Welcome to Climate Decoded, a Persefoni Newsletter
I am happy to announce the launch of Persefoni’s newsletter, Climate Decoded. Businesses and financial institutions are rapidly transitioning to a low carbon economy. Along the way, Climate Decoded will bring you the timely climate stories you need to know, simplified, and directly from Persefoni’s climate and regulatory disclosure experts.
2023 came racing out of the gate, and despite political headwinds and the uncertain economic environment, it has become quite clear that climate and decarbonization remain a top 3 priority in the C-Suite. In 2022, organizations’ adoption of climate considerations in their business and risk management strategies went from a “nice-to-have” to a “must-have,” signaling the broader market acceptance that climate risk is financial risk.
Indeed, we have passed a tipping point. Last month, Deloitte announced that 99% of U.S. public companies plan to invest in ESG reporting technology and tools this year, and we’ve tracked similar feedback globally.
With Climate Decoded, we share the most important of these market and regulatory trends, simplify complexity when it exists, and aim to support you and the broader market.
The market prepares for climate disclosure
To kick off 2023, we heard the Bank of America CEO call for official global sustainability and climate standards to “align capitalism with what society wants from it.” During the last two years, we've seen more than a dozen countries adopt or propose climate disclosure requirements rooted in the Task Force on Climate-Related Financial Disclosures (TCFD) and Greenhouse Gas Protocol, including the United States, the United Kingdom, Japan, New Zealand, and France.
Also on the horizon, the International Sustainability Standards Board (ISSB) will finalize new sustainability and climate reporting standards (also built on the TCFD) in the first half of 2023. We expect these standards to be formally issued in June, and prove to be a catalyst for action from regulators around the world.
The U.S. Securities and Exchange Commission (SEC) should also finalize its Corporate Climate Rule in the first half of the year, and while there remains significant uncertainty as to what the SEC will include in the final rules, especially around scope 3, taking a “wait and see” approach is risky. Deloitte’s most recent ESG disclosure and preparedness survey finds that more than half of companies are proactively implementing changes to accelerate readiness for requirements, whether from the SEC, state requirements (like the recently revived California corporate emissions disclosure bill), investor requests, or international requirements.
The SEC climate proposal is hardly the only federal climate development in the U.S. The Federal Reserve Board and the U.S. Treasury’s Financial Insurance have both announced requests for climate information in the banking and insurance sectors, respectively. Additionally, the Federal Supplier Climate Risks and Resilience Rule has proposed that suppliers and contractors report their emissions and climate risks on top of setting a science based target. These actions only serve to cement and accelerate the inevitability of this sea of change.
Credibility is quickly becoming the currency of sustainability
It is no longer enough to simply say you are “green” or “sustainable” without quantifiable evidence. Anti-greenwashing laws are coming into effect around the world, such as the UK Green Claims Code and the French Climate and Resilience law, as well as proposals to combat greenwashing in investment funds from the US and Japan. In turn, investigations are on the rise in the UK and in the U.S.
We are rapidly approaching a world where organizations will be required to disclose audited emissions footprints, and then be challenged by analysts and stakeholders to decrease the financial risk they represent. In short, there is no going back to “business as usual.” Climate disclosures are coming, and they’ll be here to stay.
We recognize the need to stay in-the-know on compliance developments, financial sector trends, major climate events, and carbon accounting innovations. Climate Decoded will continue to zoom out to show you the big picture of the climate developments you need to know. Subscribe now.
Climate & ESG News Roundup
ISSB standards to come into effect in 2024
Last week, the ISSB convened in Montréal, Canada for their February board meetings. On the agenda were the final items needed to complete the technical deliberations for their general sustainability (S1) and climate (S2) standards. The big ticket item that you need to know is that the ISSB completed their deliberations on the substance of the standards, and have announced that they will come into effect for companies and jurisdictions to adopt in January 2024. Next, the bBoard will finalize the standards for publication as well as build guidance and training materials so that the standards can be applied to any jurisdiction or company that chooses to do so. It’s important to remember that the ISSB is not a regulatory body, it's a standard setter. It can issue standards on a voluntary basis, and jurisdictions can then decide whether to adopt them as requirements.
Following the board meeting, the ISSB hosted their first ever symposium, also in Montréal. Investors, regulators, companies, academics, and ISSB board members met to discuss the standards as well as the challenges and opportunities presented by their eventual adoption in the markets. Mark Carney, UN Special Envoy on Climate Action and Finance, and Sue Lloyd, ISSB Vice-Chair, took the stage for the keynote address to express how critical it will be for the ISSB standards to form a global baseline for sustainability and climate reporting. Carney stressed the importance for economies to adopt the baseline, saying it would be “costly” for jurisdictions to not allow for a baseline consisting of the S1 and S2 standards.
Last week sustainability professionals and organization leaders from around the globe flocked in record numbers to Scottsdale, AZ for GreenBiz 2023. The event heard speakers from companies like Intuit, Salesforce, Delta Air Lines, Persefoni, and more, who drove home several key takeaways.
First, the climate crisis is a human problem that requires multiple data-driven technology solutions - there is no single solution.
Second, addressing one of the biggest topics of concern among attendees —the SEC ruling that is still up in the air — speakers emphasized that while the future of the regulatory landscape is still uncertain, it is only a matter of time before mandatory reporting reaches all businesses; companies ought to act now to prepare for the inevitable mandates.
Lastly, transforming into a sustainable business requires more than introducing watered-down versions of current products and services; sustainability must be integrated into the core business model to drive innovation and inspire new identity.
A common theme of conversation among attendees was where do we go from here? Many participants found themselves feeling eager to take the momentum and resources from the event back to their companies, but faced with the challenge of how to get the right people to care and how to turn that care into action to institutionalize progress.
California re-proposes mandatory ESG disclosure
As organizations in the U.S. and around the world anxiously await the finalization of the SEC’s proposed rules, representatives in California, which hosts one of the world’s top 10 largest economies, have decided to take matters into their own hands. Democratic representatives Senator Wiener, Senator Gonzalez, and Senator Stern recently introduced three bills–SB 253, SB 261, and SB 252–to push mandatory ESG disclosure efforts forward. SB 253, a revival of the narrowly stricken-down SB 260, seeks to increase transparency among large corporations doing business in California by requiring them to align with the Greenhouse Gas Protocol and make their GHG emissions disclosures publicly available, including scope 3 emissions.
SB 261 would require large corporations doing business in the state to produce an annual climate-related financial risk report. Finally, SB 252 seeks to leverage funds from the state’s Public Employees’ and Teachers’ Retirement Systems by prohibiting any new or renewed investments of said funds in fossil fuels. SB 253 and SB 261 are set for hearing on March 15, 2023. These bills stand in stark contrast to recent efforts to block the ESG movement in states like Texas and Florida, whose representatives are outspoken “anti-woke” advocates.
Events You Can't Miss
On March 1-2, Private Equity International will be hosting the seventh Responsible Investment Forum in New York. Institutional investors, fund managers, associations and other industry professionals will meet to explore opportunities in ESG in order to advance sustainable value creation. Join the Persefoni team on the 11:30am ET panel discussion to discuss the new ESG regulatory landscape. Registration is open now.
In the UK, Edie 23, an evolution of the Sustainability Leaders Forum, will convene for a two-day event that aims to shape the future of sustainable business. On March 1-2, 600+ board-level executives, sustainability leaders, policy makers and finance experts will meet in London to make actionable progress towards environmental and social transformations in business. Registration is open now.
The Women’s Private Equity Summit will be held this year in San Diego from March 8-10. Persefoni’s Kristina Wyatt will speak to the crowd about ESG regulations that are affecting investment firms around the globe.