In this week's issue of Travers Smith's Alternative Insights, we are looking at we are looking at NAV lending to private equity funds, and ILPA's recently issued guidance.

Links:

McKinsey's 2024 Global Markets Review

ILPA guidance on continuation funds

ILPA review of its highly impactful reporting template

ILPA guidance on NAV-based facilities

Financial Stability Report

BVCA pointed out

ILPA Guidance

Welcome to the third episode in our Sustainability Insights ... in conversation series.

In the fourth episode of our Sustainability Insights … in conversation series, Simon Witney speaks to Diandra Soobiah, Director of Responsible Investment at Nest, the National Employment Savings Trust. Their discussion explores Nest's significant commitments to the private markets and, with 15% of NEST's £42 billion AUM allocated to private markets, Diandra explains what more she wants to see from the sector.

Our second episode of Sustainability Insights … in conversation charts Kristen Weldon's journey to natural capital in private markets.  Simon Witney and John Buttanshaw from Travers Smith's ESG team talk to Kristen about the importance of nature and biodiversity, explore some of the investible opportunities for the private markets, and discuss UK and EU legal and regulatory initiatives. 

In this week's issue of Alternative Insights, we are looking at the UK's attempts to get defined contribution pension schemes to invest in private funds.

In this week's issue of Sustainability Insights, we are looking at Labour law reforms across the UK and Europe in light of upcoming elections.

Links:

• TUC - "The biggest upgrade of workers’ rights in a generation"
• IER - CBI lobbying to ‘soften’ Labour’s workers’ rights pledges, FT reports.
• FT - Keir Starmer seeks to reassure business over Labour’s worker rights pledges
• IER - Row rumbles on as business leaders line up against a 'full fat' New Deal for workers - IER
• European Commissions - Social Europe: More transparent and predictable working conditions for workers in EU
• European Council - Platform workers: Council confirms agreement on new rules to improve their working conditions
• FCA proposals for asset managers
• US FTC proposed ban on employers imposing non-competes on employees
• UK government's Department for Business & Trade 'Non-Compete Clauses'
• Raconteur - is this the death of the non-compete clause?
• The Hill - 'Banning non-compete agreements hurts US companies and workers'
• CMA research report on competition and market power in UK labour market
• SHRM - ' Will the FTC Finalize a Compete Ban on Noncompetes?'

In this week's issue of Travers Smith's Alternative Insights we are looking at the European Commission's recent policy brief reviewing the first 100 days of the EU's Foreign Subsidies Regulation.

Links:

EU's new Foreign Subsidies Regulation

Travers Smith's Alternative Insights: The impact of the EU's new rules on foreign subsidies

The European Commission's recent policy brief

In this week's issue of Sustainability Insights, we are looking at European supply chain due diligence requirements including the fate of the EU's CS3D.

Links:

Aligning the EU Due Diligence Directive with the International Standards: Key Issues in the Negotiations

FT article - France seeks weaker EU due diligence rules for banks

Forecast for 2024 European Parliament elections

European lawmakers reached an in-principle agreement on the Commission's 2022 proposal to ban products from the EU market that are made with forced labour

US Uyghur Forced Labor Prevention Act

Call for evidence issued by an influential Parliamentary Committee

Our recent note on similar European rules 

OECD Due Diligence Guidance for Responsible Business Conduct

Business and Human Rights Resource Centre - UK: Update - 50 businesses sign statement calling for human rights due diligence legislation

Our briefing - "Value chain" negligence claims: the door has been opened

Our ESG risk map

In the 73rd issue of Travers Smith's Alternative Insights, we are looking at subscription line financing and the emerging role of rating agencies.

Links:

• An analysis by Blackrock
•  ILPA's guidelines issued in 2017
• In 2022, Citi was reported to have scaled back its lending by over two-thirds
• Rating agencies (GLI Fund Finance 2024 - Rated subscription lines: An emerging solution tot he liquidity crunch | Travers Smith)

We launched a new podcast series in February: Sustainability Insights … in conversation. In the first edition, Simon Witney discussed topical issues – including the global ESG landscape and responsible AI – with Cornelia Gomez, Global Head of ESG at General Atlantic. 

Listen to the podcast here, and sign up here if you want the second edition to land in your inbox.

Listen to a discussion between Travers Smith's Simon Witney and Cornelia Gomez, Global Head of ESG at General Atlantic. Simon and Cornelia discuss the outlook for regulation in 2024, differing global perspectives on sustainability, and responsible AI.

In this week's issue of Sustainability Insights, we are looking at corporate governance and reporting in EU portfolio companies.

We are launching a new podcast series in February: Sustainability Insights … in conversation. In the first edition, Simon Witney will discuss topical issues, including the global ESG landscape and responsible AI, with Cornelia Gomez, Global Head of ESG at General Atlantic.  Sign up on our website (www.traverssmith.com) and it will land in your inbox next week.

Links:

• The EU's Corporate Sustainability Reporting Directive
• PERG – the Private Equity Reporting Group
• The PwC analysis of good practice
• The Walker Guidelines commissioned by the BVCA and written by Sir David Walker in 2007
• TCFD further reforms announced and then ditched, following a call for evidence to gather ideas for simplifying the rules
• This year's PERG report
• The UK's Financial Reporting Council's review of reporting by the UK's largest private companies
•  FRC's Guidance on the Strategic Report and Thematic review of climate-related metrics and targets
• The Wates Corporate Governance Principles for Large Private Companies, the UK Corporate Governance Code itself (amended this year, and with updated guidance) and the CGI model terms of reference for an ESG Committee
• "Section 172" statement 
• ESG Footprints in Private Equity Portfolios: Unpacking Management Instruments and Financial Performance

In this week's issue of Travers Smith's Alternative Insights week we are looking at what is in store for 2024.

In this week's issue of Travers Smith's Alternative Insights, we are looking at ESMA's proposed implementing rules for the European Long Term Investment Fund, or ELTIF, and how they match up to the needs of sponsors.

In this week's issue of Travers Smith's Alternative Insights, we are looking at trends in the private markets as discussed at our third annual Alternative Insights Summit in June.

To see the agenda for our Summit, click here. 

Links:

https://www.traverssmith.com/knowledge/knowledge-container/travers-smiths-alternative-insights-back-to-work/

https://www.linkedin.com/posts/travers-smith_assetmanagement-alternativeinsights-privatecapital-activity-7217464206562865152-BOcr

https://www.linkedin.com/posts/travers-smith_assetmanagement-investigations-markets-activity-7219621018435227648-h7dE

https://www.linkedin.com/posts/travers-smith_markets-assetmanagement-pensions-activity-7221107755879731200-eAlh

https://www.bvca.co.uk/Policy/Investment-Compact

https://www.linkedin.com/posts/travers-smith_assetmanagement-tax-markets-activity-7221835553900531714-vyWu/

https://www.linkedin.com/posts/travers-smith_esg-sustainability-markets-activity-7218950444658626560-d1kP/

In this week's issue of Travers Smith's Sustainability Insights week we are looking at the UK's new disclosure and labelling regime for asset managers and its impact on private capital firms.

In this week's issue of Travers Smith's Alternative Insights, we are looking at the UK's 2023 Autumn Statement.

In this week's Issue of Travers Smith's Sustainability Insights, we are looking at the prospect of a complete overhaul of the EU's SFDR.

In this week's issue of Travers Smith's Alternative Insights, Travers Smith Funds partner Tosin Adeyeri and Tax partner Elena Rowlands sat down to discuss 'tax hot topics' and the UK tax landscape in a post-Brexit world.

In this week's issue of Travers Smith's Sustainability Insights week we are looking at the UK's proposed new rules on Diversity and Inclusion for regulated financial firms.

In this week's issue of Alternative Insights we are looking at the impact and regulation of private debt funds.

In this week's issue of Sustainability Insights, we are at why it's important to manage competition law and antitrust risks when signing-up to industry-wide ESG collaborations and collective pledges.

In this week's issue of Alternative Insights we are looking at some important new EU regulations on foreign subsidies that will affect many large M&A deals.

In this week's issue of Sustainability Insights, we are looking at new international sustainability reporting standards.

In this week's issue of Alternative Insights, we are looking at the latest ILPA guidelines on the use of continuation funds.

In this week's issue of Travers Smith's Alternative Insights, we are looking at trends in the private markets as reported by the keynote speaker at our recent summit.

Links:

https://www.bain.com/insights/topics/global-private-equity-report/

https://www.collercapital.com/coller-capitals-40th-global-private-capital-barometer-summer-2024/

In this week's issue of Sustainability Insights, we are looking at the new UN PRI guidance on human rights due diligence on private markets.

This week we are looking at the evolution of retail fund regulation in the EU – and its impact on private markets firms.

In this week's issue of Sustainability Insights, we are looking at the prospect of yet more UK sustainability regulation and the UK's reaction.

In this week's Alternative Insights, we are looking at the role of regulators in M&A transactions.

In this week's issue of Sustainability Insights, we are looking at some important recent developments in sustainability regulation in Europe.

In this week's issue of Alternative Insights, we are looking at the impact of the EU's new foreign subsidies regulation on private equity deals.

This week we are looking at developments in retailisation in private markets. In particular, we consider the future of the ELTIF, and discuss some emerging European Commission proposals to enhance protections for retail investors.

In this week's Alternative Insights, we are looking forward to the key themes for 2023, following an event we held in London on Wednesday and the launch of our new annual Insights publication.

This week we are looking at the UK FCA's proposals for an impact fund label.

"But too much change, too quickly is both overwhelming and dangerous, and the UK's reputation for sound and effective rulemaking needs to be re-established."

In this week's issue of Alternative Insights, we look at how the UK government and regulators are approaching post-Brexit reforms.

In this week's issue of Travers Smith's Sustainability Insights we are looking at the future for UK sustainability policy.

We have released the third episode in our podcast series Sustainability Insights … in conversation. In conversation with Simon Witney, Ellen De Kreij, lead advisor to Apax’s Operational Excellence Practice on Impact and Sustainability, explains how Apax selects impact investments, how they work with management to promote impact, and how they report on impact to their investors.

Listen to the conversation here, and please subscribe to receive future editions in this podcast series direct to your inbox.

Links:

https://www.cer.eu/insights/what-will-eu-election-results-mean-europe

https://uksif.org/wp-content/uploads/2023/08/Letter-to-PM-on-NZ-commitment-Aug23-UPDATED.pdf

https://www.gov.uk/government/news/uk-becomes-first-major-economy-to-pass-net-zero-emissions-law

https://www.gov.uk/government/news/plans-unveiled-to-decarbonise-uk-power-system-by-2035

https://www.gov.uk/government/news/uk-enshrines-new-target-in-law-to-slash-emissions-by-78-by-2035

https://www.gov.uk/government/publications/net-zero-strategy

https://www.traverssmith.com/knowledge/knowledge-container/biodiversity-net-gain

https://www.bbc.co.uk/news/articles/cw44vj3e1wyo

https://www.traverssmith.com/knowledge/knowledge-container/sustainability-disclosure-requirements-sdr-and-investment-labels-the-new-rules/

https://www.traverssmith.com/knowledge/knowledge-container/travers-smiths-sustainability-insights-the-european-commissions-review-of-sfdr/

https://www.greenfinanceinstitute.com/wp-content/uploads/2023/10/GTAG-Chair-Final-Statement.pdf

https://committees.parliament.uk/publications/43465/documents/216119/default/

https://www.traverssmith.com/knowledge/knowledge-container/the-carbon-border-adjustment-mechanism-recap-and-updates/

https://www.gov.uk/gov

https://betterbusinessact.org/ernment/consultations/addressing-carbon-leakage-risk-to-support-decarbonisation

https://www.bbc.co.uk/news/uk-politics-68244772

https://www.bvca.co.uk/Portals/0/Documents/Research/2024%20Reports/BVCA-Manifesto-For-Growth.pdf

https://labour.org.uk/wp-content/uploads/2024/01/Financing-Growth.pdf

Issue 48

Issue 47

Issue 46

Issue 45

Issue 44

Issue 43

Issue 42

Issue 41

A regular audio briefing for the alternative asset management industry - Issue 40.

Earlier this month, the FCA, the UK regulator, announced that its consultation on a sustainability disclosure and labelling regime for asset managers and regulated asset owners would be delayed until the autumn. While it is clearly important to take the time needed to get these complex rules right, many firms will be disappointed by the delay. They have been waiting to see what the UK's equivalent of the EU's Sustainable Finance Disclosure Regulation (SFDR) will look like. 

The UK has made the right decision, confirmed in a discussion paper issued last year, to separate its sustainability disclosure rules from its proposed fund labels. Unlike the SFDR, the UK intends to lay down minimum standards for "green" investment products from the outset, so that investors can rely on the labels when making investment decisions. 

Some fund managers have welcomed the prospect of a specific "impact fund" label. If appropriately defined, an impact-specific label could be helpful in the fight against "impact-washing", and might give investors greater confidence that their investments will actually deliver positive outcomes. 

But coming up with an appropriate definition is not easy.  Last month we hosted a webinar to debate how regulators should seek to define impact – and then, importantly, how to police it.

To some investors, the EU SFDR's "Article 9" category looks like a proxy for an impact fund, but – as Finance Watch and other NGOs have pointed out – there are no objectively set minimum standards under Article 9.  

It is true that the regulatory guidance strongly suggests that all investments made by an Article 9 product must be categorised as "sustainable" by the fund manager (subject to very limited exceptions), but considerable doubt remains about the definition of a "sustainable investment" – and different firms are taking very different approaches.  That means many true impact funds may conclude that they fail to qualify under Article 9, especially in light of a renewed focus on greenwashing risks. 

One issue is that the SFDR does not (yet) make clear whether transitional assets – for example, those that are in hard-to-abate sectors such as cement manufacturing – can qualify for inclusion in an Article 9 portfolio, nor whether it makes a difference if the activities concerned are, like cement production, eligible for alignment with the EU Green Taxonomy. For socially sustainable investments, firms don't even have a taxonomy to guide them, and are given considerable scope to determine which social outcomes qualify as "sustainable". (An EU social taxonomy is in development, but seems several years away from being finalised.)

At the same time, more recent guidance suggests that a fund should not use the word "impact" in its name unless the fund's investments "are made with the intention to generate positive, measurable social and environmental impact alongside a financial return". This is a pretty basic definition of an impact fund, derived from the GIIN's (Global Impact Investment Network's) widely used "core characteristics", but omits important nuances: for example, the requirement to mitigate negative impacts. Importantly, the EU guidance does not specify that only Article 9 funds can call themselves "impact funds"; indeed, many "Article 8" funds will rightly claim that they satisfy the GIIN requirements. 

This lack of clarity is clearly unhelpful, and the UK has an opportunity to do a better job.  

In its discussion paper last year, the FCA mooted various ways to define an impact fund, but none is without its issues. For example, they contemplate adopting requirements for "intentionality" and "additionality", which would be hard to police and, according to the FCA, would make its impact label only applicable to a "(small) sub-set" of SFDR Article 9 products.

On the other hand, and in contrast to the FCA's proposed labels for "transitioning" and "aligned" products, there does not appear to be any direct linkage between the FCA's proposed "impact" label and the forthcoming UK Green Taxonomy.

Some argue that a link between the Taxonomy (whether the UK or the EU version) and an impact label would be helpful to ensure that impact funds only make investments that are objectively determined to be "sustainable". There are, however, a number of issues with that approach. The most obvious is that there is, as yet, no European taxonomy to classify socially sustainable investments, no UK-specific taxonomy at all, and an EU environmental taxonomy that is not yet fully operational, with further developments already mooted.  

But there are more fundamental issues with any direct link to the Taxonomy in minimum standards specified by the UK regulator and, in time, the EU. Most crucially, the data required to certify an activity as taxonomy-aligned may not be available. For investments in large EU companies, who will soon be obliged to report their taxonomy-alignment, that may be a short-term issue, but for investments outside the EU – and especially in less developed markets, where impact investments are sorely needed – the problem is unlikely to disappear in the foreseeable future.

And, even if data is available to make the taxonomy assessment, there will be important questions about whether an investment that is not currently taxonomy-aligned, but which is working towards it – or is otherwise making significant and measurable improvements in its operations to minimise its negative impacts – should be capable of inclusion in an impact-labelled fund.

Some will also argue that the approach that regulators adopt with regard to retail products should differ from that which is best suited to products only aimed at sophisticated institutional investors, who might have their own (dynamic and context-specific) views about what constitutes "impact".

These are not easy questions to resolve, but the BVCA has also urged the FCA to make sure that the rules are appropriate for private, blind pool funds that invest in illiquid assets. Such funds are well-placed to use their active ownership model to deliver positive outcomes, but their features also add to the complexity: for example, it may not be possible (or in investors' interests) to sell an asset quickly if it ceases to meet pre-defined portfolio composition rules.

The FCA's thinking is likely to have moved on significantly since it published its discussion paper in November and will, no doubt, take note of a more recent industry-led initiative to create a "Just Transition" label. It is disappointing that firms will not know the FCA's current intentions until the autumn – but if the final proposals manage to balance the complex competing considerations appropriately, the wait will have been worth it.

Issue 39

Our third episode of Sustainability Insights… in conversation focuses on impact and what it means to Apax Partners. Ellen De Kreij is lead advisor to the Operational Excellence Practice on Impact and Sustainability and is a true expert in the Impact field. Together with Simon Witney from Travers Smith's ESG & Impact team, Ellen and Simon discuss how Apax select impact investments, how they marketed their impact fund, and how they demonstrate the impact that they and their portfolio companies are having.

Apax were quite the early movers in the impact space, having started to focus on their portfolio companies' ESG footprints in 2012, and over the years have exemplified the power of the private markets when thinking about impact and sustainability.  

Issue 38

A regular briefing for the alternative asset management industry. 

It has been clear for some time that regulators are concerned about "greenwashing", by which they mean the risk that companies, investors and asset owners will overstate their sustainability credentials in order to attract capital. But, in the last few weeks, the regulatory pressure has significantly increased. Recent announcements from the SEC, the US regulator, and ESMA, the pan-EU supervisor, will focus the minds of all asset managers, including those running private funds.

In the US, proposed new SEC rules for ESG disclosures by investment advisers will buttress an already sharp focus on sustainability claims by the Division of Enforcement. The SEC's proposal, published on 25 May, is designed to "promote consistent, comparable, reliable – and therefore decision-useful – information for investors". It will apply to all SEC-registered advisers but also (to a more limited extent) to "exempt reporting advisers", a category that includes many European firms with US investors. The change would be to Form ADV – the annual filing that investment advisers (including private fund advisers) are required to make – and would require detail on an adviser's use of "ESG factors", which are not themselves defined, as well as disclosure of third party frameworks that it uses and relationships with "related persons" who are ESG service providers.

In some respects the SEC's proposals resemble the EU's Sustainable Finance Disclosure Regulation (SFDR): the US rules would require firms to categorise their investment products according to whether they "integrate" ESG factors alongside other (non-ESG) factors; whether they are "ESG-Focused", using one or more ESG factors as a "significant or main consideration in selecting investments or engaging with portfolio companies"; or whether they adopt an "ESG-Impact" strategy, and therefore target portfolio investments that drive specific and measurable environmental, social, or governance outcomes.

Like the SFDR, these categories determine disclosure requirements, but are not labels: they do not guarantee any particular investment strategy or minimum ESG standards. It will be important, therefore, for the SEC to ensure that investors do not come to regard the categories as if they were labels – a significant problem with the EU rules, acknowledged by the EU regulators. But, although the scope of "ESG" is not defined in the currently proposed SEC rule, the three product categories seem clearer and easier to understand than their SFDR-equivalents.

In fact, despite that similarity, the SEC's proposals for private fund advisers are much less extensive than those which apply under the SFDR. Indeed, they are also less extensive than other SEC proposals (included in the same release) for US registered investment companies and business development companies. The additional information that needs to be provided in the Form ADV should help investors to understand the sustainability features of an investment product, and help the SEC to enforce its prohibition on misleading investors, but does not extend to detailed metrics or anything close to EU Taxonomy-style reporting. The focus on "greenwashing" may be acute, but investors have largely been left to define the detail of the required reporting for themselves.

Meanwhile in Europe last week, ESMA issued a wide-ranging "Supervisory Briefing" that stressed the need for EU national regulators to look hard at compliance with the SFDR. When taken together with the European Commission's Q&A on the interpretation of the SFDR and the Taxonomy Regulation and a joint statement by the EU regulators also issued last week, the strict approach to application of the new rules is very clear – making an already tough job even harder for affected firms.

For example, the European Commission's guidance confirmed that legacy funds – those not made available to investors after the SFDR became effective – are subject to the SFDR's disclosure regulations if they promoted certain sustainability characteristics. In its briefing, ESMA argues that national regulators "could reasonably expect" an SFDR Article 9 product – that is, one that has sustainable investment as its objective – to disclose the detailed "principal adverse impact" metrics for all of its underlying investments, which goes further than the law strictly requires. ESMA goes on to give "guidance" on fund names: use of the term "sustainable" in a fund's name seems to be restricted to those making "sustainable investments" according to the EU's definition of that term. Moreover, if a firm wants to be categorised as a fund that "promotes environmental or social characteristics" – the lightest category of ESG fund in the SFDR – ESMA confirms that it must have some "binding criteria" as part of its investment strategy and/or objectives, although in our view these need only be binding in the sense that they must be done in the way described, and do not have to mean that certain investments must be excluded. (More commentary on these recent announcements is available in our client bulletin.)

These European "clarifications" and guidance are, in part, a recognition of the lack of clarity in the original rules, both those that are included in the Level 1 EU Directive and in the Level 2 implementing rules developed by the regulators and issued in final form by the Commission in April. But they are also an attempt to course correct: the regulators are concerned that the SFDR categories and self-certification process themselves give rise to a risk of greenwashing – something which they are now working hard to avoid. This ratcheting up of expectations will therefore continue.

As if to emphasise the current focus on greenwashing, prosecutors in Germany raided the offices of DWS last week to investigate allegations of greenwashing by the asset manager, and last month the SEC announced a settlement with BNY Mellon that involved a payment of $1.5 million. These related to public funds, which will of course be the prime focus for enforcement. But private fund managers should take careful note, because – despite their mostly institutional and sophisticated investor base – they are not likely to avoid the spotlight for long.

Read previous issues of Travers Smith's Alternative and Sustainability Insights. 

Issue 36

A regular audio briefing for the alternative asset management industry. 

Just about everyone agrees that a single set of internationally accepted sustainability disclosure standards would benefit all stakeholders. But global convergence creates significant challenges. For example, policymakers who are keen to set very high standards – the EU, for example – will be tempted to goldplate any requirements that can achieve widespread approval. That's especially likely because different stakeholders have different expectations, and some jurisdictions will want to satisfy a wide range of constituencies. Moreover, achieving widespread buy-in requires extensive consultation and due process, which takes longer than many are willing to wait.

When the International Sustainability Standards Board (ISSB) was established last year, its goal was ambitious: to create a global baseline for corporate reporting, and to do it quickly. Publication in March of two consultation draft standards, one on general requirements for sustainability disclosures and the other covering climate-specific risks and opportunities, is a big step forward. When the standards are finalised – which could be as soon as the end of this year – they will encourage many companies to make a step change in sustainability reporting. 

It will be up to individual countries to decide whether to mandate the finalised standards, and for which companies. Some will do so quickly: UK policymakers, for example, have already said that they will use the ISSB's standards as the "backbone" for UK corporate sustainability reporting requirements, perhaps, in time, applying them to large private companies as well as their listed counterparts. Other standard-setters, including EFRAG in the EU – which has just launched its own consultation on sustainability reporting standards – will take careful note, even if they ultimately opt for some divergence, as the EU certainly will.

The ISSB has been acutely aware of the challenges in delivering a globally accepted framework, and explicitly recognises that its standards will not be the complete answer. That's at least in part because it adopts a "materiality" rule: disclosures are only required when they are relevant to an entity's enterprise value. The standards will require companies to provide the information required by investors. Reports will not include the external impacts of corporate activity unless they have a financial impact on the entity.

This approach is not as narrow as it might appear: it is clear from the drafts that a very wide range of matters could be "material", including (for example) corporate reputation, longer-term regulatory risks, the stability of a company's workforce, and its "relationships with local communities and natural resources". Disclosures are therefore expected in relation to (among many other things) an entity's employment practices and those of its suppliers, wastage related to the packaging of the products it sells, events that could disrupt its supply chain, and any sustainability-related risks in the company's value chain.

Nevertheless, the ISSB also recognises that there are limitations with its approach. Many jurisdictions (including the UK and the EU) will go further and extend the requirements to capture "double materiality" – which means including impacts that are not financially material to the reporting entity itself ("negative externalities"). The ISSB standards are therefore designed as a "global baseline", built with the expectation that some regulators will supplement them. Indeed, the ISSB has just signed a memorandum of understanding with the GRI, whose multi-stakeholder standards are widely respected, so that the two reporting frameworks will align with each other. The ISSB is also pushing for international collaboration through a new multi-jurisdictional working group.

These consultations are timely: the ISSB has balanced the need for speed with the due process that its sister organisation, the International Accounting Standards Board (IASB), is known for. The IFRS Foundation has adapted the ISSB's procedures so that these drafts could be published quickly – and, crucially, in time for them to be taken into account by the US and EU standard-setters, who are already consulting on their own sustainability disclosure rules. But the Board intends to re-consider them fully in response to stakeholder feedback later this year, following a 120-day consultation period that ends on 29 July.

In part, the rapid development of the first two draft standards has been possible because they draw heavily on existing work, which should also make global agreement easier. The standards are consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) and they build on the sector-led approach of the SASB Standards. Both the general requirements and the climate-specific standards require disclosure of material information about all significant sustainability-related risks and opportunities facing the entity using the TCFD's four themes: governance, strategy, risk management, and metrics and targets.

There is no doubt that the standards are demanding and principally aimed at large companies. On climate, for instance, they require disclosure of scope 3 greenhouse gas emissions unless the entity explains that "a faithful measure" is not available, and they mandate the use of scenario analysis, unless the company "is unable to do so" (in which case it must use another method to assess its climate resilience). For firms in the financial sector, emissions that are facilitated or financed are explicitly included, building on the GHG Protocol Corporate Value Chain Standard, which includes guidance on calculating indirect emissions resulting from investments.

The ISSB's ambition is clear: that comprehensive and internationally consistent sustainability disclosures are published with a company's financial statements and are treated by users as being on an equal footing with them. The rapid progress on this first set of standards is to be applauded, and would seem to put that ambition within reach.