PLAYING BACKSTOP — Corporate leaders looking to the return of former President Donald Trump for relief from the Biden administration’s climate and energy regulations might find themselves facing a formidable backstop in the form of sustainability measures advanced by global standard-setters and foreign governments. The presumptive Republican nominee has repeatedly promised to undo President Joe Biden’s efforts to advance the green transition, prompting federal agencies to take steps aimed at protecting those measures. But even if Trump succeeds, U.S.-based multinationals will still face demands for accountability from countries that adopt rules set by the International Sustainability Standards Board. The ISSB, which sets global benchmarks for corporate reporting on environmental, social and governance metrics, cleared its biggest milestone to date last year — and is now gearing up to expand disclosure standards at a time when they could become de facto rules of the road for U.S. companies. “In the absence of regulatory clarity in the U.S., the ISSB sustainability standards will be an even more valuable tool to help U.S. businesses navigate market demands,” said Emily Pierce, chief global policy officer at carbon accounting firm Persefoni and a assistant director in the SEC’s office of international affairs. “Investor and commercial expectations for information are here to stay, and regulations in other jurisdictions will accelerate the pressure on U.S. companies to keep up.” The next step for the ISSB is development of disclosure standards for biodiversity and human capital. In countries that adopt them, companies would report on their own workforces as well as their impact on nature and vulnerabilities to scarcer water or diminished crop yields. Officially, the effort is just a "research project" at this point, but it could be the ISSB signaling its intent to start down the path of setting actual standards. "Setting aside any sorts of politics or anything like that, that capital markets need just continues to exist," said ISSB Vice-Chair Sue Lloyd. "And so we just focus on that in a really neutral way. We're not telling people how to run their businesses, we're not saying what's good, what's bad, just what information do investors need to feel confident they really understand the consequences for them of putting their money with that company, in terms of expectations for the future." The prospect of a new ESG disclosure regime holds little appeal for some U.S. companies still reeling in the wake of politically charged battles over state and federal climate rules that are immersed in legal challenges. "Disclosure fatigue is real," said Lindsey Stewart, director of investment stewardship research at Morningstar. However real that fatigue may be, it’s not so severe that those opposed to disclosure requirements aren’t willing to fight them. The U.S. Chamber of Commerce, a leading opponent of both Securities and Exchange Commission and California climate disclosure requirements, raised concerns about the cost, technology and feasibility of biodiversity disclosures in a letter earlier this year to the Taskforce on Nature-related Financial Disclosures. There are legitimate concerns over thorny issues like the lack of consistent and reliable standards for calculating impacts on nature compared with the more matured carbon accounting industry, making it “an order of magnitude more complicated than climate reporting,” Stewart said. And on human capital, varied definitions of diversity between countries could make it difficult to come up with the globally applicable standards the ISSB is striving for. “I wouldn’t be surprised if the same dynamics play out” on these two domains as the tensions that arose largely between NGOs and business interests during climate standard-setting, said Maura Hodge, accounting firm KPMG’s ESG audit leader. One key difference: There are currently no parallel domestic standard-setting efforts on biodiversity or human capital disclosures. That could reduce the potential for U.S. opposition, said Jake Rascoff, director for climate disclosure and securities regulation at Ceres who previously worked for Sen. Brian Schatz (D-Hawaii). Though the SEC has listed human capital disclosure on its unified agenda, no further rulemaking action has been taken. An agency spokesperson said the commission considers rulemaking action when it thinks it’s ready to do so. The ISSB’s climate disclosure standards are moving toward adoption in jurisdictions that account for more than half the global economy by gross domestic product. That doesn’t include the U.S., where the SEC finalized (and then paused) its own rule for public companies. While the ISSB churns through its process, U.S. companies will need to buckle up regardless: Europe's new corporate reporting regime requires information on water and resource consumption and workforce data. The effort to put up guardrails around the “ESG alphabet soup” is generally supported by businesses and investors alike. That will buy the ISSB continued good-will, Pierce said — until voluntary standards turn into mandatory action. “Companies welcome rubrics and tools to help them do things,” she said. “Where you get the political dynamics and tension is when companies are told they have to do things a certain way.”
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