Climate-led strategy should not be to detriment of investor awareness of broader ESG risks.
Investors want to see a “climate–first” approach to non-financial reporting standards, said Clara Barby, CEO of Impact Management Project (IMP), which could serve as a catalyst for the launch of a global sustainability reporting framework.
“Everyone understands the rationale for leading with climate [in non-financial reporting] at this point. Investors recognise the urgency of climate risk,” said Barby, whose organisation is currently working alongside the World Economic Forum and Big Four accountancy firm Deloitte to develop a comprehensive corporate reporting system.
The IMP CEO joined a panel discussion on climate-related disclosures as part of the Qatar Centre for Global Banking and Finance Policy Forum, held today. Panellists considered the widely supported International Financial Reporting Standards (IFRS) consultation paper published in September, which proposes the implementation of a global Sustainability Standards Board (SSB) that could implement the climate-first disclosure guidelines investors are looking for.
“A common international standard that has widespread international market acceptance is going to improve completeness, consistency and comparability of corporate information on sustainability,” said Sheldon Mills, Interim Executive Director of Strategy and Competition for the Financial Conduct Authority (FCA) and Co-lead of the International Organisation of Securities Commissions (IOSCO) Sustainability Taskforce.
In recent weeks, global regulatory and standards bodies have debated existing barriers preventing introduction of a universal global standards framework, including regional legislative differences and varying international priorities regarding recognition and management of ESG risks. However, Barby reiterated that the sheer urgency of climate change is understood by every global investor, policymaker and corporate, and is therefore the best place to start when building regulatory unification.
The new system coordinated by IMP is being developed according to input from “the group of five”: CDP, Climate Disclosure Standards Board (CDSB), Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB) and International Integrated Reporting Council (IIRC). SASB and IIRC announced plans for a merger last month.
“Broaden the scope”
While climate risk is the common denominator that could make a global sustainability reporting standard possible, Barby warned that investors should not forget to address the broader spectrum of ESG risks within their portfolios and future investment pipelines.
Maintaining an “ESG-diverse” portfolio will both increase an investor’s societal impact and likely drive up their returns in the long-term as companies fall in line with regulatory requirements, Barby said.
“[IMP] supports an initial focus on climate change in non-financial disclosures. However, we think it will be important to broaden the topic scope of sustainability reporting reasonably swiftly, because there is plenty of evidence to suggest that a wide range of environmental and social factors are material to enterprise value creation,” she said.
“The climate-first approach is really a pragmatic approach to enable a quick issuance of climate-related reporting standards and a foundation for the SSB,” Mills added.
With COP26 scheduled to be held in Glasgow next year, Mills noted that the investment industry has reached a “critical juncture” where words need to be turned into action. He said this deadline will likely provide regulatory bodies with “the opportunity to really rapidly move things forward”.