Long-awaited sustainability accounting standards finally here
Weekly Newsletter (29 June 2023)
Happy Thursday! Welcome to this week’s Q-ESG newsletter.
What’s happening?
[1] ISSB launches sustainability accounting standards
In a landmark move, the International Sustainability Standards Board (ISSB) released its first two disclosure standards to help unify companies’ ESG reporting. These will kick in for the annual reporting period starting Jan 1, 2024.
Why this matters: Frustrated ESG investors have long been waiting for a set of standardized reporting guidelines from a recognized board to provide some clarity on sustainability reporting.
The new standards by ISSB set out to guide companies on how to disclose information over sustainability-related risks and opportunities, as well as on climate reporting. Read more here from ISSB for some examples of such disclosures.
The standards also feature transitional reliefs to help companies adapt to the new standards at least for the first year. One of the reliefs cover the reporting of Scope 3 emissions, as there are significant difficulties measuring indirect emissions.
Reuters reported that it would be up to individual countries to decide if they would require listed companies to apply the standards, but countries including Canada and Japan are already considering their use. Read more here.
The FT also has an interesting take here (account may be required) with a focus on ISSB chairman, Emmanuel Faber, who is also the former CEO of Danone. His current job is rife with challenges, and he knows it as he says, “I guess we may remain unpopular”.
Beyond popularity, however, lies a more significant challenge: the EU and the US may be pursuing their own sustainability standards. The US Securities and Exchange Commission has delayed publishing its own sustainability reporting standards to October.
[2] Don’t say ESG in front of Blackrock’s Larry Fink
According to the Blackrock’s CEO, ESG has been “weaponized” and he is “ashamed” to be a part of the debate on the issue.
Why this matters: The CEO of the world’s largest asset manager weighs in on ESG, and his sentiment does not seem to be a bullish one. To be fair, you can still call it “conscientious capitalism” — a term coined by Fink himself — but just don’t use the word ESG. Read more from Axios.
[3] DWS counting on ESG and thematics for growth
German asset manager DWS is not stepping away from ESG. CEO Stefan Hoops singled out thematics and ESG as the group seeks to grow its sustainable products.
Why this matters: DWS was embroiled in a greenwashing controversy last year that resulted in the ousting of former CEO Asoka Woehrmann, but they are not shying away from growing its ESG capability. Read more from Citywire here (account may be required).
Explain to me like I am an eight-year-old
Sustainability accounting
Sustainability accounting is like keeping track of how much we use things like water, energy, and materials, and making sure we don't use too much of them.Think of it like keeping an eye on how many cookies we have left in the jar and making sure we don't eat them all in one day, so that we can enjoy them for a longer time. So, sustainability accounting is like being a good cookie jar monitor, but for the planet!
Books/papers/learning resources
The rise and fall of DC Solar
This feature piece on The Atlantic by Ariel Sabar with illustrations by Maxime Mouysset makes a gripping read.
It tells the cautionary tale of DC Solar and its founder Jeff Carpoff.
Once a small-town auto mechanic, Carpoff pulled off a billion-dollar scam peddling trailers with solar panels, which was hailed as a green-energy breakthrough that even hooked Warren Buffett and the US Treasury.
Thanks to a government incentive that provides tax credits to companies investing in green energy, DC Solar’s solar trailers saw high demand, but the company does not have the manufacturing capacity to meet that.
What did the company do then? It moved its solar trailers around whenever there were inspections or when clients demanded seeing these trailers. More than that, the company also moved monies around by using downpayments from new clients to pay off earlier customers — a classic Ponzi scheme.
What else is in this story? Forged signatures, burying GPS transponsders “in out-of-the-way locations”, senior executives who are childhood friends with Carpoof willing to do anything it takes, and more. The quote below summarizes it all:
“Of the more than 17,000 generators sold from 2011 to 2018, only about 6,000 would be found to exist.”
The authorities, however, caught on and it all ended with an FBI raid in 2018. Over the years that DC Solar was in business, the company “defrauded more than a dozen corporate customers out of almost $1 billion”. But what is worse is that these corporations had used the investment tax credits to pay DC Solar, which effectively means that it’s the taxpayers that were ultimately robbed.
This is a great story masterfully told by Sabar. While Carpoff ended up with a jail sentence, he should not be the only one to blame.
Sometimes, people are just so eager for green energy to succeed that they are willing to suspend their disbelief to invest in the next big thing:
(Carpoff) would have quit long ago had buyers cared about anything but their tax credits. “The bigger the deal, the easier they were to close,” Carpoff said. “It was the most bizarre thing.”
Bizarre indeed. Treat yourself to this great piece — you won’t regret it.
Programming note: There will be no Monday post on July 3.