The sustainability regulatory landscape is evolving at an unprecedented pace. As stakeholders increasingly demand transparency and accountability, companies worldwide are grappling with a complex array of regulations aimed at standardizing non-financial disclosures. This article explores the current state of sustainability reporting regulations, highlighting key developments and what they mean for businesses.
Key Regulatory Developments
1. The European Union’s CSRD
The European Union has been at the forefront of sustainability regulation with the introduction of the Corporate Sustainability Reporting Directive (CSRD). The CSRD, which came into effect in January 2024, expands the scope of the previous Non-Financial Reporting Directive (NFRD) to include a broader range of companies. It requires detailed disclosures on sustainability risks, impacts, and opportunities, aligning with the EU’s Green Deal objectives. Companies will need to report according to the European Sustainability Reporting Standards (ESRS), which emphasize double materiality—considering both the impact of sustainability issues on the company and the company’s impact on society and the environment. For more information about the EU CSRD and if your company is in scope, see our in-depth article on the topic.
2. The SEC’s Climate Disclosure Rule
In the United States, the Securities and Exchange Commission (SEC) has been working on a landmark climate disclosure rule. Expected to be finalized by the end of 2024, the rule would require publicly traded companies to disclose their greenhouse gas emissions, climate-related risks, and governance processes related to climate change. This move aligns with the Biden administration’s broader climate agenda and aims to provide investors with consistent and comparable data to assess climate risks.
3. The ISSB’s Global Baseline
The International Sustainability Standards Board (ISSB), established under the IFRS Foundation, has been developing a set of global sustainability disclosure standards. The ISSB’s aim is to create a comprehensive global baseline for non-financial reporting, which can be adopted by jurisdictions worldwide. The first set of standards, focusing on climate-related disclosures, became effective in early 2024. These standards are designed to complement existing frameworks, such as the Task Force on Climate-related Financial Disclosures (TCFD), and provide a unified approach to sustainability reporting. For more information about the ISSB global baseline, see our deep dive article here.
Implications for Businesses
The proliferation of sustainability reporting regulations presents both challenges and opportunities for businesses. On one hand, companies must navigate a complex web of reporting requirements that vary by region and industry. This necessitates significant investments in data collection, analysis, and reporting infrastructure. On the other hand, robust ESG reporting can enhance a company’s reputation, attract investment, and improve risk management.
Find out how our services can help make compliance with existing and upcoming regulation simple for your business. Contact us for a free consultation today