understand this, the better they can deliver in the marketplace.”

The writer (pictured) is FT moral money editor and author of ‘Race for Tomorrow: Survival, Innovation and Profit on the Front Lines of the Climate Crisis’ (HarperCollins, 2021)

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