Regulatory guidance required to steer growing private sector alignment with sustainability objectives.
The urgency of sustainability risks requires investors to make the best of available ESG data while pushing for more comprehensive and accurate reporting from companies and financial intermediaries.
The world cannot afford to wait for “perfection” in ESG disclosure and measurement practices, said James Alexander, Chief Executive Officer of sustainable finance forum UKSIF, at Chatham House’s Responsible Business 2022 conference in London on Thursday. Moving to a sustainable economy requires governments, investors and companies to do a lot “bloody quickly”, he said.
Alexander said growing commitments and actions by the finance sector had to be complemented by mandatory disclosures to provide detailed and comparable information to investors on ESG risks and impacts.
Increasing levels of enthusiasm within financial services organisations are encouraging, he said. But the spectrum currently spanned firms creating sustainable products with potentially significant impact as well as those more focused on producing “nice brochures”.
“It’s difficult to tell the difference between the two approaches. It is a big problem and is the reason we want to see enhanced disclosures that will enable investors to make informed decisions,” he said.
Large UK financial institutions and corporates are due to begin reporting climate risks in line with the recommendations of the Task Force on Climate-related Disclosures from April. The UK government is also expected to provide detailed proposals later this year on Sustainable Disclosure Requirements, while will require reporting on a wider range of ESG risks and impacts.
A poll of conference delegates revealed that a majority (52%) were either not confident, or sceptical, that current efforts on disclosure and measurement would produce the better quality data that was needed by the industry. Only 9% were ‘very confident’ this would happen.
Earlier this week, the latest report from the Intergovernmental Panel on Climate Change warned against further delays in “concerted anticipatory global action” to tackle climate change.
Eric Usher of Head, UNEP Finance Initiative (UNEP FI), suggested taxonomies, standards and reporting frameworks should provide support for sustainability-led business models, rather than being a catalyst for them.
“Once you take a holistic view, you then need the standards and taxonomies. UNEP FI works with financial industry frameworks to set norms, or pre-standards. If you get the private sector to voluntarily do something, standards eventually will be established.”
He described this as a dance, with the private sector “leaning in” to regulators, ratcheting up the process of public and private sector cooperation.
Lois Guthrie, Special Advisor, IFRS Foundation, said the creation of the International Sustainability Standards Board (ISSB) was a significant development in the harmonisation of sustainability reporting.
“The ISSB was established to produce reporting requirements that will result in globally consistent, comparable and assured sustainability information. One question is does it go far enough and that is open to debate.”
Marie-Josée Privyk, Chief ESG Innovation Officer at sustainability management platform Novisto, said regulation was needed to provide investors with qualitative and quantitative ESG information to be comparable between companies, consistent over time and reliable.
“Regulators will tell companies that they must disclose information using certain standards and that such information must be externally assured,” she said.
Sacha Sadan, ESG Director, Financial Conduct Authority, said regulators were focused on the need to provide the market with the tools to identify and prevent greenwashing.
The UK regulator recently issued guidance on ESG fund labelling and is expected to consult further in the first half of this year.
Sadan said regulators were aware of the urgency of the need to put robust rules and protections in place. “We have to remember what we are trying to achieve. We know what is wrong and right – enough work has been done on this over the past 20 years – we now have to get on with it.”