Despite the diversity of the paths that lead to it, the movement towards a common language to describe and measure climate risks is irreversible and the majority of countries will comply, believes the man who has been working since 2019 to bring order to the current mess ESG standards.
“It’s companies’ access to capital that is at stake,” says Emmanuel Faber, who is the first guest of the 4e edition of the Sustainable Finance Summit which opens this morning in Montreal.
The ISSB has put on the table its first two standards which will require companies listed on the stock exchange to measure their environmental footprint and disclose the climate risks to which they are exposed.
The principle has been widely approved by 135 countries and several have adopted the two standards as is, but not the United States, where the SEC has just published its own guidelines for climate risk disclosure.
“The SEC has set standards that are extremely close to ours, but on climate, the SEC has only legislated on direct emissions and not on indirect emissions (Scope 3), says the president of the ISSB. After the global consultation we held, it is very clear that when they are material, indirect emissions must be reported by companies. »
PHOTO CHRISTIAN HARTMANN, REUTERS ARCHIVES
Emmanuel Faber, president of the International Sustainability Standard Board, in 2019, then CEO of Danone
“It’s our standard and not to report on indirect emissions when they are material, and they are most of the time, you are not in compliance with the ISSB standards. »
According to him, measuring Scope 3 emissions, which takes into account production through to consumption of a product, is becoming a necessity for companies.
“For a Canadian company that sells energy or raw materials exposed to fossil combustion in Europe, there will be no outlets in Europe in 15 years. Not taking indirect emissions into account, not giving this transparency to investors, does not protect investors. So, mechanically, they will protect themselves by taking a risk premium on capital. »
Canada has fully adhered to the ISSB standards, but consultation is underway on how to translate them into securities regulations and it would be surprising if these regulations diverge from those of the United States.
“I don’t know,” the ISSB president said of the Canadian position. He believes that the United States is in a particular political context which explains the cautious position of the SEC.
“What is very likely, what will happen in the United States, is that American companies will add ISSB standards complementary to those of the SEC to be able to use ISSB language as a passport to enter Europe, Brazil, Mexico and elsewhere, when scope 3 emissions are requested,” he says. Although it is not required in the United States.
It was the big investors who demanded these standards, recalls the man who was CEO of Danone. “A country that does not adopt these or equivalent standards will not have access to global capital,” he says.
The European Central Bank, for example, already applies a risk premium to finance banks which do not have a sufficiently rigorous climate plan, he illustrates.
Given that the submission of international standards is very recent, i.e. June 2023, the adoption process is going very quickly, estimates Emmanuel Faber.
Some countries, including Canada, would like to retain the possibility of adapting international standards to their national context, which risks going against the primary objective of the ISSB, which is the simplification of ” alphabet soup » current.
“The risk is there,” recognizes its president. I brought up this issue of language fragmentation because the reason we pushed for the creation of the ISSB is for the standards to be as global a language as possible. »