The need for and impact of high quality globally comparable reporting

As part of the Wheeler Institute Climate Initiative, Lucrezia Reichlin, London Business School Professor of Economics and trustee of the International Financial Reporting Standards (IFRS) Foundation, recently hosted a webinar on “The need for and impact of high quality globally comparable reporting” on 10th March 2022. The guest speaker was Mr. Emmanuel Faber, Chair of the International Sustainability Standards Board (ISSB). The webinar covered broader issues touching on corporate values standards for disclosure on sustainability matters and measurement for corporate impact.

About ISSB

The International Sustainability Standards Board (ISSB), which is overseen by the International Financial Reporting Standards (IFRS) Foundation, was announced in November last year during COP 26. The ISSB is charged with establishing capital market standards for sustainability disclosures . The ISSB aims to set standards so that capital markets will achieve the same level of understanding on a company’s exposure to risks and opportunities that climate change and broader sustainability matters will create for such companies. The IFRS Foundation also holds the International Accounting Standards Board (IASB), which is charged with setting standards for financial accounts in more than 140 countries.

Sustainability and growth: a trade-off or an achievable twin objective for businesses?

Mr Faber mentioned the challenges that a CEO may face when embarking on a sustainability strategy, which are primarily (i) figuring out how to change the business model and the time horizon to implement such changes; and (ii) convincing the company’s leadership to be on board with this radical shift in business strategy and operations. As for the first challenge, he stated that this requires thinking through non-accounting (or carbon) lenses, and the ability to look at externalities that one wouldn’t consider otherwise. With regards to the second challenge, Mr Faber quoted his personal example of how it took him several years to convince his Danone colleagues and the board that they needed to change their business strategy and processes, as this implied bringing a completely new approach to running the business. He remarked that what eventually worked for him was the materiality of the issues that climate change posed to Danone’s business, and the fact that systemic risks related to sustainability started popping up frequently in risk mapping exercises within the company. This enabled him to start a conversation about the sustainability and resilience of Danone’s business model, thereby getting the attention of the board members. He also mentioned that because of these issues, a large number of companies these days are now facing problems in recruiting the generations of managers that they need for the future, because the younger generation wants to work for companies that have committed to transforming their business model. Thus, talking about business processes and topics, and not values or purpose, was most effective in pushing through the sustainability agenda at Danone.

Mr Faber also talked about how it is possible to discover incredibly interesting but also challenging risks and opportunities when looking at business processes through a carbon lens. Ultimately, implementing these changes does result in the business becoming more efficient and resilient. While there are indeed some benefits of implementing such radical changes to a company’s business model, it is difficult to garner support for such initiatives as investors do not have the appropriate data to assess their impact. Mr Faber then elaborated on how, as CEO of Danone, he decided to publish a carbon adjusted EPS number considering the full scope of greenhouse gas emissions and the costs associated with these externalities. Mr Faber and his colleagues created a notional earnings per share, which allowed them to share with their shareholders the impact of reducing emissions on the company’s earnings.

Conceptual framework of ISSB

Mr Faber stated the importance of having ISSB standards and the role that they are going to play in capital markets. He stated that the key objective of establishing these standards is to provide investors the right, material information that they need to make informed decisions about financing the transition and the sustainability of the business models of the entities in which they are investing. The core objective of setting up these standards is to create metrics and standards of disclosures that will influence a company’s value. The users of such standards would belong to two categories: (i) primary users including investors, bankers, and providers of financial resources to corporates and economic entities; (ii) secondary users such as central banks, who insist on having information about the carbon footprint of the portfolio of commercial banks, as it helps them decide the cost of lending to such banks. The first two exposure drafts will be a draft standard on General Disclosure Requirements and a draft standard on Climate-related matters. The structure of the standards and much of its content is based on the TCFD recommendations, i.e., governance, strategy, risks, and metrics & targets. recommendations and include elements such as governance, strategy, risks & their management. The ISSB standards will also include industry-specific standards. The ISSB will consolidate several important standard setters, including private standard setters such as Sustainability Accounting and Standards Board (SASB) in the US. SASB is an industry-specific standard setter that covers roughly 80 different industries and has set metrics and standards for all of those industries relating to sustainability.

Implementing ISSB on a global scale

When asked about how he will ensure that ISSB standards are adopted by the 140 odd countries that follow IFRS accounting standards, Mr Faber mentioned that this will be achieved by a combination of two approaches. First, it will be critical to leverage the network and capabilities of the IFRS Foundation, which has been producing standards for more than 20 years. This will allow the robust production and proliferation of ISSB standards amongst the member countries. Second, Mr Faber expected the adoption of these standards to be driven not just by through cooperation with international agencies such as the International Organization of Securities (the ‘regulatory approach’) but also intrinsically by market participants given the urgency of achieving climate targets (the ‘market approach’). It would also be important to ensure that metrics relating to social aspects are defined uniformly across the globe, despite the cultural difference between countries, so that investors can easily compare the data between two companies.

With respect to facilitating adoption of ISSB by small and medium enterprises (SMEs), which often lack the capacity to do so, in emerging countries, Mr Faber mentioned that to overcome this challenge emerging countries will be given strong representation in the 14-member board of the ISSB. In addition, the ISSB intends to engage with them through an advisory forum of jurisdictions and support in the development of apps and digital tools to help SMEs meet the disclosure requirements.

Challenges with data collection

Gathering and reporting accurate data, especially on scope 3 emissions, has long been a challenge for organizations. To tackle this problem, Mr Faber again emphasized the importance of governance in an organization and how the right incentives can motivate people to gather and report data accurately. He cited the example of Danone, wherein up to 30% of managers’ bonus was tied to climate reporting. Thus, in his opinion, the right governance structures, and external pressure from investors would create incentives for organizations to gather and report high-quality data. He also stated that there is a need for greater collaboration between industry with academia to maintain and improve the quality of such data and to use it for research and broader societal needs.

Way forward

To the question of the biggest challenge facing the ISSB today, Mr Faber said that it was critical for the ISSB to get the balance right between the quality of data & process standards required for disclosures and the timeline by which such standards need to be finalized and adopted across the globe. The  urgency of climate action and occurrence of disruptive events (such as the pandemic and war in Ukraine) mean that financial and reporting models need to evolve continuously to the changing market landscape – a concept known as dynamic materiality. Thus, it will be of utmost importance for the ISSB to assess how much of the legacy (of the IFRS standards) they must adopt and at the same time, how much they need to depart from this legacy to meet climate and market requirements.

About Emmanuel Faber

Mr Faber started his career with Bain and Company in the 80s. He then moved into investment banking. In 1997, he joined Danone, where he held several positions, before eventually becoming CEO in 2014. At Danone, he initiated the social business venture Grameen Danone foods Ltd. in Bangladesh, oversaw & directed the creation of Danone communities, created the first French mutual investment fund doing social business as CEO, and oversaw the acquisition of WhiteWave, making Danone the world leader in organic and plant-based products. Under his leadership Danone changed its legal status and became an “Entreprise à Mission” to consolidate its social mission. Throughout his career, Emmanuel has been a champion of the multi-stakeholder model of business, emphasizing environmental and social priorities.


Sagun Tripathi (MBA 2023) worked for more than eight years in the energy sector, across different geographies – the US, Germany, and India – and functions – R&D, consulting, strategy, and operations – before coming to LBS. He is passionate about climate action and how sustainable energy holds the power to transform lives in the developing world. Sagun is an intern for the Wheeler Institute, contributing to the creation of content that amplifies the role of business in improving lives.

The Wheeler Institute Climate Initiative seeks to understand, illuminate, and support the business community – individuals and systems – in understanding, responding and adapting to the challenges and opportunities that climate change presents. We have a particular interest on implications and actions for those in developing countries.

Professor Reichlin’s conversation with Emmanuel Faber is the first event in a five-part webinar series with high-profile corporate leaders that aims to explore how public and private institutional investors can restructure capital offerings and risk management processes to reflect climate forces.

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