00:00:00: We can't be perfect in using this new language.

00:00:03: It's a new economics language.

00:00:05: In a way, we are rewriting economics.

00:00:08: And it's not going to be done overnight.

00:00:11: But some of these conversations are urgent.

00:00:14: Climate is urgent.

00:00:16: Climate change, the physical risks are now.

00:00:18: The transition risks have started already

00:00:21: in jurisdictions like Europe, Canada,

00:00:23: many others that have decarbonation plans

00:00:25: that will be coming as negative

00:00:27: and positive incentives of companies.

00:00:29: So this is happening.

00:00:30: And therefore, we need to learn that language of climate together.

00:00:34: Welcome to the special English edition of De Gorsa Neustadt,

00:00:39: a German podcast series by Zabilla Barth,

00:00:42: in which she talks to pioneering leaders

00:00:44: who, inspired by the World Economic Forum's Great Reset Initiative,

00:00:48: create revolutionary projects

00:00:50: that actually do make our world smarter, greener and fairer.

00:00:58: I am delighted to welcome Emmanuel Faber,

00:01:01: the chair of the International Sustainability Standards Board,

00:01:04: ISSB, a pioneering entity shaping the future

00:01:08: of sustainable finance and reporting worldwide.

00:01:11: He's a prominent figure in the business world,

00:01:14: renowned for his visionary leadership

00:01:16: and commitment to sustainability.

00:01:19: With a distinguished career spanning decades,

00:01:21: he has held key executive roles,

00:01:23: including CEO and chairman of Danen,

00:01:27: one of the world's leading food and beverage companies.

00:01:30: Under his stewardship,

00:01:33: the company became a global leader in corporate sustainability,

00:01:38: pioneering initiatives to integrate environmental

00:01:41: and social responsibility into its core business strategies.

00:01:45: His contributions have earned him widespread recognition,

00:01:49: including being named one of the world's 50 greatest leaders

00:01:53: by Fortune magazine.

00:01:56: Today, we have the privilege of delving into his insights,

00:01:59: exploring his role as chair of the ISSB,

00:02:02: a groundbreaking institution committed to developing

00:02:06: globally consistent sustainability disclosure standards.

00:02:10: With endorsements from the G7, G20, United Nations,

00:02:14: Central Bank Governors, World Bank

00:02:17: and International Organization of Securities Commissions,

00:02:21: the ISSB is at the forefront of standard-setting efforts,

00:02:25: aiming to enhance transparency, accountability

00:02:30: and trust in the financial market.

00:02:32: It's spearheading initiatives to revolutionize sustainability

00:02:37: reporting, aligning corporate practices with ESG principles

00:02:41: to drive long-term value creation.

00:02:45: Before we delve into our discussion,

00:02:48: Emmanuel Farber has recently reappointed as

00:02:53: the ISSB chair for a second term.

00:02:57: So congratulations to you.

00:02:59: And please tell us more about the ISSB

00:03:03: and why is it so significant?

00:03:07: Well, Cedir, thank you first of all for having me on your podcast.

00:03:14: And thank you for having that podcast.

00:03:16: I think it's an important platform.

00:03:19: Thank you for all the very nice words.

00:03:21: I don't know if they are obviously not all true

00:03:24: that you said about me.

00:03:28: But let's say the ISSB, I think, started from the observation

00:03:38: over time that accounting counts many things that count,

00:03:43: but not everything that counts.

00:03:46: And the development over the last 20 years of a flurry of ESG

00:03:54: metrics, ratings, colors, gradings, numbers, letters,

00:04:01: all over the place to the tune of now probably

00:04:04: about 500 of them is an evidence that companies, investors,

00:04:11: other stakeholders, were trying to express something

00:04:15: about the sustainability aspects of companies or ESG,

00:04:22: in other words, of companies without, frankly,

00:04:26: being successful in that.

00:04:27: Because if that had been the case,

00:04:32: the correlation between the practice of companies

00:04:37: and their performance against these ESG indicators

00:04:41: and their valuation, the cost of capital,

00:04:45: the allocation of capital that they get from investors

00:04:47: and from banks would be significantly bigger and more

00:04:52: visible than it is today.

00:04:55: And so what happened was that the market authorities,

00:05:03: multilaterals, the financial stability board,

00:05:06: the international organization of securities commissions,

00:05:10: which is a membership organization with all the SECs

00:05:12: of the world, 135 countries, the OECD, the IMF, the World Bank,

00:05:19: the UN, started to think about how

00:05:24: to create that system that would allow

00:05:29: to count what counts and is not yet in the accounting.

00:05:35: They turned to the IFRS Foundation.

00:05:37: The IFRS Foundation was created 25 years ago

00:05:41: to establish a global language, common language,

00:05:45: of accounting standards.

00:05:48: The Foundation was pretty successful with now

00:05:51: about 144 countries that are using the IFRS accounting

00:05:57: standards with an equivalent for the US with the US gap.

00:06:06: And so it was seen that probably because of that,

00:06:09: the IFRS Foundation would be well placed to play a role in that.

00:06:15: And this is what led the trustees of the Foundation

00:06:18: to launch a huge public consultation in 2020,

00:06:23: asking the question whether some things needed to be done

00:06:28: and whether the Foundation was well placed to be part of it.

00:06:33: The overwhelming answer was yes.

00:06:34: And with that, there was an announcement

00:06:37: at COP26 of the creation of a sister board

00:06:40: to the International Accounting Standards Board

00:06:42: that had been doing accounting for 25 years

00:06:45: with the creation of the International Sustainability

00:06:48: Standards Board, which I have the pleasure and honor to lead

00:06:54: as part of the Foundation with that mission of creating

00:06:58: an accounting quasi-accounting language for sustainability.

00:07:02: That would be cost effective for companies around the world

00:07:06: and decision useful because it would be comparable, global,

00:07:11: consistent, reliable, assurable.

00:07:13: And therefore, banks and investors

00:07:17: would be able to make decisions about the cost of capital

00:07:20: that they want for companies that report on this.

00:07:22: And therefore, we could count what really counts

00:07:25: at the end of the day.

00:07:26: And in particular, as you said in your introduction,

00:07:30: this can be a very powerful way to ensure that capital markets

00:07:35: can do their part, their full part,

00:07:39: in allocating according to risks and opportunities on ESG

00:07:45: the capital to the transition to more resilient business

00:07:48: models and overall more resilient, inclusive macroeconomics

00:07:54: as well.

00:07:55: Yeah.

00:07:57: You mentioned Glasgow.

00:07:59: The IFRS Foundation announced the formation

00:08:03: of the International Sustainability Standards Boards

00:08:07: in November 2021 at COP26 in Glasgow.

00:08:13: So and it took you only two years

00:08:16: to manage to deliver two sustainability disclosure

00:08:20: standards.

00:08:21: One is ISFRS1 and the other one is S2.

00:08:26: The one is about general requirements

00:08:29: for disclosure of sustainability-related financial

00:08:32: information and S2 is about climate-related disclosures.

00:08:38: So you did that, Emmanuel, in a very, very short time.

00:08:44: Can you dive into it a bit?

00:08:46: Yeah, of course.

00:08:47: It's actually less than that, in a way, and more.

00:08:51: Less because the first meeting, because we

00:08:54: had to assemble the 14 independent members of the board,

00:08:58: which is a full-time board.

00:08:59: I'm working full-time as 13 of my co-board members

00:09:04: and colleagues, which took several months.

00:09:08: We consolidated three existing organizations

00:09:12: of standard setting to start reducing the alphabet soup.

00:09:15: And we started our first meeting as a board,

00:09:19: happened in July '22.

00:09:23: We published ISFRS1, which is the general requirement,

00:09:29: and ISFRS2, which is the specific climate requirement,

00:09:34: on June 23, so less than 12 months after.

00:09:40: It's more because there had already

00:09:42: been a technical readiness working group

00:09:44: and a number of people working as soon as the decision,

00:09:48: in principle, was made before it was even

00:09:50: announced at Glasgow on what a prototype could be.

00:09:53: And we've been building from TCFD and many other platforms

00:09:57: that-- a number of other platforms that already existed.

00:10:02: But that's-- yeah, indeed, not even a year ago,

00:10:07: we issued those two standards.

00:10:10: They were then endorsed by the International Organization

00:10:13: of Security's Commissions, IOSCO, in July.

00:10:18: The Financial Stability Board viewed our climate standards

00:10:24: as the culmination of the task force

00:10:27: for climate-related financial disclosure, the TCFD,

00:10:31: that the FSB of the G20 had been piloting since 2015.

00:10:37: And they retired the framework into our legacy work.

00:10:41: And ever since, we have been active in starting the adoption

00:10:47: with jurisdictions, with companies,

00:10:49: with investors around the world.

00:10:51: And also, we are in the process of now developing

00:10:55: the next stage of our agenda setting with more things

00:10:59: beyond climate and industry-based standards

00:11:03: elevated at their next level.

00:11:08: And if I look into S1, this includes actually scanning

00:11:14: the whole value chain, right?

00:11:16: Its risk opportunities and impacts.

00:11:19: And if we talk in terms of scope 1, 2, and 3,

00:11:25: does it include or exclude scope 3?

00:11:29: It does include scope 3.

00:11:32: And so you're absolutely right on S1, Sivila.

00:11:37: What we provide is a scanning system for CFOs,

00:11:44: for CEOs, for C-sweets, for boards.

00:11:49: So therefore, not for CSOs, not for chief sustainability

00:11:53: officers only, but chief accountants,

00:11:57: controllers, the people in charge of strategy,

00:12:00: of risk management, to provide a tool that scans beyond the remit

00:12:07: of the financial statements.

00:12:08: And that is therefore looking at the entire value chain,

00:12:11: the whole space of the entire value chain on one side.

00:12:15: And then scanning the horizon of times, short, mid, and long term.

00:12:20: We require that the whole value chain and the whole horizons

00:12:26: of time are being scanned with our tool.

00:12:30: And with that, to report what is material that

00:12:34: is in our definition the same as accounting, which

00:12:37: is what actually matters for investors' decision.

00:12:41: And therefore, having consulted with the market

00:12:47: in the draft that we exposed in March 22,

00:12:52: we know that investors want to have scope 3 information.

00:12:58: Most of the time, scope 3, which is these indirect greenhouse

00:13:03: gas emissions in the value chains beyond the scope

00:13:07: of the company itself, they represent 70% to 80%

00:13:14: of, on average, any company's global emissions.

00:13:18: And this is where, therefore, most of the transition risks

00:13:22: that can happen if a given country says,

00:13:27: I want to reduce my emissions of 80%,

00:13:32: like in Europe, for instance, by 2040.

00:13:34: Well, if I'm selling thermal engines for cars in the EU,

00:13:41: I won't have a business.

00:13:43: Or my business will be cut by 80% by 2040.

00:13:46: So what do I do with that?

00:13:48: How do I address that transition risk

00:13:50: by investing differently, preparing my company

00:13:53: for new consumer demand, or maybe diversify

00:13:59: as the places where I'm going to sell my cars, maybe.

00:14:02: I just don't know.

00:14:03: But therefore, this is why investors have asked

00:14:07: that scope 3 is in there.

00:14:08: So we voted--

00:14:11: I remember very well-- we voted in October 2022

00:14:18: that scope 3 would be confirmed as our requirements

00:14:24: when it is material.

00:14:27: And as you say that you are laser-like focused on investors,

00:14:35: but how is that being welcomed by companies?

00:14:41: I think companies realize that some ESG topics are

00:14:54: critical for their business.

00:14:56: I wouldn't say, oh, but some.

00:14:59: I've been a manager for a long time.

00:15:02: I've been a CA for twice in my career for a long time.

00:15:06: I've been a CEO of a global company, as you just said.

00:15:09: I also chaired the Consumer Goods Forum, which

00:15:13: is the trade association, the global trade

00:15:15: associations for the top 500, not only consumer goods,

00:15:21: brands, and manufacturers, but also the retail platforms

00:15:24: and the banners and the digital platforms.

00:15:27: So I know many of them.

00:15:30: And I cannot tell you one single CEO that does not

00:15:36: agree that sustainability is a strategic matter.

00:15:42: They all agree that some sustainability topics

00:15:45: for their company are critical.

00:15:49: So when you're telling them that you're

00:15:52: going to design a tool that will allow them, for instance,

00:15:56: on climate to elaborate a strategy

00:15:59: and to explain that strategy in financial terms,

00:16:02: sometimes in accounting terms to their investors

00:16:06: and to their banks, what they realize

00:16:08: is that climate change will change their competitive

00:16:12: advantage.

00:16:14: I'll just give you an example.

00:16:18: So Frankfurt, my home office, is not very far from the Rhine

00:16:23: River.

00:16:25: In '22 and in '23 summer time, the Rhine River

00:16:29: went so low in terms of the water volume in the river

00:16:36: because of the heat waves in the mountains

00:16:39: and the glacier lack of water supply

00:16:45: that the navigation, the traffic of boats on the Rhine River

00:16:51: had to be stopped.

00:16:53: And the new smaller, much smaller boats

00:16:58: had to be brought all across Europe

00:17:00: in order to be able to navigate on a much shallower water

00:17:06: level.

00:17:07: That has transformed the supply chains,

00:17:10: created huge inventory issues in the ports downstream

00:17:15: and in the cities and factories upstream for months, which

00:17:21: are still now in the inflation that was felt.

00:17:24: Nobody thought that being close to the Rhine River

00:17:28: or close to another one could potentially

00:17:32: have an impact on my supply chains.

00:17:35: Well, now you have evidence that it has.

00:17:38: So one factory may be in a place where there will not

00:17:43: be water anymore in 20 years.

00:17:45: If you run a climate scenario, in some scenario,

00:17:49: your factory may not have water.

00:17:52: Well, the factory of your competitor

00:17:53: that does exactly the same product may still have water.

00:17:57: So they have a competitive advantage against you.

00:18:01: So if you prepare earlier to ensure

00:18:05: that you have water access in the future,

00:18:07: you have access to traffic, including

00:18:10: fluvial river traffic if necessary,

00:18:13: you invest in the future.

00:18:15: You future proof your business to climate change.

00:18:19: And any CFO knows that for that you need money.

00:18:24: But if you do this in a smarter way than your competitor

00:18:28: and you can show to your investor

00:18:30: that your ability to design a resilience system

00:18:34: and a resilience system is better than your competitor,

00:18:37: you're basically creating a competitive advantage.

00:18:40: And this is what our standards are doing,

00:18:42: which they are highlighting competitive advantages

00:18:45: in the supply chains and the short, mid, and long-term

00:18:48: horizons that then companies can use

00:18:51: to discuss with their board and with their investors.

00:18:54: And so the overwhelming majority of companies

00:18:57: is heavily supporting us.

00:19:03: It was interesting that at COP26, as I just said,

00:19:05: the ICSB's creation was supported by a lot

00:19:08: of multilateral organizations and global authorities.

00:19:11: And COP28, last year, it was very striking in Dubai

00:19:20: that in addition to them, there have been 400 organizations

00:19:25: that came in committing to support the establishment

00:19:29: of our climate baseline of language,

00:19:33: including membership organizations of businesses,

00:19:37: in particular in Europe, that represented more than 10,000

00:19:41: companies.

00:19:42: So I'll finish because I realize I'm super long.

00:19:46: But the reason I think they realize

00:19:53: that reporting on three, four, five different set of ESG

00:19:59: metrics today is not giving them the money or the advantage

00:20:02: that they want.

00:20:03: And that is spending a lot of energy and cost

00:20:06: in various languages that are imperfect because they're not

00:20:10: comparable, they are not assurable,

00:20:12: and therefore they're not reliable and useful for investors

00:20:15: to decide.

00:20:16: So if they could get rid of that and use one language

00:20:20: in all countries because Brazil has decided

00:20:23: to use our standards, Canada is launching a consultation

00:20:26: on this.

00:20:27: Japan has decided on 25.

00:20:29: Turkey has decided on 24.

00:20:31: Nigeria has decided on 25, et cetera, et cetera.

00:20:34: They will be able to use our standards wherever they are

00:20:38: to collect the data, process them into one language,

00:20:42: and then go to the market with a simple, cost-effective

00:20:46: language and decision useful.

00:20:49: Now, it is an investment, but I have to say one thing is

00:20:55: it's not by chance that I was asked, I think,

00:20:59: to lead and share the group of my colleagues.

00:21:06: The choice was made to have a CEO, a CFO.

00:21:10: I've been talking to thousands of investors.

00:21:13: I've signed accounts of companies 20 years in a row.

00:21:18: And so I know what is possible and what's not,

00:21:20: what's difficult and what's not.

00:21:22: And not only me, it's totally collective.

00:21:24: We've got former investors from GPIF in Japan, the government

00:21:30: investment fund of Japan, the longest term investor

00:21:34: in the world, probably.

00:21:37: Colleagues from KKR, colleagues from former BlackRock

00:21:41: and CalTas in California.

00:21:45: We've got the former sustainability person

00:21:49: from Siemens from Dan Gote, Nigeria, multinational in Africa,

00:21:55: from Metro, the retail company in Germany and in Europe.

00:22:01: And so it's practitioners that have been working together

00:22:05: with academics.

00:22:07: Also one of the vice chairs is from the IASB.

00:22:12: So we have the former vice chair of the accounting board,

00:22:16: which is now a vice chair of our board.

00:22:18: But also the former treasurer of World Bank,

00:22:21: which is also the other vice chair.

00:22:24: So we are professionals, basically,

00:22:27: in probably what is a very unique place, the IASB Foundation,

00:22:32: in terms of experience to set standards.

00:22:34: And this super long response is to say,

00:22:37: this is why I think we've got so much traction

00:22:41: from corporates around the world pushing for the simplification

00:22:45: that our standards are going to bring.

00:22:48: And yeah, feel absolutely free, because I don't think

00:22:52: it's a matter of super long.

00:22:53: It is important that we all understand that.

00:22:57: And we have listeners in 90 countries by now,

00:23:01: all on a different level, I would say,

00:23:04: which brings me to the next question,

00:23:06: is if you talk about all those companies already

00:23:10: committed in the different jurisdictions, how do you

00:23:14: or do you have to adapt to the different jurisdictions?

00:23:18: What do they adapt to you?

00:23:24: Both, I think.

00:23:25: What we have done is that we have provided transition reliefs

00:23:32: in the use of our standards to allow companies and regulators

00:23:38: some time, because we know it takes time.

00:23:42: I'll give you one example.

00:23:44: On scope one, two, and three, we gave a one year relief

00:23:51: on scope three.

00:23:51: So if you're not ready on scope three, you have one year.

00:23:56: That one year, I know, is useful.

00:23:58: In 209, in my company, we decided to report on scope three.

00:24:02: It took us about a year to put a system together.

00:24:06: You need to start by doing the value chain mapping

00:24:09: and then install a system to measure with proxies

00:24:14: or direct measurement and other ways.

00:24:15: It takes time.

00:24:16: It's an investment.

00:24:18: So we've provided for that, for instance.

00:24:20: We also provided, for instance, that some companies would start

00:24:25: and could start the first year with climate only.

00:24:29: You just report on climate before reporting on the rest.

00:24:33: Because we know climate is probably the most difficult

00:24:37: and comprehensive set of reporting.

00:24:41: We have created transitional reliefs also for regulators.

00:24:48: In, for instance, the timing of issuance within a given year.

00:24:53: How many months do you allow before the next year?

00:24:56: Because to provide the information,

00:25:00: because our standards require that companies

00:25:04: publish them at the same time as their financial statements.

00:25:07: We know it may take a bit of time.

00:25:09: So we have created pathways that jurisdictions can use

00:25:14: in order to start their journey.

00:25:16: Some jurisdictions would start with climate first.

00:25:18: Some jurisdictions will start by permitting the standards.

00:25:21: I was mentioning Brazil.

00:25:23: Brazil has said listed companies are permitted to use the standards in 24.

00:25:31: Private companies are permitted to use the standards in 25.

00:25:35: In 26, it's mandatory for everyone.

00:25:38: So these journeys, we're talking to jurisdictions

00:25:42: to ensure that they go at the speed,

00:25:46: which is the right speed for success for them.

00:25:49: So that's one thing I think is important in the way we discuss

00:25:55: with jurisdictions around the world.

00:25:57: And I have to say that we have paid a lot of attention

00:26:04: that we have a diverse group of board members

00:26:09: in terms of their own backgrounds.

00:26:12: We've got people, as I just mentioned, from Nigeria,

00:26:18: but also from China, from Japan, from Korea,

00:26:23: and many others that are bringing a wealth of different approaches

00:26:27: around the table.

00:26:28: And we do, of course, have a number of other consultative groups

00:26:33: that give us in slide about what jurisdictions want.

00:26:37: And I'll just finish by giving a surprising example,

00:26:40: which is the first jurisdiction that one year after COP26,

00:26:48: and even before we finalize our standards,

00:26:51: in Sharnelshek at COP27, announced their decision

00:26:58: to be an early adopter was Nigeria.

00:27:03: And I was in Nigeria 10 days ago.

00:27:04: And I can tell you that the conversation that we had

00:27:07: really resonated on why it makes sense for countries

00:27:12: like Nigeria, but South Africa and others,

00:27:15: that we had been in conversation with,

00:27:18: to gradually introduce our standards for the benefits

00:27:23: of the local economy.

00:27:25: Yeah, I remember you being in Nigeria,

00:27:28: because a colleague of mine, she is Nigerian.

00:27:32: She attended one of your meetings

00:27:34: and was, as I remember, very taken with the work of the ISSP.

00:27:40: But equally important, she was very proud of Nigeria's engagement.

00:27:48: However, I wanted to take you back to 2009,

00:27:53: you being CEO of Danen and absolutely ahead of your time.

00:27:59: Because it was 15 years ago that you said,

00:28:04: "We do not need any longer achieve sustainability officer."

00:28:08: By the way, most companies still don't have one today.

00:28:13: You said we don't need one any longer.

00:28:16: Because, and I quote you, "Sustainability is everybody's responsibility."

00:28:23: So you're really a pioneer.

00:28:29: Can you just tell us why did you do it 15 years ago?

00:28:35: Oh, I think there's a combination.

00:28:40: First, Danen was already well advanced in sustainability.

00:28:45: Already in 1972, the predecessor of my predecessor as a CEO

00:28:54: had said that this company would have what was called

00:28:58: a dual economic and social project.

00:29:01: So it would be looking really at not only delivering economic value,

00:29:06: but also social value.

00:29:08: That was many, many, many years ago, like 50 years now.

00:29:12: So that was there.

00:29:14: Over time, corporate social responsibility became sustainability

00:29:24: over probably a span of 20 years.

00:29:27: So it's not like sustainability was nationed in the business.

00:29:30: It was there.

00:29:31: We, I think, were pioneers already.

00:29:36: The decision we made was because I was part of the

00:29:41: business, I was personally very clear that one of the aspects about

00:29:48: carbon emissions is that, talking about scope three, most of the

00:29:56: company's carbon emissions were from agriculture.

00:29:59: 70% at least was in agriculture.

00:30:03: And when you have emissions by agriculture, it means the carbon

00:30:08: is in the soil, goes into the atmosphere.

00:30:11: It's not good for the planet, but it's also very bad for the soil.

00:30:15: Because the carbon is 60% of the organic matter that nourishes

00:30:22: the health of the soil.

00:30:24: So without carbon, you don't have a soil.

00:30:26: You don't, I mean, the soil is just dying.

00:30:28: Yeah.

00:30:29: time, we knew that with intensive agriculture in some areas around the world, overall across

00:30:35: the world about 30% of soils are degraded. And you may not be soon able to farm unless

00:30:44: you continue to put more artificial chemical nutrients, but basically on a dead soil and

00:30:51: just superpowering the plant with chemical interest, which is a dead end. At the end,

00:30:57: it doesn't work. So the idea was, particular on scope one, two and three, but on others,

00:31:04: that we had a business rationale to ensure that for business reasons, we want to reduce

00:31:11: the agriculture emissions in our scope one, two and three. And we invested in that. But

00:31:19: to do this, indeed, what you need to avoid is that there is an office somewhere that

00:31:26: in the organization or in the sixth floor or whatever is in charge of sustainability,

00:31:34: because that person then is the person to go to. And it becomes the responsibility of

00:31:39: no one else. And the radical choice that we made was because we were already well advanced

00:31:45: and the culture of the company was mature enough, we decided to cut that. And in exchange

00:31:53: for that, we added sustainability in the yearly bonus of all the managers of the company.

00:32:03: So in 15,000, 15,000 managers around the world, out of 100,000 people around about the company

00:32:14: had a third of their bonus, yearly bonus, attached to sustainability. And that's how

00:32:20: it really kick off a completely new journey of integrating sustainability as part of the

00:32:26: strategy and the business decisions for the company.

00:32:32: I find that absolutely fascinating because we are talking about a totally different time

00:32:40: because I'm currently in Germany. And the talk about ESGs is not alien, but almost.

00:32:55: And having a chief sustainability officer is very rare. We cannot compare the small,

00:33:02: medium-sized enterprise here to the Siemens of the world or Möller-Mehrsko or you or

00:33:07: Unilever. So this is, I mean, that are 15 years and the sustainability development goals

00:33:18: were 2015. So how come we have this group of companies which one where you belong to or

00:33:28: let's say Möller-Mehrsko or Unilever, whatever, they did all that, but not many followed at

00:33:37: the time. Why is that?

00:33:43: I think it's several aspects, but I would say first and foremost, it's a matter of the

00:33:51: culture of the company and the history of the company. You don't have the same culture.

00:34:00: I mean, every culture is unique and how the culture is built. Is it a short-term performance

00:34:09: culture? Is it a long-term performance? Is it an inclusive or not inclusive? All of that

00:34:16: is really a matter of decades sometimes of cultural evolution, I'd say the first point.

00:34:24: The second is some companies address sustainability topics sometimes without even knowing there

00:34:33: are sustainability topics. When you invest in your upstream supply chain or when you

00:34:41: train some downstream intermediate companies in your value chain, well, you do this for

00:34:55: business reasons. You want them to sell your product in an efficient, cost-effective manner.

00:35:03: Let's take for instance, health at work. You can think about health at work as a human

00:35:12: right, and it is. But you can also think of it as a business performance issue. I know,

00:35:21: for sure, I know I've been in charge of this in my company for a long time. I know for

00:35:27: sure that when there are accidents in a factory line or in a truck somewhere, it's because

00:35:34: there is a deficiency in the processes. There is a deficiency in the organization, which

00:35:43: is an issue of optimal performance. Accidents are the sign of something bigger. They are

00:35:53: a terrible thing from a human standpoint, of course. But there are a business issue.

00:36:01: The same applies for drivers on the street. If you have an accident because the truck

00:36:09: is not well equipped, the safety instructions have not been met by the driver. The driver

00:36:19: is not trained properly. The driver has driven too much in the day, and there is an accident.

00:36:26: It's a drama, but it also shows that you have an unsustainable business if everyone is doing

00:36:33: that. For companies, I know many of them that are investing in the smaller companies that

00:36:41: are part of their ecosystem. No company can succeed alone. Any company is completely linked

00:36:49: with its ecosystem to be successful overall. The larger companies invest in the smaller

00:36:56: ones in their capacity. This is sustainability, but you may not call it sustainability. It

00:37:02: is. I would also say that you don't always need a CSO to actually do sustainability without

00:37:09: knowing it is. The last thing I would say is, of course, that the longer a company has

00:37:16: been there, the more established its market position is, its brand, its reputation, its

00:37:22: size, the more it can think, and it should think, actually, about how solid, sustainable,

00:37:30: long-term all of this is. If you are a smaller company, I don't think you should be doing

00:37:35: the same. I think the agenda, given the size and the level of development of companies,

00:37:43: cannot be the same on sustainability. We need to look at it in a very pragmatic manner.

00:37:49: This is why, for instance, as far as our standards are concerned, we are not saying that very

00:37:54: small companies should do them. I think our standards are too complex the way they are

00:38:00: to apply to groups of companies that are too small.

00:38:06: When you talk to investors and business, what are their main questions and needs? I'm looking

00:38:15: pretty much for, is upskilling and educating one of it?

00:38:21: Yes, absolutely. It's very clear that we cannot just be a standard setter. One of the reasons

00:38:33: why we have Jean Deng Hoa, the former treasurer of the World Bank with us, with a specific

00:38:43: role as a vice-chair on capacity building is exactly that. We know that we need to look

00:38:50: at the ecosystemic nature of standard setting. We need to be part of conversations that are

00:39:00: broader than just sitting in a room and setting standards. We spend our time to listen, to

00:39:06: think, to discuss. We spend our time in engaging. When we consulted, for instance, the draft

00:39:12: of IFRS S1 and IFRS S2 for four months in summer 22, we actually engaged with nearly

00:39:24: 30,000 people around the world in four months through events, one-to-ones, and many others.

00:39:32: So 30,000, we listen to make sure we've got the feedback that we need and adjust where

00:39:37: the needs are, what the possibilities are, et cetera. Then downstream the standards themselves,

00:39:44: we are developing educational materials, e-learnings, knowledge hubs, partnership on capacity

00:39:53: building with multilateral development banks, for instance, or with official development

00:40:00: assistance money that is used in global South countries. We've just announced, for instance,

00:40:06: with the UKFDO, a partnership with PAPA, the Pan-African Federation of Accountants, that

00:40:14: has 125,000 accountants across the 54 countries of the African Union, a partnership on capacity

00:40:23: building which is funded by the UKFDO. We provide the material, et cetera, et cetera.

00:40:31: We're developing right now finalizing a jurisdictional adoption guide that will help jurisdictions

00:40:37: in handling their journey towards using our standards as a regulatory tool. So yes, the

00:40:47: demand from investors and certainly from companies and regulators is to have those educational

00:40:55: programs in order to ensure that we learn this language together. I'd say one thing

00:41:02: about this, which is we've been advocating the fact that we can't be perfect in using

00:41:12: this new language. It's a new economics language in a way we are rewriting economics and it's

00:41:20: not going to be done overnight. But some of these conversations are urgent. Climate is

00:41:26: urgent. Climate change, the physical risks are now. The transition risks have started

00:41:32: already in jurisdictions like Europe, Canada, many others that have decarbonation plans that

00:41:37: will be coming as negative and positive incentives of companies. So this is happening. And therefore,

00:41:42: we need to learn that language of climate together. And for the first time, we will not

00:41:48: be fluent. So we will be approximate and we will have the right to say, "Oh, here I need

00:41:54: to reassess what my baseline was. That's different, et cetera. I can use estimates."

00:41:59: We are offering the possibility to use ranges, not just one number, ranges, assumptions,

00:42:05: estimates, et cetera, in order to ensure that we all start learning the language together,

00:42:11: but also embarking on everyone as soon as practicable. So our encouragement and what

00:42:16: we are discussing is, don't wait until you're perfect. Start now and we are providing the

00:42:21: safety and the transition reliefs and the capacity building that we've been talking

00:42:25: about.

00:42:26: Yeah. Yeah. Emmanuel, I would really like to dig a little deeper into the importance

00:42:34: of this economic language. And just briefly go on a personal note. I've accomplished last

00:42:45: month a six months ESG and sustainability designation for board members. And it was

00:42:51: a fantastic program done by a Canadian company called competent boards. And they are the

00:42:57: leaders in basically board education. And what they do is the beauty lies in it is a

00:43:08: truly global program from leaders for leaders. That includes basically the who is who of

00:43:21: course. And then we have the sustainability. So we have the ISSP, the standard setters.

00:43:26: We have UN Global Compact. We have business leaders like Paul Porman. We have discussions

00:43:33: on capitalism, for example, with Martin Wolf from the Financial Times. Leaders learning

00:43:41: from other leaders. And we could understand and use the sustainability language in practice

00:43:51: from geopolitics to ISFR one and two. So and a couple of questions, questions start with

00:44:00: me.

00:44:01: Number one is, do you really know your business as a as a leader today on the board as a CEO

00:44:10: of all? And the other question was, how do I know my board is asking the right questions?

00:44:20: How do I know?

00:44:21: Yeah. Well, I'll start with an uncomfortable that are okay. Yeah. PWC published at the

00:44:32: end of 21. A survey that was done after inquiring to to more than I think 1000 C suite executives

00:44:47: around the world on a number of topics around sustainability. One important chapter was

00:44:54: about the board. And 75, I think 76% of respondents said that their board was very far from being

00:45:07: equipped to govern and guide the company in its sustainability journey. I spoke earlier

00:45:17: of how I felt that CEOs and C suites were aware that some sustainability topics were

00:45:27: critical for their business. I know that what they are saying is my board is not aware.

00:45:33: My board doesn't have the competency. Yeah, 75%. So we need to look at this clearly. Once

00:45:41: we've said that, what we provide with the TCFD framework, which we have embarked in

00:45:48: all our standard, starting with the grammar, the alphabet, the syntax that one is providing,

00:45:57: we provide with TCFD a very broad set of disclosures that include for any particular topic on sustainability.

00:46:10: The metrics that you want to disclose and your performance against your targets, but also

00:46:16: the risk management process of that your company about that particular risk, but also the strategy

00:46:23: that you design for the long term management of that risk or that opportunity, including

00:46:29: your investments and your strategy and everything that's designed about a strategy. And then

00:46:34: the governance. The governance question is, who has approved it? It's a different thing

00:46:41: if that's a local person or a functional person somewhere in a local headquarter or

00:46:48: region, or if that is the executive committee, or if that is the CEO, or if that is the strategic

00:46:55: committee of the board, or if that is the chair of the board and the board. And if in

00:47:01: a given company or in a given industry, nine companies say, my board has approved and is

00:47:09: overseeing and has been trained on such and such topics. And one company says, no, my

00:47:18: board is not overseeing that's done at the division level. And we don't have training

00:47:23: or expertise on climate or standard at the board level. That will make a difference.

00:47:29: And we'll make a difference because investors will say, next slate of directors that you

00:47:33: need to hire, you need to make sure that you've got people that can bring some sustainability

00:47:38: topics on the table that can propose that there is training done for the board, et cetera,

00:47:43: et cetera. So it's very clear that boards have a major role to play on sustainability.

00:47:51: You know, there is this, I've been a member of a 4,500 board since 2002, so for more than

00:48:02: 20 years, until I left my job at Denon two years ago to take this one. So I know how

00:48:13: boards work. And my experience, I remember a board member when I was a young board member

00:48:21: who said to the CEO, you know, this board has the power to tell you no, but doesn't

00:48:28: have the power to force you on yes. Well, I do believe that on sustainability matters,

00:48:33: given the urgency, strategic urgency for some of them in companies, that board should be

00:48:41: compelled to say yes, to authorize, to push the CEO and the C suite to address sustainability

00:48:52: in a strategic manner when it is strategic, of course. So I do believe that boards have

00:48:58: a fundamental role in propagating and authorizing companies to invest because that's an investment

00:49:07: to invest, hopefully with a return through our language, because you can get a cost of

00:49:12: capital advantage and you can raise funds at a competitive advantage with our standards,

00:49:18: but to invest in the sustainability journey that is badly needed for a number of them.

00:49:24: And I think also that the changes that happen on the board level, and of course that happened

00:49:29: for you much earlier than everybody else, but the move from being a competitive board

00:49:36: where the CEO and the C is on, they all are competitive, rather than moving towards a

00:49:42: cooperative one is a bigger step than it sounds. What could help it on the way?

00:49:52: Yes. So I should have mentioned that my previous discussion about boards was about non-executive

00:50:02: boards, which in Germany would be the supervisory board as a management board, of course. When

00:50:08: you speak about management boards, which I qualified earlier in my conversation as C

00:50:13: suite, the executive committee, so the management board, that's where you have the CSO and the

00:50:18: CFO and the CMO and etc. Yes. Well, two things here. Sustainability is a recognition of interdependence.

00:50:29: I'll take it from a very, very high position here. The ISSB has constantly dated a framework

00:50:43: which is called integrated reporting framework, which started in South Africa many years ago.

00:50:50: And that integrated reporting framework, which is one that I have been using in my company

00:50:55: for a long, long time before that, says basically that the value that a company creates for

00:51:06: itself or for its stakeholders is inextricably linked to the value that it creates, protects

00:51:15: or erodes for others. That the company business model is creating dependencies, relationship,

00:51:25: impacts in its business ecosystem, which creates an inextricable ecosystem and interdependencies.

00:51:37: I know it can be seen as complex, but that is the very, very basic truth. It is the truth.

00:51:44: I depend on, that's what I said earlier, I depend on the success of the trucks that

00:51:49: are carrying my product. I depend on the success of the farmers or the miners or whoever they

00:51:56: are that are working on the raw materials that I need to be shipped to my place. I depend

00:52:03: on the boats that are on the river of Rhine or in the Panama, Detroit, to ship my goods.

00:52:12: I depend on them. My contracts with them, I depend. It's an interdependence. Once you

00:52:18: say that, it means that competition is not so much about going at war against each other.

00:52:28: It's who is best at cooperating within its ecosystem. Now, take this and transfer it

00:52:37: immediately to just the leadership team of a company. The same applies. The reality is

00:52:43: that the various functions around the CEO depends upon each other. I won't explain on

00:52:50: that. It's obvious. Those companies that work in a way where you have silos and decisions

00:52:57: are being made in silos, I know they work for a time, but they won't succeed in a very

00:53:03: complex world where you need now to have this overall view, this 360 helicopter view that

00:53:10: allows you to see beyond what counts in the short term. Not everything is in the quarterly

00:53:16: EPS number that you have. Every super important things are in the value chain, as I said,

00:53:22: the long-term horizon. It's not one function that can see that. It's a collective. You're

00:53:28: absolutely true that you cannot establish a proper sustainability strategy and execution

00:53:38: by a company if the management board does not behave in a cooperative, integrative interdependency

00:53:47: of functions. There are barriers to that. The silos, I mean, the way we've designed

00:53:55: organizations, I keep receiving calls because I know quite a few CFOs and I know quite a

00:54:01: few CSOs as well. I've got good friends for many years in both worlds around the planet.

00:54:11: The people I know from the CSO space would be telling me, "Emmanuel, what you're suggesting

00:54:15: with the standards that the company is going to be using because it's mandatory in the

00:54:21: country or because we want to use them?" It's going to be me, the CSO, who has been fighting

00:54:27: to get money for my investment in supply chain, my investment in decarbonation for years.

00:54:35: The CFO has said no to me. No, I don't have the money. No, there is the short term EPS.

00:54:40: We don't have the budget. This Mr. No, I'm supposed to give him my life, my professional

00:54:45: life is going to be in his or her hands. On the other side, I've got the CFO that comes

00:54:51: to me and say, "Emmanuel, I mean, you've been in this business. You're telling me that

00:54:55: me the CFO, I'm a very serious person. I should be taking these Excel spreadsheets and these

00:55:02: papers and qualitative stuff and nothing is robust that is in the sustainability side.

00:55:07: I should build a language with which I'm going to the board and I'm going to the next

00:55:13: of the financial statements to put this. I can't do that. I'm a serious person." The

00:55:19: fact is, my friends, unless you work together, it's not going to work. It's exactly what

00:55:25: you say. This is where I think the CEOs and the boards have an obvious, the non-executive

00:55:32: board have an obvious role in facilitating this cultural change and this reorganization.

00:55:38: I will just finish on this part by saying, I think the biggest topic is in the accounting

00:55:46: and the finance world because we have been, sometimes, blinded by the long-term practice.

00:55:57: As I just said, I signed accounts for years. We know so well. I mean, we have budgets of

00:56:04: 25 billion euros on costs and we have a 0.1% margin of room for maneuver in the budget

00:56:11: to meet our EPS growth every year. We are super good at tracking this thing, mathematical

00:56:18: thing with provisions, everything else. The fact is, accounting, 80% of accounting is

00:56:25: estimate. The entries in a double booking is 80% estimate. Academic reviews are saying

00:56:33: that. That's the truth. There is never a closing on the 31st of December. Soft closing has

00:56:39: started many months ago in the smallest of the areas around the world. The fact is, you

00:56:44: have such a robust process, you end up and you're able to design everything in six weeks

00:56:50: so that the 15th of February, your full accounts are published. It's because you have a process,

00:56:58: but the nature of accounting is estimate. The revolution is in accounting. The revolution

00:57:04: we're bringing is open the chakras of accountants around the world. Look at what counts and

00:57:11: that you do not count and learn again that we need estimates. We need to build processes.

00:57:17: The day we have processes as robust on carbon accounting than we have on dollar accounting,

00:57:23: we'll be successful. I don't think you have any risk of being wrong, but it's simply that

00:57:28: it's this new language that we need to rework together.

00:57:31: Yeah. Emmanuel, I would love. If you would see me here, you would see probably another

00:57:37: 30 pages full of questions. Another five hours would do. Do you allow me one final question?

00:57:45: Sure.

00:57:47: Because during my research, and we talked about it a bit before, I found last night

00:57:54: really a breathtaking presentation of yours at Sciences Po, the university in Paris, where

00:58:02: and you started straight away with, and I quote you, "If you want to have an impact,

00:58:09: stay free." I thought it was fantastic. Can you just say a couple of words to it?

00:58:17: Yeah, I can try. I think that as you may feel that you have success in your life, you can

00:58:31: easily become prisoner of that success. It's comfortable and it creates barriers to your

00:58:37: freedom that may be money, that may be glory, that may be power, whatever that is. All of

00:58:43: that are making you prisoner. I think we should, yeah, you cannot exercise a leadership in

00:58:51: your own life and your life cannot be impactful if you don't have that leadership. If you

00:58:57: want to have impact, you have to stay free. You have to not stay in the center. You have

00:59:02: to go to the fringes, not stay too long at the same place because it becomes too comfortable.

00:59:09: Go with uncomfortable relationship. Put yourself at risk so that you constantly push the boundary

00:59:16: and again, you can act in a manner where you do not become part of a static system that

00:59:25: is just self-justifying its own existence. That's the contrary of having impact. I said

00:59:32: to these guys, indeed, if you want to have an impact, the first thing you need to do

00:59:36: and maybe the only is to stay free. Yeah, yeah. It was really wonderful and actually

00:59:42: to all the listeners who want to listen to it, you find it on Google. Anyway, so Emmanuel,

00:59:49: that was an absolute fantastic and very, very knowledgeable conversation and I'm really

00:59:55: glad that you could spare an hour to talk to us. You made me certainly very happy today

01:00:02: and I hope many, many of our listeners, I wish you all the best for the ISSB and your

01:00:09: work and the next three or four years up until 27, right? Yes, so far. So thanks a lot.

01:00:20: Thank you, Sibila. Thanks for having us and thank you for having that podcast as I just

01:00:24: said. I think it's great that you can inspire leaders around the world.

01:00:29: We've been listening to a special English edition of Degorsa Neustadt, a German podcast

01:00:35: series by Zabilla Barton in which she talks to pioneering leaders who are committed to

01:00:40: making our world smarter, greener and fairer. For more information, please visit www.zabillabardon.com

01:00:50: and the official site of the World Economic Forum.

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