Companies to get first carbon accounting rules

PARIS — Companies around the world will soon have a uniform set of standards on sustainability issues after the body governing international accounting rules published today its first guidelines on reporting greenhouse gas emissions.

Currently, most large companies report how many tonnes of carbon they emit into the atmosphere each year, but the data is often not reliable.

The poor quality of data and lack of common standards allows companies to burnish their climate credentials, or to greenwash their reputations.

The International Financial Reporting Standards (IFRS) Foundation launched an effort in 2021 to fill that gap, creating a special board to work on sustainability disclosure standards.

Today, the International Sustainability Standards Board (ISSB) issued its first standards — IFRS S1 and IFRS S2 — that will be available for use from next year.

“The standards will help to improve trust and confidence in company disclosures about sustainability to inform investment decisions,” the ISSB said.

“And for the first time, the standards create a common language for disclosing the effect of climate-related risks and opportunities on a company’s prospects,” it added.

Countries are adopting measures to achieve carbon neutrality by mid-century in the hopes of limiting the increase in global temperatures at 1.5 degrees Celsius in line with the 2015 Paris climate pact.

This is creating a patchwork of regulations for firms to comply with and the financial stakes in the transition are becoming more and more important, both for the firms and their shareholders.

IFRS accounting standards are required in many countries, while many companies in other countries use them in order to better tap international finance.

The ISSB believes that a number of states, including Japan and Britain, will quickly make the new climate standard mandatory, and hopes China, which boasts the world’s second-largest economy, will adopt it as well.

The European Union is working on its own standards, which will also include biodiversity and human rights, and the ISSB hopes they will be compatible.

The standards ensure “that what they are actually doing is detailed in a common language for all the companies”, Emmanuel Faber, the former chief executive of French food company Danone, who led the effort to come up the rules, told AFP.

They also define how companies measure their direct and indirect emissions, using a method that is widely used but until now has not been mandatory — the Greenhouse Gas Protocol.

The standards also require companies to audit their emissions data and ensure their climate strategy is adopted by the top management.

While the ISSB, at least initially, is not going as far as the European Union, Kate Levick, the associate director for sustainable finance at independent think tank E3G, said creating common baseline standards is positive.

“When you have lots of countries all making regulations and requirements at the same time, that’s a bit of a nightmare scenario for companies,” she told AFP.

She believes that will help reduce greenwashing by companies.

“The disclosure requirements have been very carefully considered and thought out and designed with anti-greenwashing in mind,” she said.

“The whole idea of this is to hold firms accountable.”