IFRS Sets New Global Benchmark with Sustainability and Climate Reporting Standards

A Week of Monumental Strides in Sustainability and Climate Action, this week:

• The IFRS Foundation's ISSB launched global sustainability and climate disclosure standards, effective January 2024

• The UK’s Competition and Markets Authority issued draft guidance requiring companies to provide context for green claims, targeting greenwashing

• The European Commission earmarked €6.2 billion for 107 transport infrastructure projects under the Connecting Europe Facility.

• The Australian government mandated the Australian Prudential Regulation Authority to incorporate climate change-related risks into its regulatory role

• The U.S. Department of Energy pledged a record $9.2 billion loan to BlueOval SK, a joint venture between Ford and SK Innovation, to construct new battery plants for electric vehicles

As governments, regulators, and corporations take decisive steps, the collective impact of these actions could be pivotal in shaping the global response to environmental challenges. The policies and investments announced reflect a growing consensus on the need for transparency, innovation, and regulatory frameworks in driving a sustainable future. The world watches with anticipation as these policies unfold.

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IFRS Unveils Global Sustainability and Climate Reporting Standards: A New Era of Transparency

The International Sustainability Standards Board (ISSB) of the IFRS Foundation has officially launched its global sustainability and climate disclosure standards. These standards are expected to form the basis for emerging sustainability reporting requirements by regulators worldwide, marking a significant step towards integrating sustainability reporting into the broader financial reporting process.

• The new standards will apply from January 2024, with companies beginning to issue disclosures against the standards in 2025. The ISSB aims to provide a global baseline of disclosure requirements enabling a consistent understanding of the effect of sustainability risks and opportunities on companies’ prospects.

• The two new standards include "IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information," and "IFRS S2 Climate-related Disclosures." These standards cover disclosures relating to general sustainability and climate-specific risks and opportunities, including governance, strategy, risk management, and metrics and targets.

• IFRS S1 requires companies to disclose information about sustainability-related risks and opportunities that could reasonably affect the entity’s cash flows, access to finance, or cost of capital over the short, medium, or long term.

• IFRS S2, designed to be used with S1, sets out specific climate-related disclosures, including reporting of Scopes 1, 2, and 3 greenhouse gas (GHG) emissions, and how climate-related considerations are factored into executive remuneration.

The launch of the ISSB's new sustainability and climate disclosure standards represents a significant milestone in the evolution of sustainability reporting. These standards are expected to enhance transparency and comparability in sustainability disclosures, thereby enabling investors and other stakeholders to make more informed decisions. The impact of these standards on corporate reporting practices and investor behaviour will be closely watched in the coming years.

UK Regulator Cracks Down on Misleading Green Claims: Context is King

The UK’s Competition and Markets Authority (CMA) is taking a firm stance against companies making green claims without providing context on their broader environmental impact. This move aims to combat greenwashing and ensure that consumers receive transparent and accurate information on sustainability.

• The CMA has issued draft guidance that requires companies to provide context for their green claims. This means that if a company highlights a positive environmental aspect of a product, it must also disclose any significant negative environmental impacts.

• The guidance is part of the CMA’s broader efforts to tackle greenwashing, which involves companies exaggerating or falsely claiming the environmental benefits of their products or services.

• The CMA is also considering the introduction of fines for companies that fail to comply with the guidance. This is aimed at ensuring that companies take their environmental claims seriously and avoid misleading consumers.

• The regulator’s actions come amid growing consumer interest in sustainability and increasing scrutiny of corporate environmental claims. The CMA aims to build consumer trust and promote genuine sustainability efforts.

The CMA’s draft guidance represents a significant step in the fight against greenwashing in the UK. By requiring companies to provide context for their green claims, the regulator is promoting transparency and accountability in corporate sustainability communications. This move is likely to have a ripple effect, encouraging companies to adopt more responsible and honest environmental practices. The CMA’s actions set an example that could be emulated by regulators globally to combat greenwashing and protect consumer interests.

EU Pledges €6.2 Billion for Sustainable Transportation Revolution

The European Commission has earmarked over €6.2 billion in grants from the Connecting Europe Facility (CEF) for 107 transport infrastructure projects. These projects are aimed at creating a more efficient, greener, and smarter network of railways, inland waterways, and maritime routes along the trans-European transport (TEN-T) network.

• Over 80% of the funding will be directed towards enhancing the efficiency and sustainability of the TEN-T network. This includes major cross-border rail connections such as the Brenner Base tunnel, Rail Baltica, and the cross-border section between Germany and the Netherlands.

• Maritime ports in Ireland, Greece, Spain, Latvia, Lithuania, the Netherlands, and Poland will receive funding for developing on-shore power supply to reduce greenhouse gas emissions from moored vessels.

• The EU-Ukraine Solidarity Lanes, designed to facilitate Ukraine's exports and imports, will also receive support from these projects.

• Infrastructure along the Seine-Scheldt cross-border waterways between France and Belgium will be modernised to future-proof inland waterway transport.

The EU's substantial investment in sustainable transportation infrastructure signifies a major step towards achieving its green transition goals. By focusing on enhancing the efficiency, sustainability, and smartness of the TEN-T network, the EU is not only promoting sustainable transportation but also setting a precedent for other regions to follow. The success of these initiatives could potentially influence the broader global transition to sustainable transportation.

Australia's Climate Awakening: Financial Regulator Mandated to Consider Climate Risk

The Australian government has mandated the Australian Prudential Regulation Authority (APRA) to incorporate climate change-related risks into its regulatory role. This development forms part of an updated Statement of Expectations for APRA, marking a significant shift in Australia's approach to climate risk.

• The new mandate requires APRA to promote transparency regarding financial risks and the adoption of climate reporting standards, as stated by Australian Treasurer Jim Chalmers.

• The government now expects APRA to encourage prudent practices related to climate-related financial risks and the adoption of climate reporting standards by regulated entities.

• This development follows the government's launch of a consultation paper in December 2022 on the creation of a climate risk disclosure framework for businesses and financial institutions. The government plans to make these reporting rules mandatory for large entities.

• APRA has already begun initiatives to assess climate risk factors in the financial system, including conducting its first Climate Vulnerability Assessment (CVA) with the country's five largest banks.

The Australian government's decision to mandate APRA to consider climate risks signifies a pivotal moment in the country's approach to climate change and financial regulation. This move, coupled with the development of a climate risk disclosure framework, underscores Australia's commitment to managing climate-related financial risks. The impact of these initiatives on the country's financial landscape and climate action efforts will be closely watched.

DOE Fuels Ford's Electric Ambitions with Record $9.2B Loan

The U.S. Department of Energy (DOE) has pledged a conditional loan of up to $9.2 billion to BlueOval SK, a joint venture between Ford and South Korean battery company SK Innovation. This funding aims to bolster the construction of new battery plants to power Ford and Lincoln electric vehicles (EVs).

• The loan, the largest single commitment from the DOE's Loan Programs Office, aligns with the Biden administration's agenda to enhance domestic manufacturing of clean energy and future transportation technologies.

• BlueOval SK, launched in 2021, is part of Ford's extensive expansion into the EV ecosystem, marking the largest-ever manufacturing investment by an automotive manufacturer in the U.S.

• The venture is building three large-scale battery plants, one in Tennessee and two in Kentucky. The Tennessee plant, part of the 3,600-acre Blue Oval City, will be carbon-neutral from its 2025 production launch.

• The plants are expected to enable 120 gigawatt-hours of battery production annually, enough to displace 455 million gallons of gasoline per year.

The DOE's record loan to BlueOval SK signifies a significant boost to Ford's EV ambitions and the broader U.S. clean energy sector. The move not only supports the Biden administration's environmental goals but also promises to create thousands of jobs, underscoring the economic potential of the green transition.