ESG and sustainability reporting shifts global landscape
Article | ESG and sustainability regulations checklist

Global regulations are reshaping corporate sustainability. Are U.S. companies prepared for mandatory reporting?

The global ESG and sustainability reporting focus is shifting from being largely voluntary to a mandatory disclosure landscape. Underpinning this shift is a patchwork of global regulations with various environmental, social and governance (ESG) disclosure requirements. The jurisdiction, scope, and timeline for these regulations are incredibly dynamic, challenging sustainability teams at U.S. companies to determine the applicability and requirements for their organizations.  

This article discusses the most impactful mandatory ESG and sustainability reporting regulations, which redefines the need for organizations to formalize their ESG reporting capabilities. This includes: 

  1. California Climate Accountability Package: SB 253 California Climate Corporate Data Accountability Act 
  2. California Climate Accountability Package: SB 261 Greenhouse Gasses: Climate-Related Risk 
  3. New York Proposed Climate Corporate Accountability Act 
  4. SEC Proposed Climate-Related Disclosure (SEC) 
  5. Corporate Sustainability Reporting Directive (CSRD) 
  6. Sustainable Finance Disclosure Regulation (SFDR) 
  7. UK Financial Conduct Authority Climate-related Disclosure Requirements 
  8. Federal Supplier Climate Risks and Resilience Proposed Rule 

While Europe is leading the way in ESG and sustainability regulation with its comprehensive sustainability regulations, the U.S. is a close follower with the recent introduction of the California Climate Accountability Package, along with New York and the SEC’s proposed climate-related disclosure rules, in addition to the Federal Supplier Climate Risks and Resilience Proposed Rule

Organizations should determine which ESG and sustainability regulations apply to them and prepare now to protect against risks associated with inaction. Download the easy-to-follow checklist of regulatory applicability to understand if your organization is impacted. 

ESG regulations checklist

Take action

With the web of regulations regarding sustainability reporting that are either proposed or final, almost all U.S.-based companies will be impacted in one regard or another. At a minimum level, you may be required to provide climate data to larger suppliers and, for certain companies, you may need to align reporting across several regulatory jurisdictions. By taking action now and understanding the full breadth of impacts, companies can develop appropriate systems and controls that are feasible to implement, cost effective to deploy, and yield dividends for competitive advantage ahead of regulations. 

Get ahead of the changing regulatory landscape by acting today to understand how your organization could be impacted in the future. Lean on our specialists to guide the way and act now to protect and enhance your organization’s value.  

1. The California Climate Accountability Package – California Climate Corporate Data Accountability Act 

The California Climate Accountability Package was released in October 2023, including two pieces of regulations (SB 253 and SB 261) impacting both public and private organizations that do business in California. The Act requires companies to publicly report on their full greenhouse gas (GHG) inventories, which include scope 1, 2 and 3. Limited assurance requirements (ESG data audit) for the GHG data reported will begin in 2026 and will increase to reasonable assurance requirements beginning in 2030. 

Companies with over $1 billion in revenue that do business in California

Single (financial materiality) 

Scope 1 and 2 GHG reporting requirements will begin in 2026 for 2025 data, while scope 3 GHG reporting requirements will begin in 2027 for 2026 data. *Note that reporting timelines are based on the final ruling but is subject to change given regulatory review or agency adoption.

Companies will be required annually to publicly report scope 1, 2 and 3 GHG emissions data.

2. The California Climate Accountability Package – Greenhouse Gasses: Climate-Related Risk 

The California Climate Accountability Package was released in October 2023, including two pieces of regulations (SB 253 and SB 261) impacting both public and private organizations that do business in California. The Act requires companies to prepare a climate-related financial risk report, in line with the TCFD framework, publicly disclosing climate-related financial risk and measures adopted to reduce and adapt to those risks on a biannual basis. 

Companies with over $500 million in revenue that do business in California

Single (financial materiality)

The first reports are due Jan. 1, 2026. *Note that reporting timelines are based on the final ruling but is subject to change given regulatory review or agency adoption.

Publish a climate-related financial risk report, in line with the TCFD framework publicly on the company’s website.

3. New York Proposed Climate Corporate Accountability Act

The Climate Corporate Accountability Act, introduced in February 2023, is a proposed amendment to the environmental conservation law which would require New York companies to report on and obtain assurance (ESG data audit) over their full GHG inventories, which include scope 1, 2 and 3. The act would require annual GHG emissions reporting to the state’s GHG emissions registry. GHG inventory reports would be due to the registry no later than July 31 for the previous calendar year’s scope 1 and 2 data, while scope 3 data would be due no later than Dec. 31. 

New York companies with over $1 billion in revenue

Single (financial materiality)

The timing has yet to be determined, but the act will take effect two years after becoming law. GHG inventories for the previous year would be due by the end of July for scope 1 and 2 GHG emissions, while scope 3 GHG emissions would be due by the end of December. 

Companies will be required to annually and publicly report scope 1, 2 and 3 GHG emissions data.

4. The SEC’s proposed climate-related disclosure rule

In March 2022, the SEC proposed a landmark rule that would require publicly traded companies to disclose GHG emissions, climate-related risks, impacts and risk management process within registration statements and annually (10-K). The proposal is modeled by the recommendations of the Task Force on Climate-Related Financial Disclosure (TCFD) with a goal to provide consistent, comparable and reliable disclosure of climate-related risks.

U.S. listed companies

Single (financial materiality)

The timing has yet to be determined, but final ruling is expected in April 2024, requiring FY25 data to be reported in FY26 filings. There may be changes or revisions to the original proposed rule and timeline.

A qualitative write-up of climate-related risks, governance and risk management, climate goals, and a note to the financial statements will quantify the impact of climate-related events and transition activities, in addition to disclosure of GHG emissions (scope 1, 2 and 3). *Scope 3 is required for the organization if considered material or if it has publicly stated goals that include scope 3 reductions.

5. The Corporate Sustainability Reporting Directive (CSRD)

The CSRD went into effect in the European Union (EU) in January 2023 requiring companies to report on the impact of corporate activities on the environment and society, while requiring disclosures on various governance topics. To ensure accuracy of the data reported, the CSRD requires assurance (ESG data audit) of reported information. The CSRD amends and builds on the Non-Financial Reporting Directive (NFRD) which required disclosure regarding ESG topics. The enhanced regulation will require disclosures according to the European Sustainability Reporting Standards (ESRS). The first set of ESRS were finalized in July 2023 with sector-specific standards expected in June 2024. The disclosure requirements of the CSRD are comprehensive and may differ depending on applicability. Contact an expert to ensure your compliance.

Large EU companies, EU listed companies and non-EU companies generating a net turnover of €150 million in the EU 

  • Excludes micro undertakings which meet two-thirds criteria: less than 10 employees, net turnover less than €0.7 million and total assets less than €0.35 million 
  • Organizations are considered a “large EU company” if they meet two-thirds: more than 250 employees, balance sheet total more than €20 million and net turnover more than €40 million 
  • Non-EU companies generating a net turnover of €150 million in the EU must also have either: 
    - A subsidiary in the EU that follows the criteria applicable to EU companies or 
    - A branch in the EU generating a net turnover more than €40 million

Double (financial and impact materiality) 

The CSRD is currently in effect. Large companies who are currently subject to the NFRD are required to provide disclosures starting in 2025 for fiscal year 2024. Large EU companies not currently subject to the NFRD will report in 2026 for fiscal year 2025. Non-EU companies that meet criteria will be required to publish a 2028 report in 2029.

Disclosure of five main dimensions from NFRD [1] (precursor), and disclosure of general, environmental, social and governance topics [2]. Additionally, the report must be in a standardized, electronic and searchable reporting format.

6. The Sustainable Finance Disclosure Regulation (SFDR)

In March 2021, the EU’s SFDR became a mandatory disclosure obligation for EU-based financial market participants (FMPs) and financial advisors (FAs). The European Commission introduced the SFDR in tandem with the EU Taxonomy Regulation, a green classification system. Disclosures are specific to sustainability risks that refer to environmental, social or governance events or conditions that could cause a material negative impact on the value of an investment. In addition, the regulation requires the disclosure of Principal Adverse Impacts (PAI) which are any negative effects that investment decisions or advice could have on sustainability factors. Disclosure is required at the organization level and fund/product level. Disclosures at the organization level are required to be posted on the website of the organization to promote transparency.

FMPs and FAs in the EU and those who market products to EU clients. FAs with fewer than three employees are not required to provide information. 

Double (financial and impact materiality)

The SFDR is currently in effect. Organization-level disclosures are required for fiscal year 2022 in 2023. Fund/product-level disclosures are required for fiscal year 2023 in 2024.

Disclosure of ESG conditions/events and PAI across the entity and individual funds.

7. UK Financial Conduct Authority Climate-related Disclosure Requirements 

In December 2020, the United Kingdom’s Financial Conduct Authority, a regulatory body that regulates financial services firms and financial markets in the U.K., introduced their climate-related disclosure requirements for premium listed issuers. In 2021, the regulation was extended to include a broader group of stakeholders that would be impacted. For those U.K.-organizations that fall out of the FCA climate-related regulation’s scope, specific disclosures regarding the plans to incorporate TCFD reporting are required. This regulation supports the U.K.’s goal of mandatory climate-related disclosures across the U.K. economy and is expected to be expanded to incorporate the IFRS’ International Sustainability Standards Board (ISSB) standards in due course as regulators and standard setters across jurisdictions continue to welcome the adoption of the ISSB standards.  

U.K. commercial companies, U.K. premium and standard listed companies, U.K. issuers of standard listed shares and global depositary receipts (GDRs), U.K. asset managers, U.K. life insurers and FCA-regulated pension providers. For U.K. organizations that fall outside of this scope, they must include a statement in their annual financial report stating whether they’ve made disclosures in alignment with the TCFD, where those disclosures can be located, an explanation for why any TCFD disclosures have not been made and steps taken or planned to be taken to disclose in alignment with the TCFD in the future. 

Single (financial materiality)

The UK Financial Conduct Authority Climate-related Disclosure Requirements rule is currently in effect for all in scope companies. The regulation went into effect in January 2021 for premium listed issuers and in January 2022for standard listed issuers, U.K. asset managers, life insurers and FCA-regulated pension provider. 

Disclose in line with the TCFD framework as part of the company’s annual financial report.

8. Federal Supplier Climate Risks and Resilience Proposed Rule 

In November 2022, the Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) announced the Federal Supplier Climate Risks and Resilience Proposed Rule which would increase the transparency of climate-related information related to government contracting. This proposed rule directly engages the federal contractor supply base, specifically impacting two categories of contractors, significant contractors and major contractors, registered in the System for Award Management (SAM). Significant contractors are those that received between $7.5 million and $50 million in federal contract obligations in the prior federal fiscal year. Major contractors received more than $50 million in federal contract obligations in the prior federal fiscal year.

U.S. government contractors that received $7.5 million or more in federal contracts

Single (financial materiality)

The rule is currently proposed and had a comment period, which concluded in February 2023. The implementation of the final rule is unknown. However, beginning one year after publication of the final rule, contractors must have completed their GHG inventory and disclosed total scope 1 and 2 GHG emissions in the SAM. The remaining requirements, applicable only to major contractors, would need to be satisfied beginning two years after publication of the final rule.

If considered a significant contractor [3], the requirements include GHG emissions (scope 1 and 2) disclosures. If considered a major contractor [4], the requirements include GHG emissions (scope 1, 2 and 3), a report on the entity’s climate risk assessment process and any risks identified, completion of the CDP Climate Change Questionnaire sections that align with TCFD and development of science-based targets that are validated by the SBTi.

Learn more about the proposed Federal Supplier Climate Risks and Resilience Proposed Rule

Footnotes

[1] The five main dimensions from the NFRD, a precursor to the CSRD include disclosures regarding environmental protection, social responsibility and workforce treatment, respect for human rights, anti-corruption and bribery, and diversity of boards. The CSRD goes further than the NFRD and expands on the sustainability reporting standards of the NFRD. 

[2] General disclosures include double materiality, business model and strategy, climate transition plans, time-bounded targets, sustainability due diligence, information on own operations, value chain, business relationships and supply chain. Specific to the supply chain, documentation of adverse impacts and actions to prevent/mitigate risk is required. Environmental disclosures include disclosures covering each of the EU Taxonomy environmental objectives which are climate change mitigation (incudes scope 1, 2 and 3 GHG emissions), climate change adaptation, water and marine resources, biodiversity, and eco system, resource use and circular economy. Social disclosures include disclosures regarding diversity and inclusion, human rights, working conditions, health and safety, employee relations, pay gaps, related rights, workers in the value chain, affected communities, consumers and end-users. Governance disclosures include disclosures regarding policies, risk management and internal controls, ownership and structural transparency, independence and oversight, responsible business practices, ethics, anti-corruption and executive pay fairness. 

[3] Significant contractors are those that received between $7.5 million and $50 million in federal contract obligations in the prior federal fiscal year. 

[4] Major contractors are those contractors that received more than $50 million in federal contract obligations in the prior federal fiscal year. 

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ESG and sustainability

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ARTICLE

Federal Supplier Climate Risks and Resilience Proposed Rule would increase GHG emissions reporting requirements for federal contractors

More than 5,500 qualifying contractors would be affected by changes requiring CDP disclosure and SBTi-validated targets

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