The International Sustainability Standards Board’s (ISSB’s) new baseline on sustainability disclosure is the convergence of a great deal of other work that has been done around sustainability reporting. The disclosure standards coming into law are really building blocks in sustainable reporting because different regulators will come out with their own flavours. But if companies see enough alignment between all the different standards in the ISSB, then the frustrations corporates are experiencing around disclosure fatigue and cross messaging from different sources, could melt away.
As a European headquartered bank, Deutsche Bank is engaged in climate stress testing and measure the financed emissions in our corporate loan book. To calculate our financed emissions, we rely on disclosure from our clients, particularly as more regulation comes into play. Deutsche Bank recently released its interim 2030 carbon targets for high emitting sectors. This means we are now going to our clients and saying we need this information from you to make sure you are on this journey with us.
Companies will already have been asked for emissions information in other conversations and in the context of other initiatives. For example, forthcoming EU legislation around supply chain due diligence requires multinationals to understand the transparency in their supply chain and is likely to be complimentary to ISSB requirements.
Still, treasury teams may not have had the conversation around sustainable reporting before, and it might be new to some sectors of the economy like Germany’s SMEs. This is an opportunity for Deutsche Bank to add value, supporting companies to better understand the information they need to collect to accurately capture their impact. The difficulty of collecting the data depends on the industry, but over the last five years there have been multiple efforts to help companies capture and measure sustainability information at different industry levels.
The risk for companies of not complying with regulation is industry and location dependent. But regulations may come in much quicker than people think. If rules change quickly, it will change the timeframe for companies.
The number of resources a company needs to put to sustainable reporting varies and depends on the size of the company and the type of business it is involved in. Single product companies or companies operating in a single location can streamline their calculations, but multi-jurisdictional companies will have to calculate different inputs. For example, there are 15 categories of Scope 3 emissions so if a diverse company needs to measure all of them, it can be a heavy lift although it’s not insurmountable.
The regulations could still impact private companies. Private companies will have to disclose their emissions to successfully tap credit markets, for example. Banks and private equity groups providing private credit are increasingly being asked by their stakeholders for financed emissions. A good example of a private company leading on sustainability reporting is the Mars Corporation. It’s a family-owned business but has been in the ESG disclosure space for a long time and is very public about its environmental disclosure and transparency.
