The International Sustainability Standards Board (ISSB) has recently unveiled a new set of global rules, backed by the G20, to address the issue of greenwashing. These norms aim to establish uniform sustainability and climate standards for companies worldwide, providing regulators with the tools to combat misleading environmental claims.
The Role of ISSB and the New Standards:
The ISSB was established by the International Financial Reporting Standards (IFRS) Foundation, a non-profit organization responsible for governing international accounting rules. The newly released standards, which will come into effect from 2024, comprise two key components: IFRS S1 and IFRS S2.
IFRS S1:
This standard outlines disclosure requirements that enable companies to effectively communicate sustainability-related risks and opportunities to investors. By providing greater transparency, companies can showcase their commitment to sustainability and inform investors about their environmental impact.
IFRS S2:
Designed to be used in conjunction with IFRS S1, this standard focuses specifically on climate-related disclosures. It sets out guidelines for companies to report on their climate-related initiatives, strategies, and risks, allowing investors to make informed decisions based on accurate and consistent data.
The Impact on Global Reporting:
While the ISSB will establish these global standards, individual countries will have the authority to decide whether to apply them to their listed companies. This approach ensures that the standards can be implemented effectively within the legal and regulatory frameworks of each nation, encouraging widespread adoption and accountability.
Building on Existing Frameworks:
The ISSB norms draw upon the voluntary guidelines established by the G20’s Task Force on Climate-related Financial Disclosures (TCFD). The TCFD was created by the Financial Stability Board (FSB), an international body that monitors and recommends improvements to the global financial system. India is an active member of the FSB.
Combating Greenwashing and Ensuring Transparency:
- One of the primary objectives of the ISSB’s new standards is to crack down on greenwashing. Greenwashing refers to the practice of making false or misleading claims about the sustainability of a product, service, or business operation. With inconsistent data quality and a lack of common reporting standards, companies have been able to overstate their environmental credentials, deceiving consumers and investors alike.
- By establishing comprehensive disclosure requirements and common reporting standards, the ISSB standards will help expose greenwashing practices. They will enhance transparency in sustainability reporting, enabling stakeholders to distinguish between companies genuinely committed to sustainability and those making unsubstantiated claims.
The Path Towards Sustainability Transparency:
The release of the ISSB’s global sustainability standards represents a significant milestone in the pursuit of transparency and accountability. By harmonizing reporting practices, companies will be held to higher standards, fostering trust among investors, consumers, and regulators. The standards provide a roadmap for businesses to measure and disclose their environmental impact accurately, encouraging responsible practices and the adoption of sustainable strategies.
