More than a hundred companies responded to two proposed rules on sustainability- and climate-related disclosures, weighing in on the benefits of a global baseline for disclosures and the drawbacks of revealing information that could put a company at a competitive disadvantage.
The International Sustainability Standards Board, which establishes climate-disclosure rules, is debating two proposals that would require companies to disclose risks related to sustainability and climate change. More than 1,300 people commented on the proposals, including chief financial officers from Caterpillar Inc., Intel Corp., Levi Strauss & Co., and Verizon Communications Inc.
One letter, signed by more than 80 CFOs, emphasized that the ISSB should focus on aligning its standards with existing and developing reporting standards, and that the board should also move quickly to other sustainability topics, such as social issues.
Some executives expressed concerns about how the ISSB’s rules would interact with the SEC’s proposal to require companies to report on greenhouse-gas emissions and climate risks. Philip Morris International Inc., for example, expressed concern about the threshold for including information in the ISSB’s proposals. According to Philip Morris CFO Emmanuel Babeau, the SEC’s proposal is likely narrower than the ISSB’s broader sustainability issues because it is limited to climate-related data.
“If information responding to ISSB requirements is meant to be included in regulated filings or linked from regulated filings,” he wrote on July 29. “The definition of the threshold for inclusion (significant risks and opportunities) is confusing and likely at odds with the SEC standard for inclusion.” This means that companies listed in the United States may not be able to include the disclosures in financial filings, according to Mr. Babeau’s comment, which was co-signed by the company’s chief sustainability officer, Jennifer Motles.
Even where such disclosures are not prohibited, he says, companies may exclude them from financial filings due to litigation concerns.
The SEC’s rule proposal, on the other hand, was met with skepticism during its comment period, which ended in June and drew approximately 3,400 letters. Companies slammed the proposal, claiming it would be costly to implement and lacked clarity on the disclosure threshold.
Last week, ISSB Chair Emmanuel Faber stated that the board is actively considering the SEC’s and others’ actions. According to him, a working group comprised of the ISSB and authorities from five jurisdictions—the United States, China, Japan, the European Union, and the United Kingdom—meets on a regular basis to coordinate and understand each other’s disclosure expectations.
“We cannot have a global baseline where companies and investors can use comparable and reliable information unless we look at what very important jurisdictions are doing,” Mr. Faber said. He also mentioned the SEC.
The SEC did not respond to a comment request.
Mr. Faber stated that the ISSB board will review the feedback received during the comment period, which ended on July 29th, at a meeting in September. He anticipates that the new rules will be issued early next year, giving businesses more time to implement the requirements. Previously, the rules were expected by the end of the year.
One of the ISSB proposals would require businesses to disclose significant climate-related risks such as flooding and other extreme weather events. The other requires businesses to share more information about sustainability risks and the processes in place to manage them.
The ISSB’s proposals seek to establish a baseline for disclosures as companies grapple with disparate frameworks, standards, and regulatory disclosure requirements from around the world. The International Accounting Standards Board, which is overseen by the IFRS Foundation, established the ISSB last year to develop global sustainability disclosure standards. Jurisdictions can choose to adopt the ISSB’s standards, making them legally binding for businesses in those areas. Companies can also choose to adopt the standards voluntarily.
According to research firm Audit Analytics, more companies are using multiple frameworks, with 80% doing so in 2020 compared to 68% in 2019. According to the data, the number of global companies reporting under four frameworks increased to 255 from eight in 2019. The firm stated that data for last year, which would appear in companies’ environmental, social, and governance reporting this year, is not yet available.
“We’re trying to have as close to a single version of the truth as possible,” Caterpillar CFO Andrew Bonfield said of efforts to establish a baseline standard. “Because we’re ultimately providing this information to investors.” And it’s especially difficult if you don’t have comparability.” Mr. Bonfield was one of more than 80 CFOs who signed the group letter.
Caterpillar currently shares ESG data in accordance with the Sustainability Accounting Standards Board and the Global Reporting Initiative. It intends to include the Task Force on Climate-related Financial Disclosures next year.
Finance executives, on the other hand, believe that the ISSB’s standards could be improved.
In a letter dated July 29, Bank of America Corp.’s Chief Accounting Officer Rudolf Bless stated that reporting on sustainability and climate-related opportunities and risks could include confidential information or put a company at a competitive disadvantage. He stated that this could include disclosures of acquisitions, business transformation, or new business areas.
According to Mr. Bless, providing this information is also likely to necessitate speculative assumptions rather than useful information. He also noted that companies would benefit from a standardized set of disclosure practices.
According to George Quinn, group CFO at Swiss insurance provider Zurich Insurance Group, the ISSB should also ensure that companies have room to tell a narrative with their disclosures rather than ticking off boxes to meet the standards.
“It wouldn’t be, my revenue or profit has increased or decreased by X or Y as a result of A, B, C, and D,” he explained. Instead, he said, disclosures would focus on the environmental impact of a company’s operations. “I believe it will naturally have a very different feel to it.”