As we previously discussed, the International Sustainability Standards Board (ISSB) recently issued Request for Information Consultation on Agenda Priorities, to seek feedback on its priorities for its next two-year work plan. The document is open for comment until September 1, 2023.

The ISSB has identified four potential projects in particular: “three sustainability-related research projects—1) biodiversity, ecosystems and ecosystem services; 2) human capital; 3) human rights—and a fourth project researching integration in reporting.” We already looked at the first three of those. It’s equally interesting though to read the document’s summaries of topics that it considered including, in the request for information, and might still do so in the future. Here are a few of them:

• Circular economy, materials sourcing and value chains The circular economy is the approach behind a regenerative system that uses systems-based design and circular flows of resources to maintain or enhance products. Investors’ interest in the circular economy and related approaches to material sourcing and value chain has increased because the circular economy can have significant financial benefits. These benefits are linked to reduced costs and enhanced efficiency through the minimization of waste and pollution, and the reduction of the need for raw resource extraction…
• Cybersecurity, data security and customer privacy Business entities are increasingly dependent on digital systems, heightening their risk of cybersecurity threats, including malware, phishing attacks, denial-of-service attacks, ransomware and insider threats. .. Cybersecurity-related risks have the attention of the global investment community, who have highlighted that cyber incidents can disrupt business operations, create legal and regulatory risks, and reduce portfolio entity valuations and earnings.
• Economic inequality Economic inequality has for several decades been an area of growing concern for governments around the world, and related disparities have been exacerbated by the covid-19 pandemic. Investors have typically viewed inequality in the context of systemic risk. However, recent initiatives have begun to explore the business case for tackling inequality in ways that unlocks entity-level benefits. Potential benefits include attracting and retaining talent, growing the customer base, enhancing access to capital, building resilient supply chains, and staying ahead of policy and regulatory change designed to internalize social costs. Other opportunities relate to the concept of just transition (for example, a shift away from carbon-intense industries may displace millions of workers, which in turn may create incentives for entities with clear strategies to pursue a more orderly and inclusive just transition).

That last item points to a broader topic that should likely also have been considered for inclusion: political affiliation and activity. Taking the US as an example (but hardly the only one): as I write, Donald Trump is the favourite to win the 2024 Republican Presidential nomination, and would be at the very least highly competitive in the subsequent election. While he’s hardly offered a coherent sense of what a second Trump term might look like, it would certainly involve a massive capitulation to various narrow interests, with an accompanying gutting of attention on environmental and sustainability issues, diversity and belonging, and anything else remotely progressive; the ISSB’s ability to gain global traction would be severely wounded before it’s fully begun. Tenets of “Christian nationalism” would likely work their way ever more effectively into official policy; America would become more unequal, more racist, more regressive. Some companies would no doubt profit in this environment, and their executives even more so, but only by brutally narrow financial measures, only by embracing nihilistic short-termism. Why would stakeholders accept silence as an acceptable corporate response to this foreseeable disaster?  And if they care at all about human capital, human rights, and the other items being considered as research projects – if they care about anything at all beyond the next stock option issuance – how could they not explicitly position themselves in opposition to Trumpism and its fellow travelers, whatever the possible short-term Disney-type risks?

At the moment, investors are unlikely even to receive reliable quantitative information on an entity’s political contributions. Taking the US again as an example, an SEC commissioner noted a couple of years ago:

• We know that this type of information can be extremely important to reasonable investors. Indeed the SEC received over a million requests to require such disclosures. As the late founder of Vanguard, John Bogle, once said “corporate managers are likely to try to shape government policy in a way that serves their own interests over the interests of their shareholders.” When companies use shareholder funds for political influence, it stands to reason that shareholders would want to be able to assess for themselves whether such spending is in their interests.
• But companies rarely disclose political spending in reports filed with the SEC for the simple reason that there are no explicit SEC rules requiring such disclosure…

Disclosure of amounts spent wouldn’t necessarily in itself provide clarity on the type of political influence being sought, but it would at least be an indicator of general activity and direction. That part of it may be primarily an issue for local regulators. But narrative disclosure of an entity’s political affiliations and machinations may certainly belong in the category of “sustainability topics beyond climate” currently being considered by the ISSB…

The opinions expressed are solely those of the author.