Behind the Scenes of ISO’s Transition Standard
Daan van der Wekken, Head of Sustainability at BSI, the UK’s national standards body, describes the path towards a globally applicable standard for transition planning in the financial sector.
In the face of a plethora of sustainability-related frameworks, financial institutions and investors have been calling for a harmonised international standard to provide clear guidance and share best practice for financing the transition to a sustainable economy.
“By providing a universal framework, language and approach to transition planning, a global standard can help to mobilise and scale-up flows of sustainable finance and support financial institutions in delivering a whole-of-economy transition,” according to a roundtable of industry experts hosted by the International Organization for Standardization (ISO) and national standards bodies, British Standards Institution (BSI) Group and Deutsches Institut für Normung, at COP29 in Baku.
The roundtable attendees came from a range of organisations, including the International Sustainability Standards Board (ISSB), International Organization of Securities Commissions, NatWest, Cambridge Institute of Sustainable Leadership and JP Morgan.
The group also explored how ISO, which is a network of more than 170 national standards bodies, could best advance this work through effective stakeholder engagement and principles of collective action and capacity building, particularly in bridging the gap between emerging markets and developed economies.
“By developing an ISO standard, you can reach 172 national standards bodies,” Daan van der Wekken, Head of Sustainability at BSI, told ESG Investor. “It’s a consensus-based model where all voices are heard – a bit like the UN of standards.”
A harmonised approach
Following its inaugural sustainable finance roundtable at COP28 in Dubai, and in recognition of existing work by initiatives such as the Glasgow Financial Alliance for Net Zero (GFANZ), the Japan Public and Private Working Group on Financed Emissions and the UK’s Transition Plan Taskforce (TPT), ISO identified the need for a globally applicable core principles standard for transition planning in the financial sector.
Momentum has been building around transition guidance, as policymakers and investors have increasingly recognised that investing only in ‘green’ activities – or projects with a positive impact on the environment, mitigate climate change and reduce greenhouse gas emissions – would not be enough to meet collective global climate goals. Therefore, there is a pressing need to provide finance to companies that are ‘brown’ today but have the ambition to transition to green in future.
This requires regulators, as well as the public and private sectors, to outline pathways for key sectors, so that investors and lenders know how to finance the transition without being accused of greenwashing.
By zeroing on the finance sector, ISO acknowledges the role financial institutions can play in accelerating the transition to a net zero and climate-resilient economy, for example, through their financing activities and engagement strategies. This can also be seen in the transition planning disclosure requirements of Corporate Sustainability Reporting Directive and the fact that some large global financial institutions, such as Citi, HSBC, Allianz and Aviva, have already set out how they will provide transition finance in their own transition plans. There is expected to be differences between the transition planning frameworks in different jurisdictions, making market-neutral guidance a valuable contribution.
As a member of ISO and secretariat of the sustainable finance committee, BSI has been spearheading the development of a new standard, called ISO 32212. The standard focuses on the organisation and delivery of transition finance, which is different from transition pathway disclosure frameworks. It will provide high-level principles, a framework and requirements for financial institutions to develop plans concerning their transition to net zero emissions and the content that should be contained within these transition plans.
“ISO 32212 is about governance, processes and systems control, and how that can support credible, high-integrity transition finance,” van der Wekken explained. “The standard isn’t necessarily only for the UK, France or the US, for example, but has the ability to reach less regulated jurisdictions, particularly in emerging markets and developed economies.”
According to van der Wekken, the power of an ISO standard is that the global standard system provides an opportunity for independent, transparent and trusted assurance and third-party certification on an internationally consistent basis. “It’s not just a standards policy system – there’s also a conformity assessment and assurance, which can help address greenwashing concerns and ultimately accelerate progress towards a sustainable world,” he added.
It also provides an opportunity for real economy adoption. “If the ISO standard is adopted and implemented by a national standards body, it will enable businesses, regulators and other actors to apply these practices directly in real-world operations,” he said.
In addition, once finalised, ISO 32212 will be available to all 172 ISO member countries. In comparison, as of 10 December, 12 jurisdictions have adopted the ISSB’s climate and general sustainability standards since their introduction in June 2023, with another 19 planning to adopt them, according to Deloitte.
Importantly, BSI and ISO are not looking to reinvent the wheel. “We try to complement and build on the work that’s already out there, which is how we began developing the transition planning for financial institutions standard,” said van der Wekken.
For example, the BSI/ISO has built on the work of GFANZ, TPT, the Organisation for Economic Co-operation and Development and G20 guidance on relevant jurisdictional-specific context, as well as reviewing developments in Japan, Singapore and the UK, such as the Transition Finance Market Review.
“By incorporating existing work, the ISO standard will be designed to have global applicability. We’re also looking to include the regional context of the transition to ensure interoperability,” he said. “We want to develop something that can be implemented by all types and sizes of financial institutions in all jurisdictions, particularly those with less developed transition frameworks.”
In doing so, BSI hopes to support the scaling of transition planning, using ISO’s existing global reach and infrastructure.
Creating an ISO standard
Getting into the weeds of the ISO process is a lesson in thoroughness and transparency.
The ISO standards-development system has 238 technical committees, including a sustainable finance committee which involves 120 experts from 25 national standards bodies. For each committee, one member country holds the secretariat, which provides administrative leadership. The role can be “quite prestigious”, according to van der Wekken.
For example, as part of its Sustainable Finance Standardisation Programme, BSI has been appointed secretariat of the international committee, ISO/TC 322, covering sustainable finance for the integration of sustainability considerations and ESG practices into institutional investment decision-making and wider finance management. Within the BSI, this workstream sits with van der Wekken and his team.
A working group is established for each ISO standard and every national standards body can become a member, so theoretically there could be 172 national organisations feeding into each working group. In addition, there is a range of organisations that serve as liaisons and operate more internationally, such as GFANZ and the Institutional Investors Group on Climate Change for the sustainable finance workstream.
“The BSI has convened a working group and is in the process of developing the ISO 32212 standard,” explained van der Wekken. “Once the standard is drafted, there are several working group sessions to collect input from the national standards bodies and other stakeholders.”
The next step is a public consultation to solicit feedback from a much wider range of stakeholders. Van der Wekken anticipates this will happen in the second quarter of 2025.
After the consultation period, BSI will incorporate the feedback into the standard. It expects to launch ISO 32212 at the end of the year, likely around COP30 in Belém, Brazil.
“We describe an ISO standard as a global consensus as to how we should do something,” he said. “It’s absolutely possible that a group of frontrunner financial institutions will build upon that standard and add their own requirements, which can be stricter than the existing standard. But the ISO standard provides a common language as to what good should look like.”
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