Climate Disclosures Decoded: An Overview of Key Reporting Standards
Reporting on greenhouse gas (GHG) emissions and climate-related risks is rapidly moving from voluntary to regulatory for many companies. Within the last two years, the State of California, the U.S. Security and Exchange Commission (SEC), and the European Union (EU) have all proposed and/or implemented new requirements for publicly disclosing climate-related information.
While the requirements may seem daunting, companies can leverage climate-related disclosures to boost stakeholder confidence, positioning them for long-term success. With increased transparency in transitioning to a low-carbon economy, companies will be sure to meet stakeholder expectations and stay competitive.
Read on for a high-level summary the requirements coming out of the State of California, the SEC, and the EU, as well as a new international standard that is setting a high bar for other jurisdictions to adopt.
Climate-related risks and opportunities can significantly impact a company’s market position and financial success, making reliable and consistent data essential for investors to make informed decisions. For this reason, the SEC adopted rules on March 6, 2024, that require publicly traded companies to disclose climate-related information in SEC filings. These rules were paused in April 2024 and are currently being challenged via multiple lawsuits in Federal courts. Despite these challenges, the SEC remains steadfast in its position that it has the authority to require these disclosures. For a summary of the requirements, their applicability by SEC filer category, and associated timing (as written into the initial rule), read more here.
The California Climate Accountability Package
The California Climate Accountability Package is intended to promote emission quantification, awareness of financial risk, and planning to counter climate-related risks to the economy. The package consists of two legislative bills, SB 253 and SB 261, that were signed into law in October 2023. SB 253 covers GHG emissions reporting, while SB 261 requires reporting on climate-related risks. The California Air Resources Board (CARB) must now author and issue implementing regulations. It is important to note, these requirements apply to companies doing business in California, even if the company does not have assets or employees based there. Dive into the specifics of SB 253 and SB 261 here. (Note that the timing associated with these rules is subject to change as amendments are actively being considered.)
The EU’s Corporate Sustainability Reporting Directive (CSRD)
The CSRD is a significant regulatory requirement by the EU that aims to enhance transparency and accountability in corporate sustainability and climate reporting. Its primary objective is to standardize and expand sustainability reporting, recognizing that environmental, social, and governance aspects are critical for informed decision-making by investors, stakeholders, and the public. The CSRD scope is not limited to EU-based companies, and many North American companies are finding themselves having to comply with CSRD requirements. For companies that deem climate as a material issue, reporting to the European Sustainability Reporting Standard (ESRS) E1 – including GHG emissions and climate risk – would be required. Dive into the specifics here.
International Financial Reporting Standards S2 (IFRS S2)
The IFRS Foundation’s S2: Climate-related Disclosures standard was created to be a global baseline of climate disclosures for the capital markets, providing a common language and enabling comparable and consistent reporting. The standard covers disclosures related to climate impacts (i.e., GHG emissions) as well as climate-related risks and opportunities, which may be useful to investors and other stakeholders. Meeting the IFRS S2 standard is voluntary. However, there are a number of jurisdictions globally that are leveraging IFRS S2 (as well as S1: Sustainability Disclosures) in the development of regulations and other requirements. Learn more here.
Take Action Now
Despite current challenges, such as the ongoing legal disputes surrounding the SEC Climate Rules and delays in the rulemaking process of the California Climate Accountability Package, the trend toward mandatory climate-related disclosures is evident. What was once voluntary for many companies is quickly becoming enshrined in rules and regulations. Companies that proactively embrace these practices and make these disclosures will gain investor trust and be better positioned for long-term success. Transparency will not only help companies prepare for compliance, but also identify and manage risk to ultimately drive business resiliency.
The time to start preparing for climate-related disclosures is now. The work needed to prepare for these disclosures is significant, in particular for companies that have not undertaken climate risk assessments or previously calculated GHG emissions. Reach out to our Sustainability and Climate Advisory team to learn more about these forthcoming requirements.
Jami Patrick
VP of Sustainability and Climate Advisory, Montrose Environmental Solutions, Inc.
Jami has over 28 years of experience working collaboratively with clients and teams to address sustainability challenges through solutions that make business sense. She has worked as an environmental and sustainability consultant in the U.S. as well as in Turkey, England, and the United Arab Emirates, serving as a trusted advisor to clients across the globe. Jami has led organizations in all aspects of their sustainability and climate journeys, from strategy and planning through to program implementation and stakeholder disclosures. Her experience in environmental, health, and safety management systems gives her a solid understanding of business realities and serves as a foundation for helping companies translate sustainability and climate ambitions into actions. In her current role, Jami and her team are actively supporting clients seeking to quantify their Scope 1, 2, and 3 GHG emissions, establish goals and targets to reduce those emissions, and develop decarbonization plans to pave the way to net zero. Jami and the broader Montrose team also support organizations in identifying and assessing risks and opportunities posed due to a changing climate and the transition to a low-carbon economy. In addition to supporting clients, Jami oversees Montrose’s own sustainability program.