Vol. 44 Associate Editor
Environmental, social, and governance (ESG) metrics benefit shareholders in the long-term through value-creation, but ESG reporting has been likened to the Wild West and concern over the non-binding nature of sustainability reporting standards abounds. Since its introduction at the UN Climate Change Conference in 2021, the International Sustainability Standards Board (ISSB) has made waves in the ESG realm, and its ripple effects will be felt by businesses, investors, and society. Announced by the International Financial Reporting Standards (IFRS) Foundation, the ISSB combines the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF). By consolidating and defining ESG reporting mechanisms and standards,  the ISSB seeks to create a “global baseline of sustainability-related disclosure standards”—both risks and opportunities—for investors and market participants. Though it has no binding force of its own, the ISSB has nevertheless set the foundation for global sustainability standards and moved major regulators toward aligned mandatory disclosures. To fully combat issues of implementation and transparency, more will be needed from international regulatory frameworks to harden these standards into international obligations for sustainability.
The Challenge of Creating Binding Corporation Obligations in the International Space
The primary difficulty with corporations in the international legal context is that international law’s subjects are nations and individuals, not corporations. While there are some examples of narrow environmental obligations imposed on international corporations by legally binding international documents, states and businesses alike have generally rejected attempts to include transnational corporations as subjects of international law. Thus, scholars have taken varying stances in the debate over how an NGO such as the IFRS might succeed in influencing actors without the power to bind states.
One controversial theory suggests globalization will naturally move to consolidate into one system. This long-term theory suggests that stakeholder-modeled legal systems will buckle to the pressures of cross-border exchange and choice of law to converge into a “more liberal and less regulatory shareholder model.” In the case of the ISSB, the global path ahead looks to incorporate greater regulatory schema, not less. Proponents of this theory might counter that national regulatory frameworks incorporating the ISSB standards will eventually converge.
Perhaps the most notable example of attempts to include transnational corporations in the scope of international law is the United Nations Draft Norms on the Responsibilities of Transnational Corporations. While the UN’s attempt to regulate transnational corporations through the Draft Norms ultimately failed, global regulation has evolved through public and private codes of conduct. If the ISSB standards are incorporated into public or private codes of conduct, genuine legal obligations could result.
On the public codes of conduct side, one approach is heterodoxy, which seeks to combine the best of voluntary and mandatory frameworks. Supporters of this theory believe that the conversation should not end with the juxtaposition of voluntary and mandatory approaches; rather, the market-based system and binding international law could be combined and led by a set of guiding principles. Applied to the corporate sustainability space, the ISSB could operate as the set of guiding principles for corporate sustainability disclosures. However, business and government representatives remain concerned about implementation and whether this approaches “hard law,” indicating that the road of public soft law to hard law remains rocky.
As for private codes of conduct, standards developed by non-governmental bodies, like the ISSB, can be adopted into company policies, filling the gap left by the lack of internationally binding rules and shaping corporate behavior. The nature of the private legal space, where contracts and governing documents can form valid legal obligations, could legitimize a legal order based on the standards created by non-governmental bodies.
The ISSB’s Path to Global Governance
While the ISSB standards will be voluntarily adopted at the outset, moves toward incorporating ISSB standards into new and existing regulatory frameworks are underway. Key issues to overcome will be adoption and efficacy.
Though environmental sustainability requires action now, the timeline for international adoption of the ISSB’s standards is murky: its “sister body, the International Accounting Standards Board, took over two decades to persuade 140 countries one-by-one to make its norms mandatory.” The outlook for the ISSB might be better, however, given that it was welcomed by forty-one jurisdictions from six continents as of November 2021. Additionally, the ISSB has established working groups with China, the European Union, Japan, the United Kingdom, and the United States to collaborate on setting standards for a global baseline. The working group consists of five of the top six economies in the world, so mandatory regulatory disclosures set by the group could result in international influence through norm-setting or through piggybacking that aligns other jurisdictions’ regulatory standards with these authorities. It remains to be seen to what extent top global regulators and other nations incorporate the ISSB framework into their own regulatory regimes.
Efficacy is another key issue when it comes to voluntary sustainability disclosures. First, transparency will be key to fostering an environment of economic trust and stability, especially since businesses tend to disfavor disclosing weaknesses. Perhaps through substantial uptake and participation, the ISSB can break down the opacity of corporate disclosures. Second, the audience for ISSB disclosures is investors, so while sustainability changes may result, those changes rely on investors who care, are knowledgeable, and act through their investments. Stakeholders might be better included through sustainability disclosures like the Integrated Reporting framework, but challenges like high costs of implementation and the same issue of need for external enforcement are present. Third, some decry the conflation of ISSB and ESG standards with sustainability, but even through this semantic lens, ESG and sustainability are compatible through a double materiality framework. Thus, given the ISSB’s focus on disclosures for investors, transparency may be the greatest immediate challenge, but broader sustainability interests should not be forgotten because business and societal interests in this space are not mutually exclusive.
Overall, the ISSB represents a convergence of voluntary sustainability standards, but implementation will be central to determining the success of this more global approach to sustainability disclosures. Making global corporate sustainability standards binding may come from regulatory bodies using the ISSB standards as a baseline for their frameworks. The push toward a binding framework could even come from multinational corporations themselves, hardening soft law standards by creating legal consequences to non-compliance. Whatever the short-term may hold, the ISSB will be an important player in the future of sustainability reporting. Global risk requires that voluntary standards become more than national mandatory regulations: corporate social responsibility has moved beyond national borders through foreign investment, cross-border trade, and entity relationships, thus requiring the continued melding of international public and private law to close the gaps.
 Ilze Zumente & Jūlija Bistrova, ESG Importance for Long-Term Shareholder Value Creation: Literature vs. Practice. J. Open Innovation Tech. Mkt. Complexity 127 (2021). “The content analysis results show that companies with higher sustainability awareness ensure shareholder value creation via improved financial performance and management quality while reducing risk metrics. Additionally, qualitative nonfinancial factors such as reputation, stakeholder trust, employee satisfaction and engagement provide an even more significant effect on the long-term value than the pure financial matters.”
 See David A. Fuscus, The Wild West of ESG Reporting: A New Report Finds a Disturbing Lack of Standards and Transparency. NextBillion (July 12, 2021), http://nextbillion.net/esg-reporting-lack-standards-transparency (stating that “without binding rules, there can be no sanctions, and there will continue to be widely different interpretations of ESG transparency”); see also Michael Kapoor, Global ESG Reporting Standards Too Narrow, Unclear, Critics Say, Bloomberg (Aug. 5, 2022), http://news.bloombergtax.com/financial-accounting/global-esg-reporting-standards-too-narrow-unclear-critics-say.
 See Andromeda Wood, The ISSB: A Game-Changer for ESG Reporting, Workiva (Sept. 20, 2022), http://www.workiva.com/blog/issb-game-changer-esg-reporting (describing the announcement of the International Sustainability Standards Board (ISSB) as a “tidal wave” because consolidating existing frameworks to create globally accepted sustainability standards will aid businesses in producing disclosures, help investors understand and compare transparent disclosures, and ultimately aid society by allowing investors to align investment decisions with climate goals).
 About the Climate Disclosure Standards Board, CDSB, http://www.cdsb.net/our-story. The CDSB is a CDP initiative made up of “an international consortium of business and environmental NGOs.”
 An Update on the ISSB at COP26, IFRS (Nov. 2021), http://www.ifrs.org/news-and-events/news/2021/11/An-update-on-the-ISSB-at-COP26. The VRF houses the Integrated Reporting Framework and the Sustainability Accounting Standards Board (SASB) Standards.
 See Wood, supra note 3. In addition to combining the Climate Disclosure Standards Board (CDSB) and the Value Reporting foundation (VRF), the ISSB incorporates the frameworks of those groups and others, such as the standards developed by the Task Force on Climate-Related Financial Disclosures (TCFD).
 About the International Sustainability Standards Board, IFRS, http://www.ifrs.org/groups/international-sustainability-standards-board.
 ISSB Establishes Working Group to Enhance Compatibility Between Global Baseline and Jurisdictional Initiatives, IFRS (Apr. 27, 2022), http://www.ifrs.org/news-and-events/news/2022/04/issb-establishes-working-group-to-enhance-compatibility-between-global-baseline-and-jurisdictional-initiatives.
 Ian Brownlie, Principles of International Law 66 (2008).
 See Anna Beckers, Enforcing Corporate Social Responsibility Codes: On Global Self-Regulation and National Private Law 10 (Hugh Collins, Christian Joerges, Antoine Lyon-Caen, Horatia Muir Watt, Gunther Teubner, James Q. Whitman eds.) (2015).
 Id. at 9.
 IFRS, supra note 8. For example, the working group of jurisdictional representatives brings together the Chinese Ministry of Finance, the European Commission, the European Financial Reporting Advisory Group, the Japanese Financial Services Authority, the Sustainability Standards Board of Japan Preparation Committee, the United Kingdom Financial Conduct Authority and the US Securities and Exchange Commission, each of which has established or is in the process of establishing regulatory schema that they seek to make compatible with the ISSB’s sustainability disclosure standards.
 Beckers, supra note 10 at 10, 13–30. Voluntary codes of conduct fill the gaps left by national mandatory regulation of corporate responsibilities toward society. Public codes take the form of guidelines developed by international organizations, while private codes are benchmarks developed by private actors, such as businesses and civil society actors.
 Id. at 13–14. “Both types of codes have also become important in legal scholarship where debates prominently surround their respective potential to become genuine legal obligations.”
 John G. Ruggie, Roundtable Report: Implementing the U.N. guiding Principles on Business and Human Rights 3 (2013).
 Id. at 4–6, 14; see also Elizabeth George, Can Corporate Social Responsibility Be Legally Enforced?, Forbes (Oct. 11, 2019), https://www.forbes.com/sites/uhenergy/2019/10/11/can-corporate-social-responsibility-be-legally-enforced (discussing the ability of the UN Guiding Principles on Business and Human Rights to create transnational tort liability for corporations).
 Ruggie, supra note 15 at 17.
 Beckers, supra note 10 at 26.
 Id. at 27.
 IFRS, supra note 8.
 Huw Jones, New Sustainability Body Expects Voluntary Adoption of Norms at First, Reuters (Mar. 10, 2022), http://www.reuters.com/business/sustainable-business/new-sustainability-body-expects-voluntary-adoption-norms-first-2022-03-10.
 HM Treasury, UK Welcomes Work to Develop Global Sustainability Reporting Standards Alongside 40 International Partners, UK.gov (Nov. 8, 2021), http://www.gov.uk/government/news/uk-welcomes-work-to-develop-global-sustainability-reporting-standards-alongside-36-international-partners.
 IFRS, supra note 8.
 It is worth noting the many voices left off the table in this working group, and there is debate as to whether voluntary sustainability standards serve to democratize the global economic governance space or entrench elitism and power asymmetries. See Elizabeth A. Bennett, The Efficacy of Voluntary Standards, Sustainability Certifications, and Ethical Labels, in Research Handbook on Global Governance, Business and Human Rights 200 (Axel Marx, Geert Van Calster, Jan Wouters, Kari Otteburn, and Diana Lica eds.) (2022).
 See Fuscus, supra note 2; Shivaram Rajgopal, Unsolicited Advice for the ISSB, Forbes, (Jan. 15, 2022), http://www.forbes.com/sites/shivaramrajgopal/2022/01/15/unsolicited-advice-for-the-issb; Path to Global Baseline: ISSB Outlines Actions Required to Deliver Global Baseline of Sustainability Disclosures, IFRS (May 18, 2022), http://www.ifrs.org/news-and-events/news/2022/05/issb-outlines-actions-required-to-deliver-global-baseline-of-sustainability-disclosures.
 IFRS Foundation Announces International Sustainability Standards Board, Consolidation with CDSB and VRF, and Publication of Prototype Disclosure Requirements, IFRS (Nov. 3, 2021), http://www.ifrs.org/news-and-events/news/2021/11/ifrs-foundation-announces-issb-consolidation-with-cdsb-vrf-publication-of-prototypes.
 Anna Pistoni & Lucrezia Songini, New Trends and Directions in CSD: The Integrated Reporting, in Sustainability Disclosure: State of the Art and New Directions 99–101 (Lucrezia Songini and Anna Pistoni eds.) (2015).
 See Robert G. Eccles, A Personal Message to the Cantankerous Critics of the International Sustainability Standards Board, Forbes (Feb. 19, 2022), http://www.forbes.com/sites/bobeccles/2022/02/19/a-personal-message-to-the-cantankerous-critics-of-the-international-sustainability-standards-board.
 See Bob Willard, “Sustainability” vs “ESG”, Sustainability Advantage (Feb. 22, 2022), http://sustainabilityadvantage.com/2022/02/22/sustainability-vs-esg (explaining that those concerned with the semantics say sustainability takes an “inside-out” approach, wherein companies create positive externalities or at least decrease their negative environmental and societal externalities, while ESG’s “outside-in” approach looks at risks to a business); Guidelines on Non-Financial Reporting: Supplement on Reporting Climate-Related Information, §2(2), 2019 O.J. (C 209/1) (defining double materiality as a label suggesting that a company’s impacts on the environment and society and vice versa are both material to investors and require disclosures).
 Alexandra N. Farmer, Sara K. Orr, Jennie Morawetz, & Jacqueline Yap, ISSB’s Proposed Framework Seeks to Unify Global Sustainability Disclosure Standards, Kirkland & Ellis (May 11, 2022), http://www.kirkland.com/-/media/publications/alert/2022/05/issbs-proposed-framework-seeks-to-unify-global-sus.pdf; Jones, supra note 21.
 Lamin Khadar, The Hard Consequences of Soft Law: CSR & ESG, Equal in Legal (Dec. 18, 2020), https://www.equalinlegal.com/sustainability-environmental-social-governance-corporate-social-responsibility/lamin-khadar-csr-esg.
The views expressed in this post represent the views of the post’s author only.