“Regulation, enforcement and awareness of greenwashing issues has increased…  Some of the charlatans that entered the space will leave”. 

Praveen Gupta: You recently observed that Climate reporting may be the third-best way of focusing on the climate problem?

Shiva Rajagopal: Ideally, Congress should fix the climate issue by considering a carbon tax. However, the state of our politics is such that congressional action on a carbon tax is unlikely. The other argument is that this is best left to the Environment Protection Agency (EPA). But the Supreme Court has two cases pending before it arguing that the EPA has over-extended its authority.  So, the probability that the EPA will address the climate issue, without litigation, is slim. Hence, the statement that climate reporting, albeit a small step in the larger struggle against climate change, is perhaps the third best alternative.

PG: There are references to ESG 2.0. Is this an evolved version?

SR: ESG 2.0 – yes, the process will evolve. Regulation, enforcement and awareness of greenwashing issues has increased and that to me is a welcome development.  Some of the charlatans that entered the space will leave. I hope that ESG 2.0 will, at the very least, move the conversation forward with greater rigor and authenticity.

PG: Are the financial institutions procrastinating? The IFRS had a serious blind-spot in not having a sustainability component. How does ISSB change it all? Any remedy for greenwashing, as well?

SR: The last few weeks have seen a flurry of activity in this respect. The Securities and Exchange Commission’s (SEC) action against Vale. The German Government going after DWS for greenwashing. The SEC’s new ESG funds rule, the names rule and of course the climate risk disclosure rules should all help us mitigate the greenwashing problem somewhat. ISSB might become the default standard setter for the world in the area of sustainability unless the SEC can push through the climate disclosure rule in some form or the other.

PG: Does the SEC prescription cover ‘Scope 3’ adequately?

SR: Yes, it recognizes the difficulty associated with measuring scope 3 and allows for a staggered implementation strategy and a litigation safe harbor. Some have asked for even more relaxed regime where scope 3 is required for say companies with a market cap of $10 billion or more. Attestation and/or assurance can also be quite difficult for scope 3 as of now.

PG: Twenty-two leading law and finance professors have urged SEC to withdraw the Climate Disclosure Proposal. Any thoughts?

SR: You must have seen the two comment letters I was part of. One, in my individual capacity, and one signed by several ex-SEC commissioners. These two letters offer a counter-perspective to that of the 22 leading law professors both in terms of cost-benefit analyses and in pushing back against the idea that the SEC has no authority to enact climate risk disclosure rules.

PG: What ideally should a transition pathway look like? Any differentiation between Global North and South?

SR: The transition pathway is idiosyncratic by definition to an individual company. There is perhaps no ideal “one size fits all” path for everyone. All I am asking for is transparency with respect to how the firm intends to fulfil its pledges. Yes, the Global South has a huge tradeoff to confront between lower emissions and lost GDP as a result.

PG: Many thanks Dr. Shiva Rajgopal, for these brilliant insights!