International Sustainability Standards Board: what are they and when are they coming?

One of the major criticisms of the ESG agenda is the lack of reliable, transparent, and comparable reporting. Investors are under pressure to consider the sustainability of their portfolios, yet with no universal set of standards they are struggling to evaluate or compare. For businesses, the current reporting landscape can be a minefield; with performance judged against a moving target and with many businesses choosing to forgo reporting altogether.

This is set to change. A little over a year ago, in the margins of COP26, the International Sustainability Standards Board (ISSB) was created, and tasked with developing ambitious, enforceable, and consistent ESG reporting standards.

The new standards - or IFRS Sustainability Disclosure Standards to give them their full name - are intended to provide a new framework for climate disclosures, enabling investors and other stakeholders to compare businesses on their approach to sustainability.

In the past year, the new ISSB has moved fast to appoint a board, consolidate a number of existing voluntary disclosure frameworks, and undergo an exhaustive period of consultation with businesses, experts, and governments around the world. As a result, the new standards are expected to be released “as early as possible” in the New Year.

If you wish to know more about the ISSB standards and how to prepare for their implementation, then contact Trafalgar Strategy Impact at impact@trafalgar-strategy.co.uk

EVs: The Road Ahead

2022 has been another big year for the Electric Vehicle (EV) market. Global sales continued to rise, with over 2 million EVs sold in the first quarter of 2022, a 75% increase in the same period in 2021. China led the pack, more than doubling sales in this period, with the US and EU sales increasing by 60% and 25%, respectively.

Whilst EV sales are on the rise globally, supply chains remain heavily confined to Asia. China, Korea, and Japan dominate global battery production, holding a 93.9% market share. Although South Korea and Japan are staunch allies of the West, China is firmly the industry leader controlling 44.1% of the 93.9%.

As Chinese President Xi Jinping's grip on power hardened and Sino-Western relations became increasingly sour throughout 2022, the need to shift Western reliance away from Asian supply chains has only grown. The challenge for Western legislators to do so is great. However, the latter part of the year has seen the EU and US announce critical measures encouraging manufacturers to relocate their operations, albeit using different approaches.

The US has taken a more conventional approach. In the recently passed Inflation Reduction Act, the Biden administration has offered massive state subsidies to EV manufacturers who set up shop in the states. The act has been lauded by industry, with the US government offering generous tax breaks and covering 10% of costs incurred sourcing raw materials and parts. Conversely, the EU has drawn up the most stringent set of sustainability standards to date, imposing strict carbon footprint reporting on parts used in EV manufacturing and minimum lithium recycling levels placed on batteries (50% by 2027; 80% by 2031). Although dressed up in the language of sustainability, this policy is just as economically driven as the approach followed by the US, as it follows the logic that businesses will relocate manufacturing operations to within the EU and thereby avoid incurring import tariffs or bans in the world's largest trading bloc.

However, these contrasting measures have put traditional allies at loggerheads, with the EU fearful that the US measures will lure European business to relocate, prompting accusations of protectionism. Keen to avoid a trade war with their closest ally and largest export market, EU politicians have been desperately trying to convince their counterparts across the pond to change tack before the measures take effect on January 1st of next year. Nonetheless, these pleas have thus far fallen on deaf ears, with the Americans standing firm that this is the most significant climate protection package to date and, in essence, baited the EU to join them in a subsidies race to the bottom.

Manufacturers, meanwhile, were quick to criticise the EU, laying into the bloc's "outdated" rules on state aid. Businesses were understandably frustrated at EU expectations that manufacturers already facing the brunt of high energy costs would be expected to heavily adapt their operations at great expense to meet the new rules without significant subsidies. In a choice between receiving subsidies and meeting yet more new sustainability standards, the US is providing a far warmer welcome to any global car manufacturers looking to relocate operations from Asia.

In addition to looming transatlantic tensions, there are broader consequences to be found for geopolitics, business, and consumers alike. Both the US and the EU measures will undoubtedly be instrumental in reducing the west's reliance on Asian supply chains, bolstering self-sufficiency in an increasingly isolationist world. As for business, the capital made available by the US and bars to market entry set by the EU will be decisive in driving sustainable innovation and informing investment decisions. For consumers, the US measures, set to remain in place through to 2032, are expected to reduce manufacturing costs to a level where EVs can be priced competitively with their combustion counterparts. This is a pivotal step in ensuring the choice to transition to sustainable forms of transportation is accessible to more people than ever before.

Off the pitch lessons from Qatar 2022

What are the governance lessons of Qatar ‘22?

Despite an abundance of entertainment on the pitch, this World Cup has been marred by some significant scandals off it. From the underreporting of emissions by Qatari officials to the mistreatment of members of the LGBT community, much of the publicity experienced by spotlight-hungry Qatar has been negative.

However, it is arguably the tournament’s failures of governance that have been most concerning. These were evident at all levels and at all stages, and have proved fatal to the organisers’ claims to create the “most carbon neutral” World Cup yet.

Perhaps inevitably, Qatar’s organising body, the so-called ‘Supreme Committee’ has become something of a parody of opacity and corruption - the twin peaks emblematic of poor governance. This resulted in failings that undermined the tournament’s legitimacy in the eyes of the majority of the world’s football fans even before the opening ceremony, notably the 6500 reported deaths of migrant workers and widespread reports of their inhumane working conditions.

Despite their best endeavours, the unaccountable nature of the Qatari Supreme Committee was never going to endear itself to the legions of fans who consider hosting football’s biggest tournament to be a special privilege. Nor was the country’s draconian glass ceiling preventing 50% of the population participating in the economy and society.

Yet the Qataris are not alone in allowing governance failures to undermine the legitimacy of this world cup. A number of pertinent questions remain for FIFA over the selection of Qatar as hosts. As this world cup illustrates, systemic governance failures inevitably undermine legitimacy and credibility. This should give leaders of businesses of all sizes and in all sectors food for thought.

Disclaimer - the arguments expressed in this article are not the result of England’s premature exit from the tournament.

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