Tackling Corporate Greenwashing: New Global Regulation
Under a new set of global rules backed by the G20, companies will face increased pressure to disclose the impact of climate change on their businesses.
These rules, formulated by the International Sustainability Standards Board (ISSB), aim to combat greenwashing by assisting regulators in scrutinising environmental claims.
While individual countries can decide whether to mandate listed companies to adhere to these standards, the ISSB anticipates their use in annual reports starting from 2024. Several countries, including Canada, Britain, Japan, and Singapore, are considering adopting these standards.
The ISSB standards build upon the voluntary guidelines established by the G20's Task Force on Climate-related Financial Disclosures (TCFD).
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Britain has already made TCFD disclosures mandatory for listed companies, becoming the first major economy to do so. The ISSB operates under the International Financial Reporting Standards (IFRS) foundation, responsible for developing accounting rules used in over 100 countries. The global securities watchdog, IOSCO, is expected to endorse the new standards.
According to David Harris, head of sustainable finance strategic initiatives at the London Stock Exchange Group, 42% of the world's top 4,000 companies currently do not provide data on Scope 1 and 2 carbon emissions. This lack of transparency hinders the effectiveness of capital markets. The ISSB rules would require companies to disclose significant emissions data, subject to verification by external auditors.
To avoid duplicative efforts for global companies, the ISSB and the European Union (EU) are working towards ensuring compatibility between their respective disclosure rules.
The EU is set to finalise its own disclosure rules next month, and both the EU and ISSB plan to issue guidance on harmonisation in the near future.
The ISSB places a particular emphasis on detailed emissions disclosures from banks, focusing on specific sectors, such as oil and gas, in response to feedback from the banking industry.
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