The US Securities and Exchange Commission headquarters in Washington, DC
Climate disclosure: the US Securities and Exchange Commission has yet to finalise its reporting requirements © Al Drago/Bloomberg

Next year is poised to be a seminal one for companies’ climate disclosures. Thousands of multinationals with businesses in Europe will be required to start reporting their climate impact under the Corporate Sustainability Reporting Directive (CSRD).

Their reports are expected to include more information about pollution, water use, and impact on communities.

At the same time, in the US, the Securities and Exchange Commission is expected to adopt climate disclosure rules. If the rules are finalised largely as proposed in 2022, they will impose a requirement to reveal unprecedented detail about companies’ climate risks. Certain information on emissions would also need to be audited.

Other global economies are also pushing mandatory climate disclosure. Australia has proposed, from July, new reporting that aligns with the International Sustainability Standards Board, which is setting guidelines to follow.

However, with all of these new rules coming into operation at about the same time, companies are raising concerns about competing regulatory regimes.

Scores of US companies have written to the SEC to urge it to allow some leeway where its regulations diverge from European requirements. And, last year, the American Chemistry Council, which lobbies for chemical companies, asked the SEC for “flexibility” when the commission’s climate rules conflict with those of the EU and UK.

“We have noticed that, due to an evolving landscape, [companies] are facing a ‘reporting fatigue’ — confused by the requirements of various standards and frameworks and the requirements of investors and rating agencies,” says Eelco van der Enden, chief executive of the Global Reporting Initiative, an Amsterdam-based non-profit founded in 1997 to measure companies’ environmental and social impacts.

Businesses want reporting requirements they can comply with at a low cost, he says. “We are not that worried about mismatches between requirements. We are, however, aware that small [and medium-sized] enterprises have more difficulty accounting for their emissions and, if required to, find it challenging delivering information for scope 3 (emissions).” Scope 3 is the broadest measurement of greenhouse gas emissions and includes those produced by a company’s suppliers.

The climate reporting picture in the US is complicated by a new law in California, the biggest state by population. In 2026, California will require public and private companies with more than $1bn in annual revenues that conduct business in the state to disclose emissions, with Scope 3 emissions included from 2027.

California’s new rules go further than the SEC’s planned requirements, says Lily Hsueh, associate professor of public policy and economics at Arizona State University. “The state’s new laws are poised to have substantial influence worldwide,” she says. “Subsidiaries of companies that didn’t have to report their emissions before will now be subject to disclosure requirements.”

As the fifth-biggest economy in the world (if it were a country), California is “in effect exercising its immense market leverage to establish climate disclosures as standard practice in the US and beyond”, Hsueh says.

Many global businesses already voluntarily report some climate information. The CDP (a non-profit formerly known as the Carbon Disclosure Project) said last year that 400 companies from the S&P 500 had disclosed data on their climate response in 2021.

Still, the organisations writing standard­s for climate disclosures have recognised the challenges companies face and are trying to simplify obligations. The ISSB was established by accounting standards setter the International Financial Reporting Standards Foundation to establish standards for the environmental, social and governance (ESG) reporting that it hopes will be embraced by governments.

Beginning next year, the ISSB will take over the monitoring of companies’ climate disclosures that adhere to the Task Force on Climate-related Financial Disclosures (TCFD). The TCFD was created in 2017 to encourage companies to report their annual emissions and include a climate risk analysis in their annual reports.

“This announcement provides yet further clarification of the so-called alphabet soup of ESG initiatives for companies and investors,” says Emmanuel Faber, ISSB chair. The TCFD was seen as a precursor to the accounting standards established by the ISSB.

Last year, the ISSB and the independent Global Reporting Initiative said they would share information in an effort to create a global disclosure system. The CDP has also aligned its questionnaire with the TCFD since 2018.

In 2024, many countries will start adopting and implementing ISSB standards into their laws and rules, notes Kristina Wyatt, chief sustainability officer at Persefoni, a carbon-tracking software provider. For now, “there is a bit of anxious waiting to see what will be in the final SEC rule,” she says. “There will necessarily be some mismatch between the SEC and the EU because they rest on different legal frameworks.”

The EU’s CSRD rules require companies to report on the impact of climate change and sustainability issues on their business and the environmental impact of their operations. This concept of “double materiality” for corporate reporting does not exist in the US.

But the closer the SEC, EU and ISSB can be to each other, the better, says Wyatt. “The more of a mismatch between the SEC and the EU, the more likely it is that companies will file different reports for different jurisdictions,” she says. “That translates into additional cost, effort and risk of inconsistency. That’s not optimal for companies or their investors.”

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