The IFRS Foundation has published a guide for the voluntary application of its International Sustainability Standards Board (ISSB) disclosure standards, supporting companies as they start to apply those and communicate progress to investors. This comes as investors globally call on companies to voluntarily apply the standards to provide them with decision-useful and comparable information in the absence of regulatory requirements. Investors such as BlackRock, Vanguard, Capital Group and Neuberger Berman, in particular, have encouraged the application of the standards through proxy voting guidelines. “As increasing numbers of jurisdictions take steps to introduce sustainability disclosure requirements, the standards serve as a passport for companies to meet requirements globally while providing investors with a global baseline of disclosures,” the IFRS said, stressing that the guide would be a “useful tool” to that effect.  The guide is the latest in a series of publications designed to support the implementation of IFRS S1 and IFRS S2 – in tandem with tools such as the European Sustainability Reporting Standards – ISSB Standards Interoperability Guidance. “For sustainability information to support investment decisions, risk management processes and ownership activities across a diversified portfolio, it must be consistent and comparable across companies and over time,” said Carine Smith Ihenacho, Chief Governance and Compliance Officer at Norges Bank Investment Management, and recently appointed ISSB Investor Advisory Group (IIAG) Chair. Speaking at New York Climate Week, ISSB Chair Emmanuel Faber said: “Companies around the world already provide investors with sustainability-related information in response to investor demand. However, they use a patchwork of frameworks and standards to do so, leaving investors unable to compare the performance and prospects of companies … the voluntary application guide helps companies navigate from their current reporting practices to applying ISSB standards, providing a cost-effective route for companies to provide decision-useful, assurable financial information to investors.” The ISSB Investor Advisory Group is comprised of 117 global members from 62 leading asset owner and asset manager organisations, representing more than US$54 trillion in assets.

Despite the anti-ESG push, more than six in 10 North American asset owners believe environmental factors have become more material in the past year, according to research by Morningstar. The global index provider’s third annual ‘Voice of the Asset Owner Survey’ gleaned the perspectives of 500 global asset owners – representing more than US$18 trillion in assets – on their investment policies, opinions on regulatory changes, and the role of ESG factors in their investment approaches. The survey found 64% of North American asset owners viewed environmental factors as more, or much more material – compared to just 16% who viewed them as less, or much less – aligning them with the perspectives of European (62%) and Asia-Pacific (66%) parties. Net zero emissions and energy management increased as most material environmental issues to asset owners’ investment decisions, while sustainable food and agriculture were deemed to be less material than last year. Fifty-three percent of North American, 58% of European, and 62% of APAC asset owners said social factors had become more, or much more material over the past year, while for governance the figures stood at 56% for owners in both Europe and APAC, and 51% for North America. For social issues material to asset owners, labour practices and human rights widely increased, while business ethics spiked in the governance category. Asset owners also underscored the need for ESG data, with 43% pointing to this as being most useful for their investment strategies, ahead of ESG ratings (24%) and indexes (23%).

The Morningstar Voice of the Asset Owner Survey provides an annual snapshot of what makes asset owners tick, what drives their behavior, and what keeps them up at night.

Here's why climate is driving the agenda for asset owners. https://t.co/aluIXnf5cw

— Morningstar, Inc. (@MorningstarInc) September 24, 2024

Moody’s Ratings has warned that global climate investment will fall short of the trillions required to achieve net zero by 2050 unless governments can incentivise the private sector to close the gap. “Fiscal strength will weaken materially if governments fill climate investment gaps fully on their own balance sheets,” said the ratings agency in a report on climate funding gaps. In a hypothetical scenario in which governments do not take action to offset the fiscal impact of higher climate investment needs, global government spending would need to increase by around 1.8% of GDP every year until 2030, it noted. Spending requirements would vary significantly across regions but would likely be larger for emerging markets and developing economies (EMDEs). Sharing the investment burden with the private sector could reduce government spending around 0.9% of GDP per annum up to 2030, Moody’s suggested. Climate policies can ensure the private sector shares the burden, it added, noting the scope for carbon pricing to generate government revenue and the reduction of fossil fuel subsidies to free up fiscal capacity. A second report outlined how early climate mitigation investment can ease credit risks. Under existing climate policies, clean energy investments will peak at 1.9% of GDP in 2030 (US$1.9 trillion), up from 1.3% in 2020. However, climate-related economic losses will amount to nearly 14% of GDP globally by 2050, the report warned, and about 30% in Africa and Asia. Increased investment in climate mitigation would partly counterbalance fiscal costs – governments need to plug a mitigation gap of 1.5% of GDP annually by 2030 and 2.4% in EMDEs. This would almost halve global economic losses to 7.1%, Moody’s has projected. EMDEs across Asia are best placed to benefit from an early and coordinated transition, the report added, citing its capacity to manage risks associated with the shift to lower emission technologies.