Regulators are taking action globally but there is a silver lining
As jurisdictions worldwide take action, there is a silver lining. Because many jurisdictions are using TCFD as a foundation for their climate reporting mandates, companies can leverage synergies for consistent climate reporting that satisfies multiple jurisdictional mandates and saves on compliance costs in the long run. Below is a summary of key climate-related mandates affecting the market and their applicability to companies:
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This chart shows which disclosure and attestation requirements apply to various entities as mandated in the California Climate Accountability Package and the European Union's Corporate Sustainability Reporting Directive, as well as the requirements proposed in the SEC's proposed climate disclosure rules.
In addition to reviewing applicability of the CSRD, company leaders will also want to monitor developments and determine applicability of enacted climate-focused regulations such as those described below:
- SEC Final Rule: The Enhancement and Standardization of Climate-Related Disclosures for Investors
On March 6, 2024, the SEC finalized The Enhancement and Standardization of Climate-Related Disclosures for Investors, requiring all registrants to provide certain climate-related information in their registration statements and annual reports. The rule takes effect for large accelerated filers as early as the fiscal year beginning in 2025. Both large accelerated filers and accelerated filers (excluding small reporting companies and emerging growth companies) have a phased-in timeline to additionally report material scope 1 and 2 greenhouse gas (GHG) emissions, with both filer types needing to pursue limited assurance over these disclosures. Only large accelerated filers are required to pursue reasonable assurance for reported GHG emissions.
- California Senate Bills (SB) 253 and 261
The state of California enacted two bills in October 2023 — SB 253 and SB 261 — that mandate both climate risk and GHG disclosures for certain public and private companies “doing business” in California.
SB 253, “Climate Corporate Data Accountability Act”
Under SB 253, the Climate Corporate Data Accountability Act, reporting entities with over $1 billion (USD) in total annual revenue that “do business” in California must disclose and subsequently gain assurance over their Scope 1, 2 and 3 GHG emissions annually, noting preference for the GHG Protocol as a disclosure framework. Compliance with SB 253 is required for reporting entities starting in 2026. Phased-in assurance requirements will also begin in 2026. Failure to comply with or violations of SB 253 could result in administrative penalties of up to $500,000 in a reporting year.
SB 261, “Greenhouse gases: Climate-related financial risk”
Meanwhile, covered entities with over $500 million (USD) in total annual revenue that “do business” in California must digitally publish a TCFD-aligned climate risk report biannually to comply with SB 261, Greenhouse gases: Climate-related financial risk. Compliance with SB 261 is required for covered entities on or before Jan. 1, 2026. Failure to comply with or violations of SB 261 could result in administrative penalties of up to $50,000 in a reporting year.
- Proposed and enacted climate-related disclosures for U.S. federal acquisition
For companies that provide contracted support to the United States federal government, there are increasing signals that climate-related and emissions reporting may become criteria for evaluation and award. This includes the proposed Alliant 3 draft for Governmentwide Acquisition Contracts (GWACs), the Federal Supplier Climate Risks and Resilience Proposed Rule and Sec. 318 of the FY2024 National Defense Authorization Act, which gives the secretary the ability to waive, on a contract-by-contract basis, the prohibition of GHG emission disclosures to Department of Defense contractors. Read more about these three proposed and enacted updates and how preparing for future climate-related disclosures helps federal contractors gain a competitive advantage.
- Additional climate-related regulatory disclosures
In addition to the disclosures listed above that directly affect the United States and the EU, other jurisdictions are also working on climate-related disclosure requirements. The United Kingdom announced its intent to adopt the standards of the International Sustainability Standards Board (ISSB), which has established a “global baseline” for ESG reporting and uses TCFD as the touchstone for its International Financial Reporting Standards (IFRS) Standard 2 (S2) — Climate-related Disclosures. Other jurisdictions, such as Canada, Australia and South Korea, are establishing national sustainability standards boards to cooperate with the ISSB as a global foundation and have drafted their own standards, making robust climate reporting a requirement for companies worldwide.
