Full Disclosure: Convergence of sustainability reporting standards is excellent but we still have a thick serving of alphabet soup.
SEC, TCFD, GHG Protocol, ISSB, CSRD . . . it still seems pretty soupy
My friend and former Latham & Watkins colleague Paul Davies introduced me to the British comedy, Yes, Minister. As I sit down to write this week’s newsletter, I’m reminded of a Yes, Minister clip about the absurd complexity of the regulatory process as parodied in the show. After a nonsensical briefing, the poor minister decries the “piddling gobbledygook” of jargon.
In real life, climate journalist Megan Darby recently suggested we “ban the UN from naming things,” after the UN established its “High Level Expert Group on the Net-Zero Emissions Commitments of Non-State Entities (HLEG).” This is all rather amusing but, as Pilita Clark observed, the sober truth is we need to get away from “jargon that clogs understanding about an issue as vital as climate change.”
We have seen significant progress in the last year toward the convergence of sustainability reporting standards. But there are still a lot of acronyms. In order to make sense of the alphabet soup, it might be helpful to focus on the key terms and how they fit together.
A Common Set of Standards
There currently are a lot of moving parts at play in the sustainability reporting world. The SEC has proposed climate disclosure rules. In Europe, the EU Parliament is poised to consider the adoption of a Corporate Sustainability Reporting Directive (CSRD). Europe’s standard setter, European Financial Reporting Advisory Group (EFRAG) is preparing to issue proposed standards to implement the CSRD. The International Sustainability Standards Board (ISSB) has just issued proposed climate disclosure standards. All of these base their disclosure requirements largely on the Task Force on Climate-Related Financial Disclosures (TCFD) and the Greenhouse Gas Protocol.
What does all this mean? Does it sound like gobbledygook?
Actually, we have made a lot of progress in the last year in simplifying a disclosure system that was significantly more fragmented.
A year ago, there were very few legal requirements mandating sustainability disclosures. Nonetheless, investors were asking companies for information about their sustainability performance. Companies were voluntarily reporting in accordance with one or more sustainability standards - each with its own acronym - and each contributing to the alphabet soup. This was unhelpful to investors because companies’ disclosures were not consistent, comparable, and reliable.
To address this fragmentation, the international accounting body, the IFRS Foundation, decided to set up an international sustainability standards board (ISSB) to create a common set of sustainability standards. The leading standard setters came together and created a prototype climate standard that they gave to the ISSB to help as it started to draft its climate standard. The ISSB released its draft climate standard earlier this month. The draft is based largely on the recommendations of the TCFD and the Greenhouse Gas Protocol.
This is good news. We’ve whittled down from dozens of climate standards to two that fit well together and have already been broadly adopted.
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Wyatt joined Persefoni from the U.S. Securities & Exchange Commission (SEC), where she served as Senior Counsel for Climate & ESG to the Division of Corporate Finance, led the rulemaking team through drafting proposed climate disclosure regulations, and worked closely with the Office of International Affairs.
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