In our stories, there have been several instances in which we have gained insight into various ISO working groups and became acquainted with the work that they do. But what exactly are these ad hoc working groups? They constantly have their eyes and ears open in a specific market in order to pick up on needs that have changed or new developments. They propose topics to their technical committee (TC) that will be then be voted on and used to work out new standards. One of the more recent committees is TC322 Sustainable Finance, which began its work in 2018. Franz Knecht leads the associated ISO TC322 AHG 2 Future Standard Developments technical committee, and spoke to us about how they evaluate new topics.
What is the story behind the ISO/TC322 technical committee?
The standard that ISO sets for itself in all of its TCs is to work with the best experts worldwide. It has built up a great deal of expertise over the years in the areas of sustainability and finance. The TC207 Environmental Management
technical committee has been around since 1993 and is responsible for the most well-known management standard, ISO14001.
Many companies are certified every year in accordance with this standard. TC68 Financial Services
has been around for even longer, specifically for more than 50 years. With innovative, “green” investment opportunities becoming more and more popular since 2013, a gap in skills grew in the intersection between the two topics. Sustainable finance requires skills that do not consider these two worlds to be separate from one another. One strong supporter of this new field was the convenor of TC207 at the time, an American. The first initiatives in the area of sustainable finance were therefore embraced in TC207, so that they could quickly gain momentum. At the same time, a specialised committee was carefully being launched, primarily on the part of the British and mainland China.
Being sustainable is more than just being green
The comprehensive term “sustainable finance” includes environmental, social and governance (ESG) aspects. These ESG areas are used to assess the long-term performance of a company, and to identify the risks in these three areas. In the process, the entire value chain is put under the microscope.
What does the ad hoc working group AHG2 look like?
There are currently around 30 member countries represented by their national member committees. For Switzerland it is the SNV that delegates experts for standards work. The membership covers a large geographical area. Africa is the only region currently in which few countries are represented. Working together in the AHG2 is equal parts challenging and exciting. There is a broad consensus that standards that can be applied worldwide are of central importance. As simple as this sounds, the discussions about it are quite intensive. What is motivating is that the specialists involved are extremely committed – because standards work is voluntary work. “If the topic is fintech, there are many younger specialists involved who possess progressive IT knowledge, for example regarding blockchain issues. The exchange between the fields and generations is very enriching,” confirmed Knecht.
How do members find new topics for their TCs?
“There’s no simple recipe for this: never stop being curious and always be around whenever new things with high potential are cropping up,” remarked Knecht. That means, for example, appearing as participants or presenters for key organisations within and outside ISO at conferences, paying attention to legislation, and always maintaining the network you have built up over the years and staying involved. Everywhere and at any time, in a country or in a market, a topic can pop up that will become relevant for the financial world sooner or later.
When does a topic become of global interest?
“The financial system is globally interconnected but is to a large extent nationally regulated,” emphasised Knecht. Take for example an African country in which you would frequently go to the head of the family if you had a local financial need, as clan funding is still a traditional practice in regions without efficient and open financial markets. “We cannot establish any standards for this. Standards are like ‘soft laws’, and must meet the requirement of functioning anywhere in the world. So when we also look at the way legislation is created in the EU and choose it as a basis for certain requirements in standards work, we're not just working exclusively for users in the EU. We have an obligation to the global markets.” A topic becomes a worldwide standardisation topic if it has international relevance and urgency, but particularly if it is useful. That is why ISO stands for credibility in the entire world: first of all because its standardisation is intended for a global market, and secondly because it is developed by specialists using complex processes that are accessible for all stakeholders.
How do you evaluate new topics?
ISO functions like any other company or organisation – it is geared towards the needs of its target group. Standards only have a chance in the market if they meet the needs of their users and stakeholders, and help bring about improvements. Only then are standards accepted and applied, or in the case of ISO, bought. “Sector leaders in this regard are rarely our first target audience as they have sufficient resources to develop their own approaches, standards or processes. ISO works overwhelmingly for the other market participants. We look for topics with the largest potential. We start by going broad before we dive down deep into a topic,” explained Knecht. The path that is chosen is not always the most direct. If society at large or companies do not grasp the need for an overall topic from the beginning, then you need to go step by step and define standards for individual sub-sectors that are later compiled into a big picture. The task here is to study and evaluate vast quantities of source material. Based on this, a decision is made regarding which ideas can be converted into standards and in what order.
What topics are currently on the table?
One example is the methodological question of how to handle terminology. Should a standard be created specifically for this purpose, or will this be added to every standard in the future? Another example is the integration of social aspects into the financial system. Despite tight national and international regulations, this dimension is given too little attention. “The financial sector is currently overly geared towards maximisation rather than optimisation. ISO is committed to seeing that economic activity and social responsibility don’t mutually exclude each other,” emphasised Knecht.
How does one integrate social aspects?
This becomes understandable when you put what is meant by financial products into concrete terms. “This can start with a simple credit card, apply to a traditional savings account, and extend all the way to corporate loans, investment products or blockchain technologies. If products and services in this area are labelled as ‘sustainable’ in the future, they will need to fulfil this promise. And indeed, this will need to be part of the development, implementation and marketing of the product,” emphasised Knecht. With a savings account, for example, this would include creating a cost structure that is fairly designed or communicates the interest structure in a transparent manner. Another aspect is the “know your customer” guideline that is enshrined in legislation in Switzerland and many countries. Broadly speaking, a financial institution should know where its money is coming from and where it is flowing. Is money coming from criminal activities – for example, drug trafficking? Is money being funnelled to institutions that are operating a shadow business – for example, the mafia? One complex topic in this respect is how the monitoring for such processes functions, and how in turn the financial institution begins to operate credibly. The concept we know as greenwashing also exists in the social sector under the term bluewashing. Today, companies are being held more accountable and customers have power over every purchase.
How does a standard arise from a topic?
“In the working group we pin down the target area that makes the most sense based on our analysis and therefore optimally corresponds to the identified needs,” explained Knecht. “In our worldwide network, we assess how user-friendly this approach is to solving the problem for the operational participants. If the selected approach clears this hurdle, we are ready for the presentation in front of the TC.” The technical committee evaluates the topic suggestions and balances them with their business plan. If the topic fits harmoniously into the plan, coordination follows and, with approval, the establishment of a new working group that fleshes out the standard in detail.
What value do standards add for sustainable finance?
“That we, to be honest, are all speaking about the same thing. If a bar of chocolate is only 25% cocoa and the other 75% is sugar, then it is what it is, but the consumers – i.e. in our case the savers or investors – should be able to understand this and make a purchase decision based on that,” Knecht said, drawing parallels with sustainable investment products. In addition to the declaration for the products, what happens with personal data is also becoming more crucial as time goes on. New technology such as blockchain, and now increasingly the use of artificial intelligence, is presenting us with unknown challenges. “We’re currently still quite far off from widely having access to methods, transparency and clarity in order to apply ESG criteria everywhere, let alone to conform to them.” It seems as though the ad hoc group will not run out of work any time soon.