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The Climate Solution

The solution to global climate change is the unlocking of private equity. Here is why. At the Glasgow Climate Conference (COP 26) in November 2021, private sector experts pointed out - almost under the radar - that there is some USD$130 trillion in private equity that is sitting and waiting to be applied to climate friendly investments, if the private sector just had reliable information on the climate credentials of their investment options. The only reason the equity funds are not investing now is the lack of a global standard for identifying a climate friendly investment from one that is not. $130 trillion is a big number. The number was so big that it obviously made no sense to the journalists, as it was hardly reported. To remind us how big the number is, let's not forget the other big number most bandied around at COP 26, which was the amount of $100 billion that had previously been pledged by rich governments to under resourced nations, which pledge had not been met. Back to the point. Even if it is only one tenth true - that the private sector has US$130 trillion that can be moved to climate friendly investments - then the private sector is clearly the hero in waiting, in this particular opera. To make it actually happen, COP 26 heralded the announcement of an incredibly important new organization - a brand new "International Sustainability Standards Board" (ISSB), whose job is to set the standards - to "provide good quality, comparable information about the effects of sustainability-related risks and opportunities for making investment decisions." The organization is to be set up under the auspices of the organization that already provides the international standards for corporate investing, called the IFRS. Of course, this should all have been done at COP 13 at Bali, after the first IPCC report came out alerting the world to the urgency of the calamitous situation that is climate change back in 2007. But at least it is happening now. They say the standards should be in place by, perhaps, 2023. That is quick. But as it is so incredibly important that the world, it is also important that the IFRS and the ISSB and the world see this as an absolute race against time. That is to say, I think we should all treat the rapid fire establishment of a fully functioning ISSB as if the future of all of mankind depends on it. That is the idea that I want to put forward here. The rest of this idea is additional information. To keep yourself updated on the progress of the development of the ISSB, you can go to The following is the speech from the chair of IFRS - arguably the most important announcement at COP 26 - for your further information: Erkki Liikanen, Chair of the IFRS Foundation Trustees (Trustees), delivered the following speech at COP26 on 3 November 2021. Speaking at the UN climate-change summit’s Finance Day Presidency event titled ‘A Financial System for Net Zero’, he announced three significant developments to provide the global financial markets with high-quality disclosures on climate and other sustainability issues. "Sustainability, and in particular climate, is the defining issue of our time. Mark Carney has spoken about the tragedy of the horizon. In his book [Value(s), 2021], he also defines three pillars for the solution: public policies, company transition plans and disclosures of climate-related risks and opportunities. To play their role effectively, financial markets need good quality, comparable information about the effects of sustainability-related risks and opportunities for making investment decisions. In financial reporting, this problem with data quality is largely solved. Twenty years ago, the International Organization of Securities Commissions (IOSCO) strongly supported the creation of the IFRS Foundation and the International Accounting Standards Board (IASB). Now, more than 140 countries require companies to report using IFRS Accounting Standards. Investors get high-quality, assured and globally comparable financial information on which to make investment and capital allocation decisions. Companies have to standardise their reporting to the markets. The Kyoto protocol was signed in 1999, two years earlier. Back then, financial reporting and climate and sustainability disclosure did not meet. Today, they are two sides of the same coin. Capital markets can have an essential role to play in reaching net zero. But that can only happen when sustainability information is produced with the same rigour, assurance of quality and global comparability as financial information. In response to overwhelming demand for global sustainability standards, we are setting out our plans. First, we are announcing the formation of the International Sustainability Standards Board, or ISSB. Its purpose is to develop, in the public interest, a comprehensive global baseline of sustainability disclosures for the financial markets, IFRS Sustainability Disclosure Standards. This is what the G20, IOSCO and many others asked for. The ISSB will sit within the IFRS Foundation, alongside the IASB, and will work closely with it. Second, we are today announcing a commitment to consolidate two investor-focused international sustainability standard-setters into the ISSB. The Value Reporting Foundation (VRF), which is home to SASB Standards and Integrated Reporting, and the Climate Disclosure Standards Board (CDSB) will become part of the IFRS family. Third, we are publishing two prototypes: one on climate-related disclosures and the other on general sustainability disclosure requirements. This is the outcome of the work by the Taskforce for Climate-related Disclosures, the VRF, the CDSB, the World Economic Forum and the IASB, supported by IOSCO. The aim is to consolidate key aspects of this content into an enhanced, unified set of recommendations for consideration by the ISSB. All these actions together create the necessary institutional arrangements for a global sustainability disclosure standard-setter for the financial markets. The ISSB will focus on meeting the sustainability information needs of investors for assessing enterprise value and making investment decisions. Its standards will help investors understand how companies are responding to ESG issues, like climate, to inform capital allocation decisions. The standards will form a comprehensive global baseline of sustainability disclosures. They can be used on a standalone basis or integrated into jurisdictional requirements to serve broader stakeholder or other public policy needs. The global baseline approach provides investors with the high-quality global comparability they need, while jurisdictions incorporating the global baseline can go further if they wish. The ISSB will have a global footprint and presence through offices in the Americas, Asia and the EMEA (Europe, the Middle-East and Africa) region. We will introduce mechanisms for formal engagement with jurisdictions developing their own sustainability reporting requirements. The ISSB will also benefit from a range of expert advice, including guidance from the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), the World Bank, the United Nations and other experts. Engagement with developing and emerging economies will be an important priority. There is much work ahead of us and many challenges on the way. However, we now have a path towards global sustainability disclosure standards for the financial markets. We will move diligently, but with pace. And we will do so by working in close cooperation with you, with all important actors in this area."
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