Sustainability Weekly — Week 16

Rumours abound in the world of sustainability reporting. It appears that there have been discussions in the EU commission on further aligning the European sustainability reporting standards with the ISSB (International Sustainability Standards Board) reporting standard.

🇪🇺 On the surface this sounds like a good idea. Interoperability between the EU rules on reporting and those used globally should be a priority, however some commentators, including Andreas Rasche , who this news came to me from, are concerned on the focus that the ISSB gives to financial materiality when assessing the importance of different topics. In his post below Rasche states his concern on potential future hierarchy of information that places financial materiality above impact materiality.

I agree that this is a real worry, especially considering that the impact a company has on people and the environment is a major component of its risk profile. This is still just a rumour though, at least to my knowledge, but it is interesting to see how this story develops. After all further alignment with the ISSB is needed, but it is important for the EU to not lose out on valuable data and analysis in the process.

“The Commission is exploring how ESRS reports could be formally deemed “ISSB-aligned” - likely by more strictly separating financially material data from impact-related disclosures. ISSB Chair Emmanuel Faber told a European Parliament committee: “The only condition needed is that those [ESRS] reports are written in a way to provide all financially relevant information clearly and not obscured by information that is provided for other users.” This framing is very unfortunate. It introduces an implicit materiality hierarchy which runs counter to the very idea of double materiality. Avoiding dual reporting across the ESRS and ISSB frameworks is critical. But any solution must fully preserve the integrity of the double materiality principle, and this means not introducing a ranking or hierarchy of information.”

This story is developing all the time. The latest information is compiled in this post by Thomas Howie

“About this time yesterday, posts started circulating on here suggesting that the EU may be considering the adoption of International Sustainability Standards Board standards. I wanted to break down what’s actually happened so far, what is being suggested, and whether this move is really necessary. Got something to add/suggested? leave a comment What’s happened so far? • There has been no official announcement from either the European Financial Reporting Advisory Group, the European Commission, or ISSB regarding changes to the ESRS or adoption of ISSB standards. • However, reporting from Sustainable Views and Responsible Investor has suggested that the EU may be considering a potential shift to “adopt ISSB standards”: https://lnkd.in/dc8_NjiM would separate “financial, and environmental and social information in CSRD reports”: https://lnkd.in/dEEHqvFX • Additionally, there has been significant discussion on LinkedIn about these claims: e.g. https://lnkd.in/d7N_Ra2H What is being mooted as a proposal? Reading between the lines, the idea appears to be a move toward separating financially material and impact material information within companies’ consolidated reporting. Crucially, this would: • Make financial reporting the baseline • Position impact data / double materiality disclosures as an “add-on” layer, rather than the core framework for reporting Old idea? It seems this approach — often referred to as the “building block” approach (due to the separation of financial and impact information) — was already considered and ultimately rejected during the development of the the original CSRD: https://lnkd.in/dF-F8Jpi • However, it has resurfaced in recent months. For example, it was raised again during discussions when the Chair of the International Sustainability Standards Board engaged with the European Parliament’s ECON Committee. https://lnkd.in/daiThJww • In addition, a number of high-profile German companies have voiced support for this direction (back in 2022), including via the Deutsches Aktieninstitut.https://https://lnkd.in/dmVY5dcS So is this move necessary or useful? In my view, no. • The European Sustainability Reporting Standards are already interoperable with IFRS Foundation data points. • This is largely thanks to digital tagging, which already allows users to easily identify and extract IFRS-aligned financial information. • For companies, separating financial and impact disclosures would likely increase the reporting burden, as it would require maintaining and reporting two distinct sets of information rather than an integrated one, adding time, complexity, and duplication. #ISSB #ESRS”

🇨🇦 In an earlier edition of this newsletter, I highlighted a story about Canada planning to adopt a taxonomy regulation. Now we have further development on this topic with the Canadian government launching a council to develop the taxonomy regulation. In addition to directing the development of the Taxonomy, the new council will also oversee the creation of climate transition planning guidance for Canadian companies.

🇬🇧 Usually, governments are the first to come out with good news about progress they have made. This development however has gone largely unnoticed, at least in my experience of the mainstream media and UK government communication.

The fact is that we are seeing a growing trend of decarbonisation across the globe. The progress has been too slow for sure, but it is encouraging to see these kinds of developments. These changes have not been driven solely by the tireless work of environmental advocates either, but a confluence of political will and economic as well as security pressures. Renewables are more cost effective and reliable in the long term, and they are getting cheaper and more efficient constantly. Thank you, Martin Bellamy, for highlighting this bit of news.

“No announcement. No fanfare. But the UK electricity system has just crossed a milestone worth noting. Over the last 12 months, fossil fuels supplied around 25% of UK electricity. Gas only — coal is gone. The last UK coal stations closed in 2024. That compares with roughly 50% a decade ago and around 75% fifteen years ago. Gas remains essential for balancing, but its role has been steadily shrinking. Over the same period, wind contributed more than 32% of UK electricity, becoming the single largest source of generation. This isn't a short-term weather effect or a statistical anomaly. It reflects sustained changes in how the system operates: • Offshore wind delivering at scale • Improved grid flexibility and storage dispatch • A system no longer dependent on coal for stability This is real-world infrastructure performance, not a policy announcement. The grid is now operating in territory that would have been considered optimistic five years ago. A fossil-fuel-free day hasn't happened yet. But the data shows the question is now about timing, not capability. We've published a white paper on managing residual emissions through the UK Emissions Trading Scheme. Link in the comments."

📈 This great post from Sander Keulen discusses the recent pricing of climate tipping points by J.P.

Morgan. Work like this is crucially important in understanding the role that climate change and climate tipping points play in the future risk profiles of companies. By cataloguing and calculating actual dollar values for these events we can start convincing even the most numbers minded people towards action. Hopefully scenario thinking like this will be incorporated into more and more boardroom strategy processes in the future.

Read the full article →