The European Union’s securities watchdog (ESMA) has said that the new global standard for sustainability reporting put forward by The International Sustainability Standards Board (ISBB) needs to ensure its definition of ‘sustainability’ aligns with other initiatives in a bid to stamp out ‘greenwashing.’
Established at COP26, and launched in November 2021, The International Sustainability Standards Board (ISBB) was created with the goal of developing a comprehensive global baseline of corporate sustainable disclosures.
The proposals, which are currently in a consultation period until July 29th 2022, were developed in response to requests from G20 leaders and others to enhance information from companies on sustainability-related risks and opportunities. Subject to feedback, in the second half of 2022, the ISSB plans to issue the new Standards by the end of the year.
Alongside the ISBB proposal, there are other initiatives also working towards combatting greenwashing and companies exaggerating their sustainability credentials. Most notably, the EU has already agreed on its own set of rules for companies to disclose the impact of ESG on their business and in turn their own impact on the environment.
As a result of these multiple initiatives, there has been a call for a set of common terminology to avoid confusion or contradiction.
The ISBB’s proposal has been criticised by the EU’s European Securities and Markets Authority (ESMA) for not clearly defining what sustainability matters they are addressing.
A letter published on Wednesday by ESMA Chair Verna Ross said, “ESMA would recommend selecting a converged scope and definition of what is meant by ‘sustainability’ with other major stand-setting initiatives.”
Ross goes on to say that it would be relevant to understand in what sense the ISBB refers to sustainability, given that people draw varying distinctions between ESG and sustainability.
“Lacking such a solution, we face the risk of a continued fragmentation of the sustainability reporting landscape with increasing costs and risks for the investment community as well as issuers operating internationally, and ultimately more difficulties to give effect to the mush-needed sustainability transition,” Ross said.
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