Financial Services Blog

The 26th United Nations Climate Change conference was held in Glasgow, Scotland from 31 October to 13 November 2021. While much has been written about the successes and failures of this Conference of the Parties (a/k/a COP26), a consensus has emerged that it was a “mixed bag.” On the successes, 200 countries signed onto various climate pledges and agreements. On the failures, many believe that the Glasgow Climate Pact1 does not go far enough in cutting greenhouse gas (GHG) emissions and, as importantly, lacks the details required to ensure that its words are transformed into actions. This said, there are several key takeaways from COP26 that may impact multinational companies. In this blog, we discuss what happened around COP26 and why it matters, including the announcement by the International Financial Reporting Standards (IFRS) Foundation – a nonprofit established to develop a single set of globally accepted sustainability disclosure standards – of the (1) formation of the International Sustainability Standards Board (ISSB), and (2) publication of two prototype Environmental, Sustainability, and Governance (ESG) disclosure requirements.2

Key Takeaways

Notwithstanding that much of what emerged from Glasgow were promises rather than plans, here are five takeaways from COP26, which are relevant to global organizations, including in the financial sector:

(1) Carbon Offset Market Rules Finalized: A major accomplishment of the pact is a framework for carbon offset markets, in which countries and companies may pay for activities such as planting trees that remove carbon from the air in order to count against their GHG emissions. The finalization of these rules completes an outstanding piece of the 2015 Paris Climate Accords, known as Article 6.

(2) Net-Zero Pledges: Close to 90% of the global economy has now made net-zero (i.e., no GHG) emissions pledges. Despite this large increase, few countries or companies have provided detailed plans for how they will become net-zero.

(3) Historic Mention of Fossil Fuels: For the first time, fossil fuels, which are the main driver of climate change, are mentioned in a global climate pact, which calls for a “phasedown” of unabated coal use and a “phaseout” of “inefficient” fossil fuel subsidies.

(4) Cutting Methane Emissions: More than 100 countries, including the U.S. and the EU, agreed to cut emissions of methane – a GHG more potent than carbon dioxide – by 30% by 2030. However, China, India, and Russia – all key methane-emitters – did not sign-on.

(5) U.S. and China: The two countries, which are the world’s biggest polluters, announced a joint agreement to do more to cut GHG emissions by 2030. This agreement, however promising, is exceedingly short on details.

While, on the one hand, world leaders were making pledges in Glasgow, on the other hand, the IFRS Foundation simultaneously announced two developments intended to provide global financial market participants with specific standards and prototypes for disclosure of ESG data.

The International Sustainability Standards Board

On 3 November 2021, during the first week of COP26, the IFRS announced the formation of the ISSB with a goal to develop a “comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs.”3 Needless to say, the existing potpourri of ESG reporting standards and frameworks (a/k/a “the ESG Alphabet Soup”) is a serious obstacle to multinational companies being able to access, collect, and disclose ESG data to their internal and external stakeholders that is relevant and auditable. Simply put, the IFRS hopes to do for ESG reporting what it did for financial reporting with the IFRS Accounting Standards, and the formation of the ISSB is a testament to the critical need to demystify and consolidate ESG reporting standards.

Among other important developments, the IFRS noted that both the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF), two leading investor-focused sustainability disclosure organizations, formally commitment to consolidate into the ISSB by June 2022. The IFRS also published FAQs on the ISSB which addressed, among other issues, the “materiality” standard for information disclosed to investors and the impact of ESG issues on “enterprise value.”4

Significantly, the ISSB disclosure standards, like other existing frameworks, are purely voluntary.5 The U.S., EU, and other countries will need to decide whether and how to incorporate and consolidate these standards into law. Notably, the ISSB FAQs also prioritize engagement with developing and emerging countries and, in terms of global mandatory adoption of the ISSB standards, the Group of 20 (G20) and The International Organization of Securities Commissions (IOSCO), among others, have expressed support for them.

Prototype ESG Disclosure Requirements

In addition to creating the ISSB, the IFRS also published two prototype ESG disclosure requirements, including one specifically on climate-related disclosures and the other on general ESG disclosure requirements.6 The intention of these prototypes, like the ISSB, is that they be adopted by countries as part of their mandatory ESG rules and requirements. Indeed, these prototypes are the result of close collaboration among representatives of the CDSB, VRF, the Task Force on Climate-related Financial Disclosures (TCFD), the International Accounting Standards Board (IASB), and the World Economic Forum (WEF), all supported by IOSCO’s Technical Expert Group of securities regulators.

First, as its name suggests, the “General Requirements for Disclosure of Sustainability-related Financial Information Prototype” (General Prototype) sets out the requirements for disclosing information relevant to the sustainability-related opportunities and risks of an entity. The disclosure requirements focus on matters critical to an entity’s operations, including governance, strategy, risk management, and metrics and targets. Specifically, the General Prototype contains a requirement that all “material” sustainability-related financial information of an entity be disclosed to its stakeholders. “Material” information is defined as information that, if omitted, misstated, or obscured in the entity’s financial reports, could reasonably be expected to influence a stakeholder’s investment decisions. The General Prototype also requires that these disclosures be included in an entity’s general purpose financial reporting.

Second, the Climate-related Disclosures Prototype (Climate Prototype), which aligns with and builds on the TCFD’s recommendations, requires an entity to provide information in its financial reporting to help stakeholders assess the following:

(1) Governance: the policies, procedures, and controls the entity has in place to monitor and manage climate-related opportunities and risks;

(2) Strategy: the climate-related opportunities and risks that may enhance, change, or threaten the entity’s strategy over the short, medium, and long term;

(3) Risk Management: how climate-related risks are identified, analyzed, managed, and mitigated by the entity; and

(4) Metrics and Targets: the metrics and targets used to manage and monitor the entity’s performance in relation to climate-related opportunities and risks.


In sum, while much of what happened at COP26 and from the IFRS involved voluntary pledges, prototypes, and standards, rather than mandatory rules and regulations, the proverbial lines in the sand are being drawn on ESG. As countries and companies turn their climate promises into plans, and as the ISSB and related prototypes are adopted more broadly, the time will come, perhaps as soon as COP27 in Sharm-el-Sheikh, Egypt in November 2022, when global ESG disclosure standards and frameworks are consolidated and mandatory.

Please contact our ESG – Risk & Compliance team with any questions and for more information.


  1. United Nations Framework Convention on Climate Change, dated 13 November 2021
  2. IFRS Foundation announces ISSB, consolidation with CDSB and VRF, and publication of prototype disclosure requirements
  3. IFRS – International Sustainability Standards Board
  4. IFRS – ISSB: Frequently Asked Questions
  5. Task Force on Climate-Related Financial Disclosures; Climate Disclosure Standards Board; International Integrated Reporting Framework; Sustainability Accounting Standards Board; World Economic Forum Metrics
  6. IFRS – Prototype Disclosure Requirements

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