Sustainability Sustainable standard setters close in on regulatory gap By Reuters November 11, 2022, 6:20 AM REUTERS/Philippe Wojazer The European parliament has approved the law that makes disclosures mandatory, with EU states expected to follow suit by month-end Sustainability standard setter chief Emmanuel Faber said he was hopeful of reaching in the coming weeks a “big milestone” towards aligning the European Union’s (EU) corporate disclosures with his board’s global norms. Despite nearing agreement over how the work of his International Sustainability Standards Board will mesh with a similar set of EU rules being finalised, differences have persisted over what should be counted when assessing a company. Faber, chair of the Frankfurt-based ISSB, which is looking to define a global baseline for such disclosures and make as many countries as possible adopt it, said the issue remained difficult. The EU is finalising disclosure rules for 50,000 companies in the 27-country bloc to report on environmental, social and governance (ESG) factors, as well as a company’s impact on the environment, known as double materiality. Global regulators have called on the EU and ISSB to make their climate disclosures interoperable to avoid competing norms confusing cross-border investors. “We’re working with the European Commission on a shared objective of defining a framework for interoperability that will be as clear as possible for preparers (companies), and to place within that framework as much as possible of the climate standard,” Faber told Reuters on the sidelines of the Cop27 climate summit in Egypt. “Momentum is that there will be a big milestone of alignments with the technical advice finalisation that needs to occur in the next several weeks.” The European parliament on Thursday approved the EU law that makes the disclosures mandatory, with EU states expected to follow suit at the end of the month. An advisory body is due to present technical guidance to the European Commission on how to implement the disclosures. “The commission will adopt the first set of standards by June 2023,” the parliament said in a statement, adding that the rules will be rolled out from 2024. Faber said the difficult area for alignment is what constitutes materiality, or information to help investors make decisions. The ISSB hopes the EU could move towards its definition of materiality, which is drawn from accounting norms already being applied by EU companies in financial statements. Scope 3 Emissions Must be Included EU financial services chief Mairead McGuinness said last week the EU would do all it can to make EU and ISSB norms interoperable. Faber said it was important to include what are referred to as Scope 3 emissions in disclosures, meaning carbon emissions from suppliers of companies, an area where data is patchy, a step the EU is also taking. The US Securities and Exchange Commission, however, is facing pressure to ditch Scope 3 from its draft climate disclosures. “I think there is a clear recognition of the fact that companies cannot, or investors will not be able to fully understand the risks without Scope 3,” Faber said. Disclosures are urgently needed to help investors choose companies that take climate change seriously, he said. “Greenwashing is paralysing the mobilisation of capital markets.” The ISSB received a boost at Cop27 from CDP, a non-profit body helping about 20,000 companies globally to disclose their environmental impacts. It said it will apply the ISSB’s climate disclosure standard in its work. For daily comprehensive coverage on Cop27 in your inbox, sign up for the Reuters Sustainable Switch newsletter here