Environmental, social, and governance (ESG) funds are at a critical juncture. Recent international disclosure and reporting standards will not only stifle greenwashing, but will also advance more comparable international ESG markets and products. Climate risk disclosure is the key, but hardly the sole catalyst, in the development of recent ESG standards in the European Union and the United States being developed through the IFRS Foundation, as well as in a growing number of other jurisdictions.
Together, these standards and proposed rules mark a big step forward in requiring investors to say what they propose to do involving green investments and then holding them accountable.
Green finance has been an important focus of CCICED’s work for several years. With the launch of Phase VII of CCICED, this work will continue with a special focus on detailed analysis of implementation, case studies, the role of data to support carbon markets, and disclosure and reporting standards.
Growing ESG Market
Following years of modest growth within a largely niche or boutique market, ESG financing—that is, funds linked to environmental, social, and governance attributes—has increased dramatically. The U.S. Securities and Exchange Commission (SEC) notes that ESG investments grew from USD 639 billion in assets under management in 1995 to USD 17.1 trillion in 2020 and now comprise one third of all U.S. assets under management. And ESG exchange-traded funds (ETFs) outperformed all other funds in 2021. In early 2022, Bloomberg forecasted that ESG financing and investment would likely reach USD 41 trillion by the end of the year and USD 50 trillion by 2025.
But as ESG funds have mushroomed, so too have their critics, from those complaining that they have done too little in tackling climate, environmental, and pollution problems to those complaining they have gone too far in pushing green markets. Many have complained of widespread unchecked greenwashing, with Elon Musk dismissing ESGs as a “scam.” Others note that since ESG funds cluster multiple and largely dissimilar environmental, human rights, board governance, and other criteria together, they invite measurement and reporting imprecision even among well-intentioned entities.
Humanity by the Throat
In the face of increased criticism and regulatory scrutiny, it is hardly surprising that the rate of ESG investment growth has slowed in the first half of 2022: in June 2022, Bloomberg reported that for the first time in 6 years, ESG ETF funding contracted. Certainly, part of the ESG slowing reflects wider market turmoil unleashed by COVID-19, the Ukrainian war, inflation, demand surges, supply shortages, and other factors that have left many markets—particularly unregulated markets like fintech and crypto-currencies—reeling.
Less clear is how flattening ESG markets relate to the sharp jump in carbon-intensive investments. Thermal coal prices alone have jumped 300% in 2022, hitting an all-time price high in the second quarter. Investments in oil and gas, fracking, and other energy markets have also risen steeply: for example, global financing of coal reached USD 1.5 trillion in 2022, oil sands investments by Canadian banks doubled in the past year, and oil major Exxon—dropped from the Dow Jones Index 2 years ago—posted record second quarter 2022 profits.
These trends make it increasingly difficult to distinguish the actions of those financial entities that have signed various net-zero climate pledges from those that have not. Complicating this ESG slowdown is the defeat of two important U.S. shareholder initiatives to stop the financing of new fossil fuel projects.
Given these trends, it is a small wonder that the United Nations Secretary-General voiced his frustration at both the financial and fossil fuels industries, warning in May 2022 that “fossil fuel producers and financiers have humanity by the throat. For decades, the fossil fuel industry has invested heavily in pseudoscience and public relations—with a false narrative to minimize their responsibility for climate change and undermine ambitious climate policies. They exploited precisely the same scandalous tactics as big tobacco decades before.”
Pushing Back Against Greenwashing
Further complicating ESG markets is a new market focus on transition finance. Barely 2 years after arguing that climate change would fundamentally reshape financial markets, Blackrock announced in the second quarter of 2022 its “energy security and transition funds” that include coal and other fossil fuel financing. At the same time, management support for shareholder environmental and social issues has been cut by half. As for earlier high-profile climate and sustainability pledges, Blackrock has noted that they are “not the environmental police,” raising the question: why bother making climate or green pledges in the first place?
So, where are the environmental police? Actually, together with regulators and supervisors, they are remarkably active in clamping down on greenwashing. The most conspicuous demonstration of the policing of ESG claims to date has been the May 2022 raid by some 50 German police of the Deutsche Bank (DWS) headquarters to investigate claims of greenwashing by DWS, its financial arm. DWS was reported to have awarded a top governance ranking to Wirecard, a company that collapsed due to widespread fraud by senior management, lax regulatory oversight, and the bewildering signing off of financial statements by EY.
The Wirecard debacle is the most prominent example of supervisors and others scrutinizing ESG claims. A review by the European Central Bank concluded that while 75% of European banks claimed that they had disclosed greenhouse gas (GHG) emissions linked to their operations and wider investments, only 15% linked GHG emissions with financial risk. A Risk Alert notice issued in April 2021 by the U.S. SEC warned markets of widespread unsubstantiated and misleading ESG claims, poor internal compliance, and weak monitoring systems.
Reinforcing these warnings, a 2022 study of U.S. funds found that two thirds of those that used ESG branding received a grade of “D” or “F,” in which ESG claims were either weakly measured or simply falsified. A study by Columbia University and the London School of Economics found that entities with ESG portfolios had worse environmental and labour compliance records than entities with no ESG portfolios.
A Turning Point
Given these and other criticisms, supervisors and regulators have been active in creating rules and standards for ESGs. A number of jurisdictions, notably the European Union, New Zealand, the United States, Hong Kong, Singapore, Switzerland, and the United Kingdom—as well as key international financial reporting standards through the IFRS Foundation—are reshaping ESG markets.
The convergence of standards, which reduces the fragmentation of differing systems, is as important. Most notable has been the embedding of the Sustainability Accounting Standards Board’s (SASB’s) Value Reporting Foundation into the IFRS Foundation Internatonal Sustainability Standards Board (ISSB) Framework and the consolidation of the Climate Disclosure Standards Board into IFRS Foundation. Moreover, in 2020, CDP, the Global Reporting Initiative and the International Integrated Reporting Council—together with the Canadian Sustainability Standards Board and SASB—committed to aligning their reporting frameworks. Importantly, all of these entities reference and support the framework set out in the Task Force on Climate-Related Financial Disclosures (TCFD).
Such actions give hope that green, sustainable, and climate finance can avoid two problems that characterize green consumer markets generally: the proliferation of distinct standard systems and unchecked and misleading green market claims. On fragmentation, there are hundreds of voluntary sustainability, green, or other consumer product standards that cover a wide range of consumer goods and services. For example, there are multiple systems for key agricultural commodities—palm oil, soy, coffee, tea, bananas, cotton, and sugarcane—making the comparative analysis of equivalency challenging.
On claim substantiation, the annual sweep of green consumer claims by the European Commission in 2021 found that roughly half of all green consumer claims lacked evidence to substantiate their green claims. Recent and proposed ESG standards should help check greenwashing. So too should the High-Level Expert Group on the Net-Zero Emissions Commitments of Non-State Entities, which will report to the UN Secretary-General in November 2022 on how standards can strengthen green financial markets.
These steps to ensure ESG pledges are matched with action have been evolving for decades. Thirty years ago, the United Nations Environment Programme (UNEP) initiated the world’s first international Principles on Banking and the Environment, in which 31 commercial banks, including Commerzbank, Credit Suisse, Den Danske Bank, HSBC, Royal Bank Financial Group, Westpac, Deutsche Bank, National Westminster, Royal Bank of Scotland, and others agreed to two core concepts: that environmental risk is financial risk and that investments in green markets present investment opportunities..
More than 2 decades ago, World Resources Institute economist Robert Repetto argued that the SEC should include environmental and climate risks as material and proposed that the SEC and other regulators and supervisors adopt mandatory disclosure and reporting standards. Others, like Harvard’s Bob Eccles, have been leading research advocates for more robust, standardized, and comparable ESG reporting practices.
The real momentum toward high-quality and comparable disclosure and reporting comes from the 2017 recommendations of the Task Force on Climate Risk Disclosure.
What follows is a brief look at some key features of recent standards covering the disclosure and reporting of ESG financing in general and climate-related issues in particular.
International Sustainability Reporting: Proposed new IFRS ESG standard
The March 2022 IFRS Foundation Exposure Draft on sustainability-related financial information—referred to as the General Exposure draft—marks a significant step toward standardizing ESG reporting. The draft standard calls for entities to disclose material information about “all of the significant sustainability-related risks and opportunities” that could affect their enterprise value (more specifically, how sustainability-related risks and opportunities will affect the entities’ cashflows over the short, medium, and long terms). Among the details of the draft ISSB standards are specific details regarding integrated reporting, metrics, and measurement covering ESG claims, targets, and reporting covering value chains. (For more details, see Annex One.)
Proposed ESG Disclosure Rules by the U.S. SEC
In May 2022, the SEC issued proposed rules to create a common ESG disclosure framework in order to counter greenwashing.
The proposed rules set reporting thresholds whereby “any fund that markets itself as ESG provides sufficient information to investors to support the claim.” ESG funds are broadly defined as covering ESG, green, sustainable, or socially conscious funds.
The proposed rules differentiate ESG-only funds from integration funds, in which a portion of the total portfolio has an ESG component, and more targeted impact funds with specific objectives like green buildings. Impact funds will face additional disclosure requirements, notably disclosing the methods, data, and metrics for measuring progress; the mix of quantitative and qualitative metrics; the time horizon to reach net-zero outcomes; and the link between achieved impacts and financial returns.
Among the other important aspects of the proposed SEC ESG rules are specific details covering exclusionary screens—such as no investments in tropical forests—and requirements to disclose methodologies such as GHG emissions metrics and measurement—particularly the use of carbon footprints. In addition, the proposed SEC rules include specific steps covering how companies can report on their use of carbon offsets as distinct from their GHG emission reduction objectives. Further details can be found in Annex Two.
European Union 2019 ESG (SFDR) Rule
In 2019, the European Commission adopted the Sustainable Finance Disclosure Regulation (SFDR), a mandatory sustainability disclosure reporting template that provides clear, concise, and comparable information that would help all classes of investors (asset managers, institutional investors, insurance companies, pension funds, etc.) make informed ESG-related investment decisions. The EU SFDR is scheduled to apply in January 2023. The template is intended to ensure there is no “misleading” of end investors.
Like the proposed IFRS and SEC ESG draft rules, SFDR aims to prescribe how sustainability-related disclosure is “sufficiently clear, concise and prominent to enable end-users to take informed decisions.” Like the SEC draft rules, the EU prescribes the content and format of disclosure and differentiates disclosures of funds that promote ESG outcomes as opposed to those that have as their main objective the attainment of more specific objectives.
In addition, the SFDR requires the disclosure of adverse sustainability effects, as well as a prominent statement of funds that do not take into account sustainability, together with an explanation of why not. Key aspects of the SFDR rules include the central prominence of the ‘Do No Significant Harm’ principle, rules around negative screens, and linking the rules to the EU’s Taxonomy. More details of the SFDR can be found in Annex Three.
Mandatory Climate Risk Disclosure Rules
The most significant changes to ESG-related disclosure rules by a wide margin are being driven by new rules covering climate risk disclosure rules. There are three significant international developments that, if and when fully implemented as early as 2023, will transform how financial markets measure, disclose, and report on their directly and indirectly financed GHG emissions. Importantly, the more detailed climate risk disclosure rules are closely tied to wider ESG rules. More specifically, the IFRS General Guidance draft exposure is closely tied to its Climate-Related Disclosures draft exposure (released at the same time as the framework). Similarly, the draft SEC ESG and Names draft rules are tied to the release of the SEC draft rules for climate risk disclosure. Finally, the European Financial Reporting Advisory Group (EFRAG) Climate Change Exposure Draft is linked to numerous other EU-related reporting standards.
Given their importance in regulating carbon markets, there has been an extensive analysis of each of these three standards. Among the common elements of the three standards worth noting in the context of ESGs are the following general takeaways:
- TCFD Common foundation: All three rules are based on the TCFD report, including the use of both the general framing approach of TCFD related to risk and opportunities, governance, risk, metrics, and other elements.
- Transition Risks and Plans: All three draft rules require the disclosure of an entity’s transition plan, with varying approaches to what is expected. The 2022 EFRAG draft is the most specific in this regard, requiring an entity to disclose how its business plan is “compatible with the EU’s transition plan to a climate-neutral economy” and the Paris Agreement’s 1.5°C target. The SEC’s proposed rule requires the disclosure of plans related to transition risks, which include a company’s location-specific exposure to physical risks like flooding, wildfires, extreme heat, or sea-level rise, and transition risk, comprised of changes to regulation, litigation, changing consumer demand, market price changes, and other risks. The IFRS proposes the disclosure of a transition plan within an entity’s overall climate strategy, with transition risks comprising policy, legal, technological, as well as climate adaptation transition action.
- Metrics and Measurement: All three rules reference the GHG Protocol as a common measurement tool to disclose GHG emissions. The protocol covers seven GHG emissions: carbon dioxide, methane, nitrous oxides, hydrofluorocarbons, perfluorocarbons, sulphur hexafluorides, and nitrogen trifluorides. Even with these frameworks and the GHG Protocol, investors have flagged the need for climate data based on science-based targets. One example of a new global standard for climate data anchored in the TCFD is the launch in October 2021 of the new Global GHG Accounting and Reporting Standard, developed by the Partnership for Climate Accounting Financials (PCAF), which would notably cover several consumer-financial markets like mortgages, commercial vehicle loans, and real estate. 
- Scope 1 and Scope 2 Emissions: All three standards require the disclosure of Scope 1 (direct GHG) and Scope 2 (indirect) emissions.
- Scope 3 Emissions: IFRS and EFRAG require the reporting of Scope 3 (upstream and downstream) GHG emissions. The SEC’s draft rules limit Scope 3 GHG emissions only to emissions that are material or are included in the entity’s transition strategy.
- Carbon Offsets: All three standards include the disclosure of carbon offsets; although, like Scope 3, there are important differences. EFRAG requires the disclosure of all GHG removals directly and throughout an entity’s value chain, broken down by each carbon sequestration activity, with information about whether it is removal- and carbon storage-based on natural or technological activities. EFRAG further requires a description if the offset is a nature-based solution, with additional information concerning risks of non-performance of the NbS over a long period (for example, because of forest fires, leakage and changing market valuation). The SEC includes carbon offsets and avoided GHG emissions from renewable energy credits together and proposes that the entity disclose the role of carbon offsets in its overall climate strategy. Like EFRAG, the SEC proposes the disclosure of longer-term carbon offset risks, including the risk that an offset could be a write-off in the event, for example, of a forest fire.
- Scenarios: All three include the role of scenarios in identifying climate risk, including exposure to physical risk linked to extreme climate-related events like flooding, wildfires, heat waves, droughts, and other impacts. The 2017 TCFD and Basel Bank’s 2020 Green Swan report makes the case for why scenarios are necessary tools to identify climate risks that are not captured by standard financial risk quantitative models.
In comparing the three climate risk rules and standards, Robert Eccles asks how these new standards will interact with one another and whether that interaction may eventually create a global standard. Their reach is already wide, with EFRAG standards covering the reporting of 49,000 companies and the proposed SEC rules covering 11,000 companies.
An important question for CCICED’s work will be to compare these emerging ESG and climate disclosure international standards with practices and standards in China. Certainly, there are opportunities for the IFRS ESG and climate risk draft standards to be adopted by some companies operating in China. For example, an estimated 85 major Chinese companies currently use IFRS financial reporting standards. That number is bigger when including Hong Kong’s regulatory standards, which, according to the IFRS Foundation, are virtually identical to its standards.
In the past year, China has issued important opinions and guidelines covering many of the core issues addressed in emerging international standards, notably related to carbon offset markets, the need for fit-for-investment-purposes climate data, transition finance, greenwashing, and ESG financing. A number of options are available concerning China’s approach to ESG financial products, notably:
- Allowing market practices to identify best-in-class ESG criteria, as well as disclosure and reporting standards.
- Developing mandatory standards, drawing from Hong Kong’s less prescriptive regulatory standard.
- Adopting the eventual IFRS ESG and climate disclosure standards once they are adopted in 2023.
- Selecting different details from different standards—such as the EU’s alignment with its green taxonomy, specific climate data metrics, negative screen rules, and carbon offset standards—and deploying pilot projects in the next 2 years.
Annex One: ISSB Draft ESG draft
The proposed sustainability standard is framed around the four-tiered Task Force on Climate-Related Financial Disclosures (TCFD) approach of governance, strategy, risk management, and metrics and measurement. Among the important elements of the General Exposure draft are:
- Integrated reporting: The standard requires the reporting entity to explain the connections between different pieces of information disclosed, including how sustainability-related risks and opportunities relate to a company’s financial statement.
- Metrics and Measurement: The draft standard proposes that the reporting entity explains in its report how it measures, monitors, and manages sustainability risks and opportunities, referencing the metrics set out in the January 2022 IFRS Climate Disclosure Standards Board Framework, which identifies 10 areas of reporting (for example, governance), setting out how disclosed information is linked to materiality and requiring information to be faithfully represented, clearly stated, and verifiable. Importantly, if an entity opts to use its own metrics, it needs to report whether that metric has been validated by an external body and, if so, which one.
- Targets: The proposed standard requires an entity to report not only targets related to sustainability risks and opportunities but also the specific metrics it uses to measure target implementation over a specified period in relation to a clearly stated baseline period. Targets are linked to an entity reporting on its governance (board and management controls) and strategy to mitigate risks and expand opportunities.
- Value Chains: The IFRS Framework covers a company’s direct activities, as well as its “interactions and relationships, and use of resources” throughout its value chain. It requires the reporting of significant sustainability risks and opportunities in specific geographic areas, specific facilities, types of assets, and distribution channels, covering its investments as well as the sustainability-related aspects (for example, GHG emissions) of the investments with associates or joint ventures.
Annex Two: SEC ESG Rule
Screens: ESG funds typically include either negative screens—for example, they will not invest in tobacco, coal, tropical forest logging, or other areas—as well as positive screens—such as only investing in clean energy, community-based housing development, etc. The proposed rules require information both on exclusionary and inclusionary screens, including disclosing which proportion of the fund portfolio is subject to the screen. Such disclosure would curb funds that advertise such things as supporting zero deforestation, which in practice covers only a portion of the total portfolio, with the SEC stating that “knowing that a portion of the portfolio is selected without regard to a public screen would be important for investors.”
- Methodologies: Like the IFRS standard, the SEC proposes that if a fund relies on internal methods or third-party data providers to measure its ESG performance (or both), then the entity needs to disclose the methodology used. This step would make differing internal ESG metrics and measurements more transparent and comparable.
- GHG Emission Metrics: The most detailed aspect of the SEC proposed rule pertains to GHG metrics and proposes the use of two metrics:
- Carbon footprint of financed GHG emissions to help investors understand the extent to which a fund’s investment contributes to emissions and how those emissions change over time compared to other ESG funds.
- Weighted average carbon intensity (WACI), which would allow investors to analyze exposure to climate risk and compare that risk to other funds. Both the carbon footprint and WACI are supported by the TCFD. Importantly, the SEC proposed rule references the GHG Protocol Corporate Accounting and Reporting Standard, Chapter 9. (The rules set out additional specifics on GHG reporting, including the reporting of GHG emissions based on their Global Warming Potential, relative to CO2 emissions, in tonnes.) The SEC proposed rule notes that, to date, 32% of U.S. asset managers use carbon footprint methods, but only 21% use WACI.
- Carbon Offsets: The proposed SEC rule does not permit, under the GHG emissions metrics, the reduction of those emissions because of the purchase of carbon offsets, noting that the value of these activities, as well as regulatory and voluntary standards, are likely to change over time. The proposal does allow the disclosure of offsets separately from how it discloses financed GHG emissions.
- GHG Emission Scopes: The SEC proposes the disclosure of all Scope 1 (i.e., direct GHG emissions from operations owned or controlled by a firm) and Scope 2 (i.e., indirect GHG emissions from the generation of acquired electricity, steam, heat, or cooling) emissions. The proposed rule does not require Scope 3 emissions (i.e., all indirect GHG emissions that occur in the upstream and downstream activities of an entity’s value chain), noting ongoing measurement challenges like double counting, as well as incomplete data. However, it does leave open the option of ESG reporting to include some Scope 3 emissions, noting that they should be done separately from Scope 1 and Scope 2.
- Climate Disclosure Frameworks: The SEC notes other disclosure frameworks, notably the UN Principles for Responsible Investment, SASB, Global Reporting Initiative, International Integrated Reporting Council, and TCFD, that can be referenced by the entity in its ESG disclosure. The SEC further references broader sustainability frameworks like the Sustainable Development Goals . As noted below, the newly launched ISSB has moved remarkably quickly in consolidating and thereby reducing the number of distinct reporting systems, thereby creating greater convergence across markets.
The SEC also released a complementary amendment to its “Investment Company Names” rule at the same time as the ESG rule, by which a company’s claims about its assets align with the “reasonable expectations” contained in the fund’s name. More specifically, the proposed rule would only allow a fund’s name to use various ESG characteristics like “green,” “sustainable,” or “net-zero” if 80% of the fund’s investment policy is linked to the ESG goals suggested in the fund’s name. To check greenwashing risks, the U.S. Federal Trade Commission (FTC) announced it will update its Green Guides rules to curb greenwashing claims. An important focus of the updated rules is market claims related to net-zero and low-carbon marketing claims, with the FTC planning new categories for “renewable” and “carbon offset” categories.
Annex Three: EU’s SFDR Rule
Indexes: Information concerning an index that serves as a reference benchmark should be provided, including the use of a basket of indexes and explaining how each index used in the basket links to the fund.
- Types of Information in ESG descriptions, including climate-adverse impacts and sustainability qualities including social, employee, human rights, anti-corruption, and anti-bribery aspects. SFDR references the Organisation for Economic Co-operation’s Development Guidelines on Multilateral Enterprises, the UN Guiding Principles on Business and Human Rights, and International Labour Organization conventions.
- Do No Significant Harm: Information is required showing how ESG funds meet the Do No Significant Harm Principle, defined in a subsequent (2021) EU Technical Guidance as addressing climate mitigation, climate adaptation, sustainable water and marine use, circular economy, pollution prevention and control, and the protection and restoration of biodiversity.
- Negative Screens: The SFDR identifies exclusionary investment screens as being a main platform for greenwashing. The disclosure of exclusionary screens—for example, this fund does not invest in the harvesting of tropical timber—can only be used if it confirms the screen is binding, provides information on what percentage of the assets are subject to the screen, and the disclosure of indicators used to track the screen. Negative screens that merely restate laws and regulations are not allowed.
- Required Information: SFDR prescribes the content of ESG funds that promote sustainability as comprising the strategy, proportion of investment, monitoring, methodologies, data, due diligence, and engagement policies. Additionally, funds with ESGs as their main objective need to disclose the attainment of that objective.
- Negative (Exclusionary) Statements: For funds that do not include ESGs, a prominent statement is required that the fund does not consider any adverse impacts of its investments on sustainability and a reason why.
- Taxonomy: A statement showing to what extent a fund’s sustainable assets are linked to the EU’s Taxonomy.
The 2019 rule notes that while it will use the carbon footprint metric, it has yet to develop more detailed metrics. There have been a series of important subsequent EU steps to develop further disclosure rules, including its 2021 amended Non-Financial Reporting Directive, intended to be aligned with the EU’s wider net-zero Green Deal and Fit For 55 updated plans. More specifically, it is meant to align financial reporting with the EU’s Green Taxonomy, through, for example, the 2021 amendment of Article 25 of the Sustainable Finance Disclosure Regulation to set out two new sets of draft Regulatory Technical Standards.
 For example, under the environmental field alone, there are as many as 80 distinct criteria, from greenhouse gas emissions and climate resilience, to freshwater quality, forestry stewardship, multiple categories of waste and recycling, pollution indices, conservation and other categories. Measuring together multiple environmental features with social and governance dimensions is complex. Yet breaking apart the ESG elements is the wrong step, given the need for financing built around integrated approaches.
 The panel is chaired by former Canadian Environment and Climate Change Minister Catherine McKenna and includes former People’s Bank of China Governor Zhou Xiaochuan. The report is expected to be issued in late 2022.
 The Statement by Banks, signed 6 May 1992 at the UN Headquarters in New York, noted that “beyond compliance, we regard sound environmental practices as one of the key factors demonstrating effective corporate management,” in which “environmental risks should be part of the normal checklist of risk assessment and management.” The banks further committed to “update our management practices, including accounting, marketing, risk assessment, public affairs, employee communications and training” as well as to “develop suitable banking products and services designed to promote environmental protection.” UNEP New Release, Seeing Green: Banks and the Environment, 6 May 1992.
 The SEC’s proposed ESG rule notes that while 73% of U.S. investors consider climate risk in their decisions, only 43% think they have the right kind of climate data needed to make those decisions.
 Sharpening the Use of Climate Data:bonization, zero-emissions transport, buildings, and consumer goods continues to grow. Yet as the SEC notes, while 73% of wholesale investors consider climate change a significant investment factor, 43% complain they lack climate data fit for investment decision purposes. An important step in the international standardization of climate data is the common reference to the GHG Protocol across the three systems noted. At the same time, further steps for more detailed climate data include the 2020 EU Climate Transition Benchmarks (prescribing Scope 1, Scope 2, and Scope 3 GHG emission disclosure for different sectors) and the November 2021 launch of a new accounting standard of the Partnership for Carbon Accounting Financials (PCAF). PCAF is notable in its coverage of equity and corporate bonds at one end and consumer-based mortgages and car loans at the other.
 The SEC describes upstream emissions as including a portfolio company’s purchased goods and services, capital goods, the distribution of purchased goods and services, raw materials and other inputs; waste; employee business travel including facility community; while downstream emissions include the transport and distribution of sold products, the use by third parties of those sold products; end-of-life treatment, and other criteria.
 While the SEC references different systems, it also cites literature suggesting weaknesses within some. For example, it notes that companies that joined the UN Principles for Responsible Investment system showed no improvement in their ESG practices after joining.