Emmanuel Faber is on a mission

A big thank you to everyone who made this week’s Moral Money Summit Europe such a success. We had two packed days of wide-ranging, insightful, challenging debate on the toughest issues in responsible business and finance, from critical minerals to racial justice to AI.

Below we highlight just a few of the countless valuable conversations we had in London this week. You can register now for the next conferences in the series, in Singapore and New York — we’ll look forward to meeting many of you there. — Simon Mundy

Moral Money will be off on Monday due to public holidays in the UK and US. We’ll be back in your inboxes on Wednesday.

SUSTAINABILITY STANDARDS

Emmanuel Faber’s ‘obsession’ with financial materiality

It would have been understandable if Emmanuel Faber had wanted a quiet life after stepping down from the top job at French food giant Danone in 2021, following a bruising battle with activist shareholders. Instead, later that year he took the helm of the International Sustainability Standards Board — plunging into a complex, crucial and often deeply contentious field.

The central goal of the ISSB, Faber told me, was “to end that alphabet soup” of multiple voluntary sustainability disclosure standards, each with its own acronym, that could look like an impenetrable mess to capital market participants. Faber and his team, operating under the IFRS Foundation — the key standard setter for the global accounting sector — set out to “develop a comparable common global language that is reliable, assurable and therefore decision-useful for investors, and cost-effective for preparers”.

Last June the ISSB published its two first standards: one set that applies to sustainability-related risks and opportunities in general, and a second set that applies specifically to climate-related issues. Since then, Faber has been travelling the world trying to persuade national authorities to use these new frameworks.

Faber told me that “the momentum [around adoption] is incredible”, with about two dozen countries having started the “journey” towards incorporating the ISSB standards into their national rules. Some are adopting them outright. Turkey has said that listed companies must start reporting using ISSB standards this year; Brazil will make the same requirement from 2026. Countries from Costa Rica to Nigeria have taken a similar stance.

Other nations have taken a more nuanced approach. National sustainability boards in Canada and Japan have both issued standards closely based on the ISSB’s but customised for their own purposes. The UK government looks set to take a similar tack, having said last week that it would aim to adopt its own ISSB-based standards by the first quarter of next year.

Customising ISSB standards to suit local needs is not a problem, Faber said, as long as the information reported in various jurisdictions is clearly comparable. But the “vast majority” of the countries working on incorporating ISSB standards are moving towards full alignment, he added. Notably, for all the concern about the challenges of disclosing “scope 3” emissions — from companies’ supply chains, and the use of their products — no country was looking to exclude this element of the ISSB standards, Faber added.

The ISSB’s work has attracted controversy for its focus on risks that are financially material to investors — rather than the “double materiality” approach used by EU standard-setters, which has more coverage of corporate impacts on the wider world. But Faber was unapologetic about this approach, arguing that such standards are crucial to deploying the full weight of the capital markets against global sustainability challenges.

“It’s entirely designed for decision making by investors and bankers, capital market allocation,” he said. “That’s our obsession. That’s our mission.” (Simon Mundy)

Carbon offsets

Desperately seeking regulatory rigour in the voluntary carbon market

The voluntary carbon market is moribund. Now two Washington experts in financial regulation are fighting to revive it before it’s too late.

Speaking at the Moral Money Summit Europe on Wednesday, Christy Goldsmith Romero, a member of the Commodity Futures Trading Commission, said banks, asset managers and other companies had come to her worried about the risks — reputational and otherwise — associated with voluntary carbon offsets. She said some of these companies had asked for regulations to bolster a market that had been plagued by a lack of rigour.

Trading volume in the CME Group’s voluntary carbon emissions offset futures plummeted to just 539 contracts for the year through April, down 93 per cent compared with the same period in the previous year. By contrast, millions of contracts are traded in natural gas or crude oil futures, CME data shows.

Instead of the “skyrocketing demand” for carbon offset products that was expected a couple of years ago, the market “just really flatlined”, Goldsmith Romero told us.

Goldsmith Romero applauded the work that The Integrity Council for the Voluntary Carbon Market (ICVCM) has done to build standards for the market. Its board members include private sector representatives and non-profit groups. That group’s chair, Annette Nazareth, a former member of the Securities and Exchange Commission, also spoke at the conference on Wednesday. The ICVCM had established 10 “core carbon principles” that would help bring validity to the market, Nazareth said.  

She added that she was “very optimistic” about the voluntary carbon market, given the regulations imposed across the derivatives markets after the financial crisis of 2008. “I have seen what it takes to build a successful market,” Nazareth said.

“We are facing a relentlessly negative narrative,” she said about the perception of the VCM. With new standards and transparency for the market, “it is going to be rough, it is going to be a little bumpy. I know that because not every transaction is going to be perfect. That does not happen in any market.”

“We want the chance to use that transparency to continuously improve — to find out where there are issues,” Nazareth said. “This is going to be a question of continuous iteration to make this [a] really robust and high-integrity, highly liquid market.” (Patrick Temple-West)

Smart read

“It’s finance meets geopolitics and national politics” — from Oslo, Richard Milne reports on the public pressure that Norway’s giant sovereign wealth fund is facing to divest from Israel.