Banks face new standards on carbon emissions disclosure

Financial institutions are expected to publish estimates of carbon emissions related to their loans and investments, under drafts of international standards aimed at eliminating green flushing by companies.

International Council for Sustainability Standards established During the COP26 climate summit last November following concerns about the lack of transparency surrounding the environmental and social impacts of companies, and the risks associated with investors.

The board’s mandate is to develop standards for corporate disclosure on sustainability-related issues and help put an end to “shopping by standards” accusations by companies seeking to flatter the environmental impact and risks posed to their businesses as a result of climate change.

On Thursday, the ISSB released a draft of its proposed standards, which will now be subject to public consultation until the end of July. The ISSB – established under the IFRS, a London-based body that sets international accounting standards – aims to issue the final version by the end of this year. The devices are designed to provide a standard that regulators around the world can use to impose new disclosure rules on companies.

Requiring banks and institutional investors to disclose emissions related to their financial assets is a significant component of the proposed standards, ISSB Chairman Emanuel Faber told the Financial Times.

“This is an important matter, it has been recognized in many consultations, and encouraged by key bankers [to pursue it], “He said.” The big banks, the biggest insurers. . . I think everyone in this industry understands that it deserves it. “

Indirect emissions, or “volume 3” – which come from suppliers and customers of a company – are responsible for the bulk of the carbon footprint of the financial sector. While many companies have voluntarily published estimates regarding their 3-volume emissions, there is no accepted methodology for doing so.

“We really think it’s time for this conversation [about a scope 3 reporting methodology] Happen, “Faber said, leaving open the question of the ISSB’s potential role in creating a detailed emissions reporting process.” Someone really needs to be held accountable. . . “Whether it’s us or anyone else, I do not know.”

Earlier this month, the U.S. Securities and Exchange Commission released a proposal to force public companies to disclose their direct carbon emissions and verify them by a third party, in a process similar to auditing the company’s financial statements.

The SEC program had less stringent rules around scope 3 emissions: only large companies were expected to report these and disclosures would not be subject to external verification.

The SEC and other international regulators have not clarified to what extent they will integrate ISSB standards into their evolving rules for organizational sustainability disclosures. “I think it’s a little early to say [how regulators will use the standards]Said Faber. “Some of them rightly say that they will look closely once these proposals are stabilized. And we are still about half a year away from that. “

The adoption of the new standards by national regulators may take years, but Faber, Former CEO of French DanoneSaid that voluntary use of the new indices by companies and investors in the meantime “is a very clear possibility… That we want to pursue.”

Faber added that the ISSB standards were built on the conceptual framework established by the Climate Change Task Force, an initiative led by former New York City billionaire Michael Bloomberg, and Mark Carney, a former Governor of the Bank of England. These guidelines have been widely used by companies that publish voluntary disclosures regarding their climate-related risks, but the TCFD has not presented them as standards for establishing formal regulation.

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