A long-awaited release from Emmanuel Faber’s ISSB

“A century ago we said socialism in [just] one country doesn’t work. Well, international tax in one country doesn’t work either,” France’s president Emmanuel Macron told a national radio station last week.

Macron was making the case for a global tax on carbon emissions, on the second and final day of the climate and development summit he convened in Paris.

Such a tax would avoid the need for payments into a “loss and damage” fund based on historical emissions. Instead, funds raised by taxing companies and countries that are currently high emitters would be redistributed to help poorer countries with the cost of climate adaptation.

When I interviewed Kenya’s president William Ruto with my colleague Attracta Mooney last week, he was strongly in favour of regular taxes based on current emissions, describing the loss and damage debate as “toxic”.

A triple whammy of global carbon taxes — on goods, shipping and financial transactions — could raise a combined $1.5tn-$2tn to fund the creation of a green lending bank independent of rich countries’ interests, he hoped.

IMF boss Kristalina Georgieva said at the summit there was “no flying chance” of limiting global warming to 1.5C without a carbon tax.

But Andrew Mitchell, the UK’s minister for Africa and development, sung from a very different hymn book when I caught him on the sidelines of the gathering on Friday.

The UK was unlikely to agree to any global levy on carbon emissions, including the shipping tax backed by France, Mitchell said. “No country is going to relinquish their role of national taxation.”

Today, Simon brings you the latest on a long-awaited sustainability reporting standard that could be adopted around the world, and Patrick reports on shareholder activism in Japan. (Kenza Bryan)

Emmanuel Faber: ‘I guess we may remain unpopular’

When Emmanuel Faber took the chair of the newly formed International Sustainability Standards Board in December 2021, it was a major change of direction for the Frenchman, who had been ousted as chief executive of food giant Danone earlier that year.

Eighteen months — and countless hours of consultation and deliberation — later, Faber’s ISSB today finally published its first set of standards, which it expects companies around the world to use to disclose their sustainability-related risks and opportunities.

If the new standards are widely adopted, the implications for companies and markets could be profound, Faber told me. “It will reshape the capital allocations and the pricing for some of the resources and the industries that we see right now.”

The standards released today follow last year’s “exposure drafts”, published to solicit feedback from companies and other stakeholders (more than 1,400 submissions were received). The final versions include some notable changes, largely aimed at ensuring the reporting burden is manageable for companies.

Faber describes some of these as “transitional reliefs” — temporary concessions intended to help companies adapt to the new standards. For example, while it will in future expect companies to file their sustainability disclosures at the same time as their general financial report, the ISSB will not insist on this until the standards’ second year in operation.

Also — while the reporting standards cover a wide range of sustainability issues — during the first year, companies will have the option to report only on climate-related risks and opportunities.

“We know that, to start with, companies may need to adjust the way they collect information from their own supply chains or value chains,” Faber told me.

Then there are the “structural reliefs” baked into the standards for the long term. These will exempt smaller companies from the sort of quantitative climate scenario analysis required of larger ones.

Faber denied that the ISSB had been browbeaten into making any of these concessions. “I don’t think it is anyone pushing us to anything,” he said. He pointed, for example, to the requirement that companies disclose their Scope 3 carbon emissions, which are linked to their supply chains and the use of their products. This had been a particular bugbear for some corporate leaders Faber spoke to over the past year, who had shown “a lack of understanding of why it can be material,” he said.

“We passed through a period of time where we weren’t so popular,” Faber added. “And I guess we may remain unpopular.”

Faber’s team now enters a new phase that could prove even more demanding than the last, as it works to promote global uptake of the framework. A swift approval of the standards by the International Organization of Securities Commissions and the Financial Stability Board would have a huge influence on how national authorities approach the standards.

Major economies from Japan to Nigeria have already signalled their intention to integrate the ISSB standards into their domestic reporting requirements. The EU, meanwhile, is pursuing its own sustainability standards, with a view to making them “interoperable” with the ISSB’s framework — a situation that is “not ideal”, Faber conceded. There’s even less clarity in the US, where the Securities and Exchange Commission has delayed the publication of its sustainability reporting standards to October.

Still, Faber said, the important thing was to keep moving forward, with an understanding of the “frankly very significant” learning curve that companies would face as they adjusted to this new sort of reporting.

“[Sustainability reporting] is a language that will be spoken only if we start speaking it,” he said. “But we won’t speak that language fluently before some years. And that’s why it’s urgent to start.” (Simon Mundy)

Japanese banking giants face pressure from climate activists at annual meetings

Shareholder activism is surging in Japan. But will it result in higher support for activists’ climate petitions at the big Japanese banks?

On Friday, at Mizuho Financial’s annual meeting, shareholders voted on a proposal asking for a carbon financing transition plan in line with the Paris agreement and for an annual progress report. 

The proposal, which was filed by four advocacy groups, faced resistance from Mizuho. The bank said in December that it had strengthened its carbon emissions reductions strategy, in part by aiming to bring to zero its financing of business in the thermal coal sector by 2040.

Despite the bank’s opposition, about 24 per cent of Mizuho’s shareholders supported the activists’ proposal, Eri Watanabe, the Japan energy finance campaigner at Market Forces, told me. (The official vote totals will be reported later this week). The vote “has sent a strong signal to the board that it needs to act faster to strengthen its climate-related risk management,” Watanabe said.

Two similar proposals will be up for a vote on Thursday at the annual meetings for MUFG and Sumitomo Mitsui and both banks have urged shareholders to vote against the petitions. Last month, Sumitomo published a new playbook to cut carbon emissions that includes targeting coal power.

“Mizuho and Sumitomo Mitsui have made some progress on their coal mining target-setting and policy to restrict finance for thermal coal mining projects,” Watanabe said. 

Italian asset manager Anima, which has about €177bn in assets under management, has already said it is voting for the shareholder proposals at Sumitomo Mitsui and MUFG.

“[The banks] insist that they are already working on climate change measures,” Yasuko Suzuki of the Kiko Network, a Japan-based advocacy group, told me. “As we explained in our investor briefings, their policies still have loopholes and are not fully consistent with the 1.5°C target.”

The Japanese banks have reasons to consider moving more quickly on emissions targets. Earlier this year, Goldman Sachs and Wells Fargo disclosed more than a quarter of their shareholders backed resolutions to set climate risk transition plans that describe how they are aligning financing activities with targets to reduce greenhouse gas emissions. (Patrick Temple-West)

Smart read

To keep your finger on the pulse of the Wall Street zeitgeist, it’s worth reading Madison Darbyshire’s (pricey) lunch with Litquidity, the anonymous finance bro whose social media posts have taken the US financial sector by storm.