How ISO 14097 could become the kite mark for measurable climate finance

This month, the International Standards Organisation (ISO), the world’s biggest voluntary standards setter, gave the go-ahead to develop official guidelines on climate finance, which could include the first internationally accepted certification of climate performance and alignment with 2°C emissions targets.

The ISO is a global body comprising representatives of the standard-setting organisations of 163 countries. It is behind more than 21,000 international standards and certifications.
It’s turning its attention to climate finance in a bid to provide investors and policymakers with access to a set of official international standards and guidelines. The topics being addressed have not been set in stone yet, but considerations include standards for assessing: 

• Alignment with the objectives of the Paris Agreement
• Environmental impact of investment decisions
• Standards around the scenarios used in climate stress-testing
• Guidance on the potential risks from changes to climate policy

The initiative, which was kick-started by the French Environmental Agency last year, has this month received the green light to progress. That means that the majority of countries – via their national standard-setting body – voted in favour of creating some kind of ISO climate standards. The process has been named ISO 14097.

The 2°C Investing Initiative, a think tank with offices in Paris, Berlin, London and New York, is driving the process, with CEO, Stan Dupré, acting as co-chair of the working group that will devise the guidelines.“The priority will be the idea of financial institutions’ contribution to the aims of the Paris Agreement, which – as it becomes embedded in France [through Article 173] and several other countries – there is a growing need to standardise,” Dupré told RI. “The concept of positive contributions to the climate goals is being used a lot in public relations every time an investor purchases a green bond or decarbonises part of its portfolio. But in most cases it has no impact on the real economy and doesn’t translate into any improvement on the ground. The conversation has been heavily dominated by greenwashing, and the same goes for so-called ‘climate friendly’ and low-carbon financial products being launched. They have zero impact on the ground. I think the conversation that will take place in the context of the ISO standards will basically put an end to this greenwashing trend.” Dupré also feels it will help with growing national efforts to implement climate guidelines and policies. “Governments often don’t have the skills and time to develop technical guidance around these topics, and the lack of standardisation is a big obstacle for policymaking in this field. If this ISO standard succeeds, it will really enable policymaking around climate disclosure to be consistent.”
But, he adds, the work around disclosure is not likely to include the risk management-related disclosures recommended by the Financial Stability Board’s Taskforce on Climate-Related Financial Disclosure (TCFD). Those recommendations, published in December 2016, should be taken up by the FSB itself, or by financial regulatory bodies, says Dupré. “But if it turns
out they don’t do anything with it, then we will consider including it in our work. And if that’s the case, we will reprioritise.” Having gained support from players such as the World Bank and the UN Environmental Programme, a second co-chair has been proposed for the project: Masamba Thioye, who manages relations with financial institutions under the Global Climate Action programme for the UN Climate Change secretariat – the body that supports COP activities and official climate negotiations. Thioye’s role will be to support the initiative and provide expertise, but he won’t represent the official UNFCCC Process nor will he represent the secretariat, which means his views and contributions will be provided in his personal capacity and won’t be backed byCOP member-nations. Thioye points to the importance of guidance around impact measurement, not just to avoid greenwash, but to give investors “a way to ensure that their green investments can be differentiated from others”. Standardisation, he adds, could be the key to seeing markets like the green bond market really grow. The outcomes of the project are still vague, mostly to accommodate the rapidly-changing landscape in climate finance, including work from other cross-border initiatives like the TCFD and the European Commission’s newly-launched High Level Expert Group on Sustainable Finance: “There are lots of moving parts, so the first challenge of the project, over the next few months, will be to really define its purpose,” explains Dupré.This will start with an initial meeting on February 7-10, and a webinar, in which participants will “sketch things out”. There will be three types of representatives: members of the national standards bodies, who can provide expertise on creating standards; ‘liaison’ organisations such as the CDP and UNEP, who can provide expertise on climate finance; and market participants or possible users of the final standards – including investors. For the first meeting, any stakeholders will be free to participate, but they will then need to be accredited by their national standards body in order to formally take part. “Ultimately, there are two possible types of output: for sure, we will have guidance, but the goal is to develop proper standards that could be certified by third parties. We expect to start work on draft guidance in the next few months, which will probably lead to the publication of guidance in the next 18-24 months; and then we will try and turn that into a certifiable standard within the next three years,” says Dupré.
Thioye says that ‘third parties’ that might certify based on the new ISO climate standard would not likely include the UNFCCC secretariat: “I can’t see the UNFCCC secretariat being involved in any type of certification programme, outside of the UNFCCC process,” he explained, adding that “it would be down to the private sector and rating agencies to do this work”.