Rules and regulations around environmental, social, and governance (ESG) and climate-related disclosures have increased significantly over the past several years.
Regulators around the world are creating country-specific and regional legislation that aims to standardize how disclosures are reported and what information needs to go into them. The ultimate goal is to limit global warming and assist in achieving net zero targets by 2050.
In this article, we summarize ESG, sustainability, and climate-related disclosure from major countries and regions around the world, including:
- European Union
For each region, we answer the following questions: What is the disclosure requirement? Who does it apply to? What are the major requirements? And, where can you look for more information?
Since these issues are evolving practically every day, it’s important to treat the information below as a starting point, and look to individual organizations for the latest updates.
Australia: Climate-Related Financial Disclosure [Proposed]
What Is Australia’s Proposed Climate-Related Financial Disclosure?
In June 2023, the Australian Treasury released a Climate-Related Financial Disclosure Consultation Paper. The paper outlines the requirements that certain Australian companies may have to follow in the future related to climate disclosures – as soon as 2024.
The proposed climate disclosure requirements align closely with the Task Force on Climate-related Financial Disclosures (TCFD) framework, meaning companies who already follow this framework should be well positioned to meet the new requirements.
Who Will the Requirements of Australia’s Proposed Climate-Related Financial Disclosure Apply To?
The Australian Treasury is proposing a phased approach to implementation. Large listed and unlisted businesses and financial institutions will start reporting in the 2024-2025 financial year and, by the 2027-2028 financial year, the requirements will be expanded to all other proposed parties. Small and medium entities (e.g., under 100 employees) would not be required to report.
What Are the Main Requirements of Australia’s Proposed Climate-Related Financial Disclosure Expected To Be?
The Australian Climate-Related Financial Disclosure is still under development, but some of the items expected to be included are:
- Governance: Companies would be required to disclose information about governance processes, controls and procedures used to monitor and manage climate-related financial risks and opportunities.
- Scenario Analysis: Reporting entities would be required to use qualitative scenario analysis to inform their disclosures, moving to quantitative scenario analysis by end state. Additionally, reporting entities would be required to disclose climate resilience assessments against at least two possible future states, one of which must be consistent with the global temperature goal set out in the Climate Change Act 2022.
- Transition Planning & Climate-Related Targets: Transition plans would need to be disclosed, including information about offsets, target setting and mitigation strategies. Further, all entities would be required to disclose information about any climate-related targets (if they have them) and progress towards these targets.
- Risks and Opportunities: Entities would be required to disclose information about material climate-related risks and opportunities to their business, as well as how the entity identifies, assesses and manages risk and opportunities.
- Metrics and Targets: Scope 1 and 2 emissions for the reporting period would be required to be disclosed. Disclosure of material scope 3 emissions would be required for all reporting entities from their second reporting year onwards. Scope 3 emissions disclosures made could be in relation to any one-year period that ended up to 12 months prior to the current reporting period.
Where Can I Learn More About Australia’s Proposed Climate-Related Financial Disclosure?
To stay informed about Australia’s climate-related disclosure proposal, visit The Treasury’s website.
Canada: Disclosure of Climate-Related Matters [Proposed]
What is Canada’s Proposed Disclosure of Climate-Related Matters?
In 2021, the Canadian Securities Administrators (CSA), which regulates securities and publicly-traded companies in Canada, proposed a climate-related disclosure requirement for financial institutions and ESG-related requirements for large and listed entities. The proposed legislation is called 51-107 Disclosure of Climate-related Matters.
The climate-related disclosure requirement for financial institutions follows the Task Force on Climate-related Financial Disclosures (TCFD) framework, which, as of 2023, now falls under the International Sustainability Standards Board (ISSB) standards.
The requirements are expected to come into force in 2024.
Who Will the Requirements of Canada’s Proposed Disclosure of Climate-Related Matters Apply To?
Beginning in 2024, large Canadian banks, insurance companies and federally-regulated financial institutions will have to provide ESG reporting and climate-related disclosures.
Additionally, listed Canadian companies will have to comply with ESG reporting requirements.
What Are the Main Requirements of Canada’s Proposed Disclosure of Climate-Related Matters Expected To Be?
The CSA’s proposed requirements outline four core areas of disclosure, in line with the TCFD recommendations. These include, as stated by the CSA:
- Governance: An issuer’s board’s oversight of and management’s role in assessing and managing climate-related risks and opportunities.
- Strategy: The short-, medium- and long-term climate-related risks and opportunities the issuer has identified and the impact on its business, strategy, and financial planning, where such information is material. As a modification from the TCFD recommendations, the proposed disclosure would not include the requirement to disclose “scenario analysis”, which is an issuer’s description of the resilience of its strategy within different climate-related scenarios, including a 2°C or lower scenario.
- Risk Management: How an issuer identifies, assesses and manages climate-related risks and how these processes are integrated into its overall risk management.
- Metrics and Targets: The metrics and targets used by an issuer to assess and manage climate-related risks and opportunities where the information is material.
Where Can I Learn More About Canada’s Proposed Disclosure of Climate-Related Matters?
To stay informed about these evolving disclosure requirements, visit the Canadian Securities Administrators (CSA) website.
European Union: Corporate Sustainability Reporting Directive (CSRD)
What Is the CSRD?
In January 2023, the European Union’s (EU) new Corporate Sustainability Reporting Directive (CSRD) entered into force. The CSRD takes over from its predecessor, the Non-Financial Reporting Directive (NFRD), as the latest in ESG reporting for European businesses.
The NFRD only applied to large public-interest entities with over 500 employees. However, the CSRD is much broader and will phase in smaller and non-EU companies over the next three years.
By the time the CSRD is fully phased in, more than 50,000 organizations will be required to report under the program. By expanding participation in the program, the CSRD is anticipated to take significant steps in reaching Europe’s carbon neutral goals by 2050.
The CSRD will also help consumers, investors, organizations, and other stakeholders evaluate the sustainability performance of companies and make decisions based on standardized data.
Who Does the CSRD Apply To?
As mentioned, the CSRD applies to a wide range of businesses. It requires all large companies, SMEs and listed companies, with the exception of listed micro-enterprises, to disclose information on risks and opportunities arising from social and environmental issues, and on their impact on people and the environment.
The first companies that will be required to report using the new rules will have to do so in the 2024 fiscal year, with their reports published in 2025. These companies will be required to report using the European Sustainability Reporting Standards (ESRS).
The requirement to report will be phased in, with longer phase-in periods for companies with fewer than 750 employees.
What Are the Main Requirements of the CSRD?
Although the ESRS haven’t yet been finalized, the European Commission adopted them in July 2023 as a delegated regulation, and are submitting the ESRS delegated act to the European Parliament and Council for review.
The delegated regulations will require companies to provide:
- General disclosures
- Environmental disclosures
- Climate change (e.g., disclosing the release of greenhouse gas emissions including carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PCFs), sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3) to report Scopes 1, 2 and 3 with data gathered from up and down the supply chain)
- Pollution (e.g., disclosing pollution of air, land and water, including the emissions of air pollutants, inorganic pollutants, ozone-depleting substances, microplastics, etc.)
- Water and marine resources (e.g., disclosing annual water consumption, the amount of water recycled and stored, etc.)
- Biodiversity and ecosystems
- Resource use and circular economy
- Social disclosures
- Own workforce (e.g., disclosing information about collective bargaining, diversity, wages, social protection, persons with disabilities, etc.)
- Workers in the value chain
- Affected communities
- Consumers and end users
- Governance disclosures
- Business conduct (e.g., disclosing policies related to corporate culture, management of relationships with suppliers, avoiding corruption and bribery, protection of whistle-blowers, animal welfare, payment practices, etc.)
Where Can I Learn More About the CSRD?
India: Business Responsibility and Sustainability Report (BRSR)
What Is the BRSR?
The Business Responsibility and Sustainability Report (BRSR) came into effect in 2023 and is the first framework in India that requires eligible Indian companies to report metrics on sustainability-related factors.
Although the BRSR is India’s first ESG reporting framework, it is an evolution from the earlier voluntary guidelines that were first issued in 2009 and later released as the Business Responsibility Report (BRR) in 2012.
The BRSR was initiated by the Securities Exchange Board of India (SEBI), which is India’s regulatory body for its securities market. The SEBI created the BRSR in a way that would align with other international reporting frameworks including the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-Related Financial Disclosures (TCFD).
Who Does the BRSR Apply To?
Beginning in the 2022-2023 fiscal year, all eligible Indian companies must prepare a BRSR-compliant report.
Eligible companies defined as those that are listed as one of the top 1,000 companies by market capitalization by the SEBI. These companies must file a BRSR-compliant report to the SEBI as part of their annual report.
Other listed companies wishing to report under the BRSR framework are welcome to do so though, as of late 2023, they are not required to report.
What Are the Main Requirements of the BRSR?
The report is split into three sections. Section A involves General Disclosures, Section B covers Management and Process Disclosures, and Section C deals with Principle Wise Performance Disclosure.
As a general overview, here is some of the key information required by each section.
Section A: General Disclosures asks for information such as:
- Key details about the company including its Corporate Identity Number (CIN), year of incorporation, name of the stock exchanges where shares are listed, contact details, etc.
- Details about its products/services and business activities.
- Information about its operations such as where plants/offices are located, markets and customers served, percentage of exports, etc.
- A breakdown of its employees and workers, including demographics, representation of women, turnover rates, etc.
- Disclosure of complaints and grievances under specific principles of the National Guidelines on Responsible Business Conduct.
- An overview of its business conduct and sustainability issues.
Section B: Management and Process Disclosures helps companies show how they’re adopting India’s National Guidelines on Responsible Business Conduct (NGRBC) Principles and Core Elements and asks for information such as:
- Specific commitments, goals, and targets set, as well as performance data.
- An ESG statement demonstrating things like the company’s vision, strategy, strategic priorities, etc.
- The name of the highest authority responsible for implementation and oversight.
- If the company has a committee responsible for decision-making on sustainability issues.
Section C: Principal Wise Performance Disclosure requires companies to show how they’re integrating the BRSR’s nine principles into their processes and decision-making. These principles are:
- Principle 1: Businesses should conduct and govern themselves with integrity, and in a manner that is ethical, transparent, and accountable.
- Principle 2: Businesses should provide goods and services in a manner that is sustainable and safe.
- Principle 3: Businesses should respect and promote the well-being of all employees, including those in their value chains.
- Principle 4: Businesses should respect the interests of and be responsive to all its stakeholders.
- Principle 5: Businesses should respect and promote human rights.
- Principle 6: Businesses should respect and make efforts to protect and restore the environment.
- Principle 7: Businesses, when engaging in influencing public and regulatory policy, should do so in a manner that is responsible and transparent.
- Principle 8: Businesses should promote inclusive growth and equitable development.
- Principle 9: Businesses should engage with and provide value to their consumers in a responsible manner.
Where Can I Learn More About the BRSR?
USA: SEC Climate Disclosure Standards [Proposed]
What are the Proposed SEC Climate Disclosure Standards?
In March 2022, the US Securities and Exchange Commission (SEC) announced that it would be proposing rule changes to require registered companies to include specific climate-related disclosures in their registration statements and periodic reports.
Once finalized, these disclosures would cover information about climate-related risks that could have a material impact on their business, along with including key climate-related metrics in their audited financial statements. This would include greenhouse gas emissions disclosures.
The SEC’s main objective is to create a standardized reporting format and method, allowing investors and other stakeholders to confidently interpret, compare, and use data for decision making.
While some parties feel the SEC is overstepping their authority with the new rules, SEC-registered organizations have been required to provide details on business costs and litigations related to environmental compliance since the 1970s. Reporting on climate-related risks and opportunities is seen by many as an extension of that 50-year-old mandate.
As we’ve written about previously, the SEC’s Climate Disclosure rules have been the subject of much anticipation. The final rule was initially expected in October 2023, but now it looks like it will be into 2024 before it is released.
Who Will the SEC Climate Disclosure Standards Apply To?
Those organizations that are registered with the SEC will be required to follow the new standards. For the most part, this means the standards will apply to larger businesses only.
However, the small business community may be impacted, especially if they partner with larger businesses that will look to them to provide metrics to support reports. Because the proposed standards include disclosures on Scope 3 emissions in the value chain, non-SEC-registered companies may find themselves having to pull operational and emissions data to satisfy the reporting requirements of other organizations they work with.
What Are the Main Requirements of the SEC’s Proposed Climate Disclosure Standards Anticipated To Be?
When the standards come into force, companies will have to include information about climate-related risks in their annual financial statements and annual reports, including Securities Act or Exchange Act registration statements and Exchange Act annual reports.
Although it’s still not known exactly what will be required under the rules, a draft proposal released in 2022 provides a good starting point for speculation. It’s unlikely the final requirements will deviate too far from this proposal.
With this in mind, the impending standards will likely require companies to provide details on:
- The role and responsibility of corporate governance in relation to identifying and managing climate-related risks.
- Potential and actual impacts of climate-related risks on business operations or financial performance over the short-, medium- and long-term.
- How climate-related risks have, will, or might impact business strategy and outlook.
- Processes for identifying, assessing, and managing climate-related risk and a description of how these processes are integrated into wider risk management systems.
- The impact of climate-related events, like severe weather, or transition activities, like changing business operations to mitigate climate-related risk, on financial statements.
- Scopes 1 and 2 GHG emission metrics, with additional Scope 3 reporting where the organization has documented Scope 3 emissions reduction targets.
- Any climate-related targets, goals, or transition plans.
Where Can I Learn More About the SEC Climate Disclosure Standards?
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