California’s Climate & ESG Policy: What You Need To Know in 2024

Silhouettes of palm trees are dark brown and black in the foreground. The buildings of the Los Angeles skyline are in the background in front of a pale yellow, dusty sky.

Climate change is upon us and governing bodies are paying attention. The Intergovernmental Panel on Climate Change (IPCC), an intergovernmental arm of the United Nations which assesses climate change science, has affirmed that in the near future, every region of the world will face climate change hazards, from flooding due to rising sea levels, to wildfires and tropical storms, to severe drought and failed crops. 

Fortunately, there is a global movement towards legislation that requires corporations and businesses to report any climate-risk information in relation to conducting business. This is part of global ESG climate policy initiative, and is in alliance with the EU’s Corporate Sustainability Reporting Directive (CSRD).

While we still wait for more broader and final regulations from the Securities & Exchange Commission (SEC) regarding US climate policy, the State of California is forging ahead with climate-risk reporting legislation in the form of California SB 253 and SB 261. 

This legislation proposes a positive shift towards more robust ESG rules and regulations in the US. It can also be confusing to some business leaders. 

In this article, we’ll discuss California SB 253 and SB 261 in more detail, what corporations’ responsibilities are, and how this will impact the future of business in California.

Let’s dig in.

What Are California SB 253 and SB 261, and Why Are They Important?

California’s climate action and governance has worldwide implications. Being the fifth largest economy in the world, the passing of the most recent corporate climate responsibility legislation is a positive step forward, but can also present some confusion among businesses.

Following the SEC’s ruling on The Enhancement and Standardization of Climate-Related Disclosures for Investors in October 2023, California Senate Bills 253 and 261 have been formally ratified, and will be enacted into law beginning January 2026. 

The California SB 253 and 261 bills are two separate pieces of legislation that together, apply to businesses and corporations that conduct business inside the State of California. These bills are also known as the Climate Data Accountability Act (the CCDAA) and the Climate-Related Financial Risk Act (the CRFRA), respectively.

Essentially, the CCDAA and CRFRA require California businesses to disclose their scopes 1, 2, and 3 greenhouse gas emissions and other climate-related financial risk details. 

SB 253 and SB 261 are also an attempt to create more corporate transparency regarding climate responsibility, and ultimately, ESG reporting. This makes sense given that climate change – and how we respond to it – is a public issue.

What Do the CCDAA and the CRFRA Mean for Businesses in the US?

The new California climate disclosure law requires all public and private companies with an annual revenue in excess of $500M (CRFRA) and $1 billion (CCDAA), conducting business in California, to disclose emissions. As of right now, this applies to over 5,000 companies doing business in the state, and potentially has a wider impact globally.

While this legislation aligns with other ESG requirements regulations moving forward in 2024, for businesses not already equipped with the resources to undertake this reporting responsibility, this can lead to consequences, environmentally, legally, and financially. 

What Is Required Under These Disclosure Rules?

While the legislation is detailed, and can be found on the State of California website, the broad requirements of sustainability disclosure are:

  • Roles and responsibilities of corporate actors in identifying and managing climate-related risks
  • Potential and actual impacts of climate-related risks on financial performance and/or operations, short-, medium-, and long-term
  • Detailed processes for identifying, analyzing, and preparing a strategy for managing climate-related risks
  • Potential impact of climate-related events, such as wildfires and severe storms
  • Any potential or actual changing in business operations taken in order to mitigate climate-related risks 
  • Scopes 1, 2, and 3 emission metrics (this is detailed more thoroughly below)
  • Any other climate-related goals

Scope 3 emissions reporting mandates are fairly soft. Prior to finalization of this legislation, there were some concerns regarding the lack of proposed targets required in these reports. This still appears to be an issue, which can potentially stall meaningful change. 

However, as we outlined previously, the ultimate goal is that while these companies are now legally mandated to provide transparency in ESG reporting, this may also drive companies into going beyond just compliance with their goal-setting to meet more aggressive internal targets. 

What Does the CCDAA (SB 253) Require and What Are the Implications?

Beginning in 2026, the CCDAA will require companies with revenue over $1B to provide limited assurance on scope 1 and 2 emissions. This will increase in 2030, requiring companies to provide reasonable assurance. For scope 3 emissions disclosure, limited assurance must be given beginning in 2030, and will be subject to review by the California Air Resources Board (CARB) in 2027. 

In the first year of disclosure, starting in 2026, companies must provide assurance on scope 1 and 2 emissions.

CCDAA (SB 253) gives the State authority to bring civil actions against any business that are in violation of the act, with a maximum fine of $500,000. 

For scope 3 emissions, amendments have been made to scale back the liability via introduction of “safe harbor,” which essentially means that legal implications are reduced, provided certain requirements are met. 

Under the new amendment, companies would not be subject to penalty for errors in scope 3 emission reporting, on a reasonable basis.

Why Mandating Climate Disclosures Is So Important

While disclosing ESG reports is not new for a lot of companies, there is a worldwide rising demand for transparency, particularly from stakeholders, investors, and customers. This means that many businesses must prepare and disclose sustainability reports, 90% of which are S&P companies that are already publishing reports. 

This is a step in the right direction.

However, standardization across business sectors is critical, which is one of the purposes behind the CCDAA (SB 253) and the CRFRA (SB 261). As there have been a plethora of ESG frameworks that require interpretation, setting a standardization baseline is important. This will help investors and other stakeholders make well-informed decisions, bolster customer confidence, and create more sustainable and climate-aware industries.  

What Does the CRFRA (SB 261) Require and What Are the Implications?

While the two pieces of legislation are very similar, there are some key differences. 

The CRFRA, or SB 216, requires entities doing business in California with revenue over $500M to prepare and submit climate-related financial risk reports. These reports should be consistent with the recommendations made under the Task Force on Climate-Related Financial Disclosure (TCFD) framework for climate-related financial risk reporting. 

As an example, if a business has budgeted for increased compliance insurance costs, this would be a climate-related financial cost that would be reported under the CRFRA.

Additionally, companies will need to make these climate related disclosure reports available publicly on their websites. 

First reports will be required by January 1, 2026. 

When Will SB 253 and SB 261 Disclosure Requirements Come Into Effect?

The Net Zero deadline is just around the corner, and in accordance with that, first reports for scope 1 and 2 emissions will be expected by January 1, 2026.

Scope 3 emissions reports will be expected by 2027.

How Will This Legislation Impact Business in California?

While there are a lot of companies under the $500M and $1 billion annual revenue threshold, the sheer business power that operates in the State of California means that the CCDAA (SB 253) and the CRFRA (SB 261) are a positive step in the right direction. 

How Can Your Company Prepare For the California Climate Bill?

While many companies operating in California are already preparing ESG disclosure reports, there are actionable steps that can be taken to ensure any new requirements under the California Climate Bill are met.

1. Assemble a Cross-Functional Team and Educate Company Personnel Responsible for Reporting

Climate ESG reporting is complex and operates across multiple arms of a company. A lot of information can be lost in translation throughout departments and key players. 

The first step is to create a cross-functional team that will not only be thoroughly educated in the CCDAA (SB 253) and the CRFRA (SB 261), but will have the ability to identify reporting risks, teach interdepartmental team members on reporting requirements, and ensure all disclosure requirements are met. 

Secondly, educate yourself and your cross-functional team on all aspects of the CCDAA (SB 253) and the CRFRA (SB 261). Identify how these might differ from previous disclosure requirements, particularly the CCDAA’s inclusion of scope 3 emissions. 

Your cross-functional team should work closely together to define each department’s roles and responsibilities.

2. Articulate a Clear Plan for Gathering Data

As you create your plan for reporting implementation, understanding what information to gather and how to go about doing it will set you on the right path. 

As an example, a logistics company may have scope 1 emissions data that includes fuel, scope 2 including electricity used, and scope 3 might include emissions from outsourced companies required for regular business operations. 

Armed with this information, develop a workflow that helps streamline data collection across departments. This workflow should include all timelines and responsibilities in order to avoid missed deadlines or data reporting errors, which can be costly. 

3. Streamline Workflows Across Departments

Accurate and efficient data collection company-wide is not negotiable. Implement workflow systems, such as ESG reporting software, that is consistent across all departments and accurately collects all data required under the legislations. 

Even regardless of the CCDAA (SB 253) and the CRFRA (SB 261), collecting data and creating ESG reports, quickly and accurately, is quickly becoming a standard requirement demanded by investors and stakeholders. As climate-risk data has to become more accessible and transparent, a workflow system to do this is imperative. 

As your workflow is implemented, check in with your team and conduct audits regularly. Catching errors or bottlenecks in data gathering processes will save you time and money in the future. 

4. Establish Internal Governance and Controls

Approach your climate data like you would your financial data. Internal governance and controls will always be necessary to ensure consistency, efficiency, and most importantly, accuracy in data gathering and reporting. 

Create an ESG data gathering and reporting governance charter – a document that clearly sets out all parameters, permutations, requirements, roles and responsibilities. Include both soft and hard deadlines for reporting. Additionally, create a system where your team can continually update their education regarding various legislations that might apply to your company, as well as responsible reporting. 

Your charter should lay out steps to be taken in the event of discrepancies, data gaps, or other inconsistencies, and how these issues should be addressed and by whom. 

If you are working with specialized ESG reporting software, utilize the onboarding personnel to help train an ongoing education team. 

5. Achieve Company-Wide Buy-In

Every level of an organization needs to be on the same page. Along with ESG data gathering and reporting software onboarding, hold regular educational seminars, made available company-wide. Outline the importance of the CCDAA (SB 253) and the CRFRA (SB 261), and how they impact the company and individual roles and responsibilities. 

Use concrete examples that align with workers’ daily tasks. Consider incentive programs for departments when they meet their data collection goals. Integrate these objectives into performance metrics and compensate accordingly. 

Acknowledging any extra labor these initiatives might require is critical in gaining stakeholder buy-in and keeping it. 

What Does This Legislation Mean for Businesses Outside the US?

While the CCDAA (SB 253) and the CRFRA (SB 261) are California State laws, any company that operates within the state, regardless of where the company originates, will be required to submit reports as per the legislation. 

If a company’s business extends beyond California, the operations that occur within California will still need to be reported. 

Less tangibly, this legislation signals California’s vested interest in climate change mitigation, particularly at a corporate level. This is also in alignment with the United Nations Net-Zero commitment. It aims to alleviate corporate greenwashing and will require more tangible action against climate change.  

Take Action Today

ESG reporting is becoming more important every day – but with the right software, it doesn’t have to be complex. To learn more about FigByte’s leading ESG data collection, management, and reporting solution, speak to a FigBytes expert today.

Guide to COP28: What You Need to Know

Sunrise view of Downtown Dubai and Burj Khalifa.

COP28 is taking place in the United Arab Emirates (UAE) from November 30 to December 12, 2023, and some are saying it could be the most contentious COP in years. 

In this guide, we break down what COP28 is, what’s on the agenda, and why it’s become controversial. Let’s jump right in.

Why Is It Called COP28?

COP28 stands for the “28th Conference of the Parties to the United Nations Framework Convention on Climate Change”. Since this is quite a mouthful to say, it’s been shortened to simply COP28. 

What Is the COP28 Summit?

COP28 is an international climate conference that occurs as part of the framework of the 1992 treaty, the United Nations Framework Convention on Climate Change (UNFCCC). It’s typically held annually and is a forum for world leaders to discuss issues related to climate change.

COP is attended by 198 Parties, which includes representation from 197 countries plus the European Union. At COP, these leader discuss a wide range of issues such as:

  • How to tackle climate change in an effective and coordinated manner
  • How to decrease emissions with the goal of limiting global temperature rise to 1.5°C above pre-industrial levels
  • How to drive progress to meet the goals of the Paris Agreement
  • How to adapt to the impacts of climate change
  • How to support vulnerable countries that have experienced, or are at risk of experiencing, devastating impacts of climate change

Attendees at COP also include participants from the private sector, civil society, intergovernmental organizations, nongovernmental organizations, industry groups, media and other climate change leaders, influencers and experts. With so many participants and topics discussed, COPs have become large and complex, spanning multiple weeks.

This year, COP is taking place at Expo City, Dubai in the UAE from November 30 to December 12, 2023. The location for each COP is determined by the UNFCCC secretariat, after countries put forth their offers to host. The selected host country typically rotates between the different regional groups of the UN:

  • The African Group
  • The Asia-Pacific Group
  • The Eastern Europe Group
  • The Latin American and Caribbean Group
  • The Western European and Others Group

What Are COP’s Blue and Green Zones?

Similar to previous COPs, COP28 is divided into two zones: the Blue Zone and the Green Zone. The Blue Zone refers to the space managed by the UNFCCC. It’s where accredited parties, observer delegates, world leaders, and the media come together to undertake official negotiations plus side events like panel discussions, speaking events, and cultural events.

The Green Zone refers to the space managed by the hosting country – in this case, the UAE Presidency. In the Green Zone, non-accredited delegates get together to promote awareness about climate change, participate in activations, and attend panel discussions. Non-accredited delegates include people from civil society, the private sector, youth groups, Indigenous groups, and more. The Green Zone is also where the private sector is able to showcase their solutions and innovations to climate change.

At each COP, a large number of “fringe” activities also occur. These are usually held by groups who weren’t able to secure space in the Green Zone and are not official COP events.

What’s on the COP28 Agenda?

This year, COP is following a thematic program, meaning each day has a different thematic focus.

COP28’s thematic days are:

  • Day 1 (November 30, 2023) – Opening Day
  • Day 2-3 (December 1-2) – World Climate Action Summit
  • Day 4 (December 3) – Health / Relief, Recovery and Peace
  • Day 5 (December 4) – Finance / Trade / Gender Equality / Accountability
  • Day 6 (December 5) – Energy and Industry / Just Transition, Indigenous Peoples
  • Day 7 (December 6) – Multilevel Action, Urbanization and Built Environment / Transport
  • Day 8 (December 7) – Day of Rest
  • Day 9 (December 8) – Youth, Children, Education and Skills
  • Day 10 (December 9) – Nature, Land Use and Oceans
  • Day 11 (December 10) – Food, Agriculture and Water
  • Day 12 (December 11-13) – Final Negotiations

This year, day 7 is particularly significant because it marks a halfway point. It’s the half-way point for the COP28 events, and it’s the half-way point for the global commitment. The Paris Agreement was signed 7 years ago and there are 7 years to go before we reach 2030, the year by which we must achieve critical climate targets.

Why Is There Controversy Over COP28?

Even before COP28 began, it was surrounded by controversy. As the days have gone on, various issues have threatened to derail the conversations. Here’s an overview of some of the key areas of controversy at COP28. 

1) COP28’s President Has Deep Ties to Oil

COP28’s President, Sultan al-Jaber, is also the chief executive of the UAE’s national oil company, ADNOC. UAE is the world’s seventh largest oil producer. Environmental advocates have called this a conflict of interest. 

Sultan al-Jaber was also in the spotlight when he made comments that there is “no science” behind the demand to phase out fossil fuels in pursuit of climate action. He later said his comments were misinterpreted. 

2) Climate Conditions Have Deteriorated

Not only has progress not been made since the Paris Agreement was signed, conditions have actually gotten worse. The World Meteorological Organization declared 2023 the warmest year recorded in human history and the UN Secretary General António Guterres said, “We are living through a climate collapse.” 

3) Fossil Fuel Production Is Set to Increase

Despite calls to curb fossil fuel production, scientific experts predict that by 2030, it will more than double. Specifically, major producers plan to produce about 110% more fossil fuels in 2030 than would be consistent with limiting global warming to 1.5°C. Moreover, despite 50 oil giants committing to cap methane emissions from their operations, none of them said they intend on cutting back oil and gas production.

Adding to this controversy, COP28 is being held in the OPEC region and, for the first time, the group will have its own pavilion space at the conference. 

4) Some Fear Greenwashing Is Occurring

Since their inception, reliance on carbon credits has been questioned. Carbon credits, put simply, allow corporations and sometimes countries to buy credits to offset their greenhouse gas emissions. However, some scientists have said that their benefits may be overstated and that they’ve become a passport to continue polluting. 

At COP28, the US introduced their new Energy Transition Accelerator for developing countries. This is one of several initiatives around the world aimed to revitalize the idea of carbon credits. However, environmental organizations say this is a case of greenwashing and an attempt to distract from a lack of real climate finance action. 

Key Outcomes From COP28

With over 97,000 participants at COP28, it’s safe to say that a lot has happened. Impossible to cover everything, here, we briefly summarize key highlights from official events.

Highlights From Week One

As showcased in the COP28 UAE Midpoint Summary, the following highlights happened in week one of COP28.

  • Energy Transition: The COP28 Presidency and partners launched the Global Decarbonization Accelerator (GDA), a cross-sectoral package to slash emissions to accelerate a just, equitable and orderly energy transition.
  • Methane Reduction: $1.2BN was mobilized to support the reduction of methane and other non-CO2 GHG across sectors. Governments and oil companies discussed effective pathways to zero methane emissions by 2030.
  • Decarbonization: The Oil & Gas Decarbonization Charter (OGDC) was endorsed by 52 companies across all continents.
  • Renewable Energy: 124 countries endorsed the Global Renewables and Energy Efficiency Pledge, committing to tripling renewables and doubling annual energy efficiency improvements by 2030. $5BN was mobilized to facilitate the implementation of the pledge globally.
  • Climate Cooling: 65 countries endorsed the Global Cooling Pledge and committed to reducing cooling-related emissions across all sectors by at least 68% by 2050 versus 2022 levels. 
  • Climate Finance: 12 countries launched a new vision for climate finance through the COP28 UAE Declaration of Leaders on a Global Climate Finance Framework, which summarizes the need for collective action, opportunity for all, and delivering at scale.
  • Food Security: 146 Heads of State and Government endorsing the COP28 UAE Declaration on Sustainable Agriculture, Resilient Food Systems, and Climate Action to address food’s high vulnerability to climate impacts and its contribution to emissions. 
  • Health: 133 countries endorsed the COP28 UAE Declaration on Climate and Health, and finance providers mobilized an initial tranche of $2.6BN for climate and health solutions.
  • Vulnerable Communities: 75 governments and 42 organizations endorsed the COP28 UAE Declaration on Climate, Relief, Recovery, and Peace, which gives political visibility to communities that are experiencing extreme vulnerability, fragility, and conflict.
  • Gender Equity: 74 countries endorsed the COP28 UAE Gender-Responsive Just Transitions & Climate Action Partnership, which aims to mainstream women’s leadership, decision making, and financing for a just transition.
  • Children and Youth: A Global Youth Statement was delivered as part of the first Youth and Education session, giving greater visibility and voice to children and youth. 

Highlights from Week Two

In week two, conversations continued, with the following points to note.

  • Youth, Children, Education and Skills: 38 countries signed the UNESCO Greening Education Partnership, Declaration on the common agenda for education and climate change at COP28. Additionally, The Youth Stocktake Report was officially launched by YOUNGO with support from the Youth Climate Champion.
  • Nature, Land Use and Oceans: 21 countries endorsed the science-based Mangrove Breakthrough target. 
  • Food, Agriculture and Water: Additional countries stepped up to endorse the COP28 UAE Declaration on Sustainable Agriculture, Resilient Food Systems, and Climate Action, bringing the total to 154. 
  • Negotiations: 2 days of final negotiations were held, where parties had their voices heard on a wide range of issues.
  • UAE Consensus: 198 parties united behind the UAE Consensus, a package to accelerate climate action.

What’s Next: Looking Ahead to COP29 and COP30

With COP28 coming to a close, the world is wondering what’s next. Will momentum continue? Will commitments be met? Will change actually occur?

Next year’s COP29 will likely be held in Azerbaijan, another country that’s heavily dependent on oil and gas production. In fact, these exports make up 90% of their economy. This has some advocates feeling skeptical. 

COP30 is set to take place in Brazil in the Amazonian city of Belém do Pará. Brazil has struggled with deforestation in the past but is taking actions to reverse that.

How To Develop a Climate Action Plan for Your Organization in 7 Steps

A large white iceberg floats in the Artic, reflected in water in the foreground.

When it comes to climate change, it’s no secret that humanity is at a juncture. The science has been established, predictions have been made, and there’s general global consensus on what the science-based climate targets need to be. 

But the clock is ticking. It was nearly ten years ago when 196 parties to the United Nations (UN) adopted the legally-binding Paris Agreement, with the overarching goal of holding “the increase in the global average temperature to well below 2°C above pre-industrial levels” and pursuing efforts “to limit the temperature increase to 1.5°C above pre-industrial levels.” Yet, we’re still far off from achieving this goal.

The trouble is, it’s all well and good to commit to targets. But things become tricky when people and organizations need to take action. And unless action is committed and plans are documented, it’s hard to expect anyone to change. 

Enter the Climate Action Plan. For communities, organizations and corporations, a Climate Action Plan is a foundational way to ensure action happens.

In this article, we look at what Climate Action Plans are, why they’re important, and how organizations can go about making their own Climate Action Plan today.

What Is Climate Action?

Before we get to the heart of the matter, it’s important to back up and understand what climate action means. 

The UN formalized the definition of Climate Action when they released The Global Goals. These goals were agreed to by global leaders in 2015 and they aim to achieve a “greener, fairer, better world by 2030.” The UN named Climate Action as Goal #13.

According to the UN, Climate Action means taking “urgent action to combat climate change and its impacts.”

The five targets listed under this goal call on people, governments, and organizations to:

  1. Strengthen resilience and adaptive capacity to climate-related hazards and natural disasters in all countries.
  2. Integrate climate change measures into national policies, strategies, and planning.
  3. Improve education, awareness-raising, and human and institutional capacity on climate change mitigation, adaptation, impact reduction, and early warning.
  4. Implement the UN Framework Convention on Climate Change.
  5. Promote mechanisms for raising capacity for effective climate change-related planning and management in least developed countries and small island developing states, including focusing on women, youth, and local and marginalized communities.

Of course, the UN isn’t the only organization to call for climate action, nor do they provide the only definition for it. Climate action is widely recognized as what’s needed now in order to reduce greenhouse gas emissions and curb climate change.

What Are the Goals of Climate Action?

When we speak about climate action, typically the outcome we’re looking for is a reduction in greenhouse gas (GHG) emissions, which include carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), sulphur dioxide (SO2), hydrofluorocarbons and more. Because it’s impossible to eliminate GHG emissions altogether, the goal is to try to create an overall – or net – reduction. 

Different terms (and related methods of calculations) have been established to help quantify this, and although people sometimes use these terms interchangeably, it’s important to understand their differences.

The goals of climate action include the following:

Achieving “Net Zero”

Net Zero is one of the most widely used and understood terms when it comes to climate action goals.

Put simply, Net Zero means a state where the amount of GHGs being removed from the atmosphere are equal to the amount being contributed through human activities. The idea is to achieve a net effect whereby any emissions added are offset by sequestration, so the resulting amount of emissions equals zero. Net Zero is also aligned with a specific trajectory, such as limiting temperature rise to 1.5°C.

A definition of Net Zero in action is provided by the Science Based Targets initiatives (SBTi). The SBTi says: “Setting corporate net-zero targets aligned with meeting societal climate goals means: (a) reducing scope 1, 2, and 3 emissions to zero or a residual level consistent with reaching net-zero emissions at the global or sector level in eligible 1.5°C scenarios or sector pathways and (b) neutralizing any residual emissions at the net-zero target date – and any GHG emissions released into the atmosphere thereafter.”

Net Zero is at the heart of the SBTi’s Corporate Net Zero Standard. This standard is the global framework that provides advice and tools to help companies set and reach science-based net zero targets aligned with a commitment to limit global temperature rise to 1.5°C.

Achieving Carbon Neutrality

Carbon neutrality is similar to Net Zero, but there are some specific differences. First of all, while Net Zero includes all GHGs, carbon neutral relates to just carbon dioxide. It excludes from its calculation other emissions like methane, sulphur dioxide, hydrofluorocarbons, and so on. 

Second, carbon neutrality isn’t aligned with a specific temperature reduction trajectory like Net Zero. As a result, its calculations often include actions like emissions avoidance activities. It’s also less strict around reporting scope 3 emissions. 

When businesses speak of being carbon neutral, it typically means they’ve taken actions to reduce their carbon dioxide emissions and for anything they couldn’t reduce, they’ve invested in “carbon sinks” to offset their emissions. Carbon sinks are things like forests and oceans that absorb and store more carbon from the atmosphere than they emit.

Although carbon neutrality is an important measure, Net Zero carries more weight since it includes a broader scope of emissions, is aligned with the 1.5°C commitment, and has stricter reporting requirements.

Being Carbon Positive 

Carbon positive is a lesser used term related to climate actions goals. But it still has its place in the mix.

If carbon neutral is defined as reaching neutrality whereby net carbon dioxide emissions are equal to zero, carbon positive goes beyond that to make additional positive impacts to atmospheric levels. In other words, carbon positive means reducing and offsetting carbon emissions at a level higher than what’s being released.

Again, carbon positive takes into account carbon dioxide only, and doesn’t measure other GHGs. It also has less strict reporting standards than Net Zero.

What Is a Climate Action Plan?

Now that we’re reviewed important definitions and terminology, let’s switch gears to discuss the nuts and bolts of a Climate Action Plan.

For many years now, organizations have been asked to inventory, count, and quantify their emissions. For many, this has involved climate accounting exercises to quantify scopes 1, 2, and 3 emissions. 

While these are important exercises – and oftentimes required by regulators – it’s important that organizations not stop there. With climate change momentum well underway, organizations are being called upon to move beyond climate accounting exercises and create Climate Action Plans. After all, without real and meaningful action, there can be no change.

Put simply, then, a Climate Action Plan is a document that details how organizations will take action to mitigate their climate risks, leverage climate opportunities, and achieve their GHG emissions targets to support a global 1.5°C temperature reduction.

A Climate Action Plan is essentially a roadmap that takes organizations from commitment to results. They’re focused on achieving emissions reductions, while also bolstering climate resiliency and implementing climate adaptation strategies, and they outline specific actions organizations will take to get there. Sometimes a Climate Action Plan will include several different climate action campaigns. 

What Makes for a Strong Climate Action Plan?

We’ve already mentioned that Climate Actions Plans are important for putting commitments into motion. This benefits organizations and communities in many ways. Action against climate change can result in cleaner air, water, and soil. That means healthier people and communities. 

But what makes for a strong Climate Action Plan? After all, the results are only so good as the plans they emerge from.

Here are five tenants that make for a strong Climate Action Plan:

1) Strong Climate Action Plans are rooted in science

It’s easy – and sometimes tempting – for companies to greenwash their actions and claims. But greenwashing only deepens the climate crisis and places more value on PR over real change. That’s why a strong Climate Action Plan must be rooted in science. Luckily, organizations like the SBTi provide science-based guidance on how to set and achieve net-zero climate targets, making it easier for organizations to do so.

2) Strong Climate Action Plans have clearly defined targets

There’s an old adage that says “what gets measured gets done”. While this might not be entirely true, having well defined, science-based targets puts organizations on the right track. This is especially important when deep cuts are needed to achieve emissions reduction. The SBTi reports that most companies must reduce emissions by a whopping 90%+ in order to reach net zero by 2050. It argues that this must be done through a series of near-term and long-term targets. Ideally, targets are based on achieving Net Zero, rather than carbon neutrality or positivity.

3) Strong Climate Action Plans identify who is accountable

When it comes to deep and rapid change, having climate champions at the helm is a must. A strong and effective Climate Action Plan will outline exactly who is responsible for ensuring each action occurs. If this can be linked to the leader’s remuneration plan, even better.

4) Strong Climate Action Plans get specific about implementation 

Since a Climate Action Plan is essentially a roadmap that details how to get from point A to point B, it must be detailed enough to be effective. Every step should be laid out with specific actions to take along the way. Consideration for data collection and reporting is also important. This can get complicated, but there are software solutions like FigBytes that can help manage the data and details of your Climate Action Plan.

5) Strong Climate Action Plans incorporate equity at every level

When it comes to the impact of climate change, those that face the greatest threat are also those who are least responsible for it. That includes people who are vulnerable to, or already experiencing, socio-economic challenges. A Climate Action Plan should be developed using an equity lens to identify how risks, opportunities and change will impact people differently.

Now that we’ve looked at the elements of an effective Climate Action Plan, let’s turn our focus and examine the process to create one.

How To Develop a Climate Action Plan

There are different ways to approach the creation of a Climate Action Plan. The form it takes and the content it includes depends on what type of corporation, organization or community (country, city, region, etc.) it’s being developed for. In some cases, certain aspects of a Climate Action Plan may also be prescribed by legislation or policy, and it should also ideally be Paris-Agreement compatible.

While there isn’t one standard path for creating a Climate Action Plan, there are general steps that are common to most processes. If you’re looking for a starting point, here are seven steps to consider:

1) Start with a leadership-backed commitment

The first step to developing a Climate Action Plan is to secure a commitment from senior leadership. Unless the organization is truly committed to change, the planning process will be an uphill battle. Find a champion and have them make a public commitment. Ideally, this will come from the highest ranking person in the organization, and will be backed by a remuneration strategy or other accountability metrics.

2) Create a planning team

After you’ve secured commitment, the next step is to enlist the right people. This could look like a steering committee and might include directors, middle managers and technical experts from different parts of the organization. This team should ideally be supported by program specialists, project managers, and support staff so that committee decisions get executed.

3) Understand where you’re at and where you’re going

Typically, the next step would be to conduct a review of your existing policies, operational procedures, and targets to see which ones already support climate action, and which need to be adjusted. It’s also important to review data to understand your current emissions footprint, including scopes 1, 2, and 3 emissions. You may wish to conduct a climate scenario analysis at this stage as well, to understand your climate risks, opportunities, and your options to navigate both. Armed with this knowledge, you can set targets that define where you need to get to. 

4) Create specific goals and targets

It’s important that goals and targets be science-based. This ensures rigor and helps avoid greenwashing. The SBTi can be helpful during this stage. They provide extensive information and resources to assist with target setting, using a step-by-step approach. Some documents to look at include their SBTi Criteria and Recommendations for Near-Term Targets and Net-Zero Standard Criteria. They also offer sector-specific guidance for the following sectors: Aluminum, Apparel and footwear, Aviation, Buildings, Chemicals, Cement, Financial institutions, Forest, Land and Agriculture (FLAG), Information and Communication Technology (ICT), Maritime, Oil and Gas, Power, Steel, and Transport. Well-defined goals and metrics can make or break your plan, so take your time on this step.

5) Determine the steps needed to reach those goals and targets

Next is the task of creating your plan. This should look like a detailed plan for how your organization will meet your established goals and targets. It will often include near-term and long-term targets, and should confirm financial resources to ensure the activities are doable. A communications plan is also advisable. The more detailed you get during this stage, while still building in some flexibility for unexpected events, the more likely your plan is to be successful.

6) Choose the right tools to help

Keeping track of your Climate Action Plan can be a job in itself. Employing the help of a climate action software solution, like FigBytes, can make a world of difference. The right software will help you reach your climate action targets with the assistance of machine learning. It does this by simplifying and streamlining your climate data collection, forecasting scenarios and visualizing outcomes, and managing actions and results. Rather than relying on a slew of different documents and spreadsheets, a software solution brings everything together in one place.

7) Implement the plan

Once your plan has been approved (and submitted, if you’re legally required to do so), it’s time to begin implementing it. This is where the rubber meets the road. During the implementation phase, it’s important to communicate often and with all stakeholders. It’s also important to track progress using a climate action tracker, and evolve the plan as you go. A Climate Action Plan is an evergreen document, rather than a one-and-done plan.

Conclusion

Getting to Net Zero by 2030 is a goal worth pursuing. Actions that help limit our global average temperature increases to 1.5°C above pre-industrial levels are needed urgently. Creating a robust and science-based Climate Action Plan is a foundational step every organization should take to support this collective goal. The clock is ticking, and the time to act is now.

ESG & Climate Disclosure Regulations Around the World
[2023 Guide]

Aerial view of white wind turbines in the bright blue ocean

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:

  • Australia
  • Canada
  • European Union
  • India
  • USA

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.  
  • Strategy:
    • 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.)

The reporting requirements are highly aligned with the standards of the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI).

Where Can I Learn More About the CSRD?

Learn more about the CSRD in our CSRD 101 eBook or visit the European Commission’s website.

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 SEBI has prescribed the format the report should follow and provides additional guidance for reporting companies.

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?

Learn more about the BRSR in our BRSR 101 Guide or visit SEBI’s website to read the regulations.

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?

To learn more about the proposed SEC Climate Disclosure Standards, check out our latest guide on the topic or visit the SEC’s website.

Impacted by a Disclosure Requirement? FigBytes Can Help.

Whether your business needs to meet a disclosure requirement now, or in the future, FigBytes can help make the process easier. 

As a leading sustainability platform, FigBytes helps companies automate and manage their entire ESG and sustainability reporting programs, for carbon accounting and beyond.

Schedule a call with a FigBytes expert to learn more.

The SEC Is on a Quest to Quell Greenwashing. Here’s What You Should Know.

Dark green and black streaks - abstract art

On September 20, 2023, in an attempt to quell the greenwashing of ESG investment funds, the U.S. Securities and Exchange Commission (SEC) announced the adoption of amendments to the “Names Rules” under the Investment Company Act.

These new amendments mean that any investment fund that indicates in its name that it supports Environment, Social and Governance (ESG) goals (or any other thematic goals, for that matter), must invest at least 80% of the value of their assets in investments that also support those goals. 

Though this may seem obvious, it hasn’t always been the case. 

In fact, for years, many ESG funds have been padded with investments that aren’t green at all, in an effort to offset low-return ESG investments and bring optimal returns to investors. 

According to a study by ESG Book that assessed 420 ESG funds and 95 climate funds, 14% of these green-branded funds actually produced carbon emissions intensities higher than the average across all funds. They also found that many climate-named funds actually invest in fossil fuel and mining companies.

The name of a fund, and the marketing around it, is important because that’s often what investors use as a first signal when making investment decisions. The new amendments demand more transparency in fund names, as well as additional reporting and disclosure requirements, in an effort to halt deceptive behavior.

In this article, we look at what greenwashing is, the actions the SEC has taken to crack down on greenwashing, and steps your organization can take to avoid greenwashing.

What Is ESG Greenwashing?

The concept of greenwashing, and its closely-related cousins purpose-washing, cause-washing and climate-washing, isn’t new in the ESG space unfortunately. 

Greenwashing is the act of making false claims about the environmental or climate impact of a goods or service. Greenwashing also happens when businesses spend more money and time on marketing their supposed positive environmental impact, than actually taking action to ensure they’re making a difference.

The UN says greenwashing poses a significant barrier in tackling climate change, specifying ”greenwashing promotes false solutions to the climate crisis that distract from and delay concrete and credible action.”

Greenwashing can look like the following:

  • Companies purposefully withholding information or being vague about their operations or impact.
  • Businesses saying they have a robust ESG strategy or standards in place, when in reality they don’t.
  • Organizations overstating the impact of small improvements they’re making towards sustainability.
  • Companies making unverifiable statements due to missing steps in the due diligence process.
  • Organizations focusing on one positive impact they’re making to distract from non-action or harmful actions.
  • Businesses making false or misleading marketing claims to increase the perceived value of a goods or service.

When applied to the investment industry, greenwashing makes it difficult for investors to distinguish between funds that are using truly green strategies and those that are just saying they are.

The SEC defines greenwashing as, “the act of exaggerating the extent to which products or services take into account environmental and sustainability factors,” and studies have shown this practice to be rampant in the investment industry.

In fact, after analyzing 515 climate- and ESG-branded investment funds, the ESG Book found that:

  • seventy-three of ESG funds (14%) showed a “greater emissions intensity ratio” than the average recorded across 36,000 total funds; and
  • fifteen ESG funds (3%) “exceeded 400 tons of carbon dioxide equivalent per million dollars of revenue – more than twice as high as the wider average”. 

Additionally, they found that many of the 95 climate-specific investment funds analyzed were actually investing in fossil fuel and mining companies, which goes against the principle of net zero even when these companies have their own offset programs in place.

Why Is Greenwashing a Challenge?

The main challenge around greenwashing is that, to date, there has been no one single definition around it or means of measuring it. 

Greenwashing may look different based on the product or service in question, the industry it’s serving, or the values of the person making or receiving the claim. In an article from Harvard, the authors state bluntly: “one person’s treasured sustainability claim can be another person’s greenwashing trash”.

Moreover, accusations of greenwashing have, so far, been relatively easy for companies and their marketers to skirt around. Without requirements to disclose numbers, data, science, or the full story, it’s been easy for businesses to overstate, exaggerate or be non-specific about their environmental impact in favor of their bottom line.

However, recent developments by various bodies, the SEC included, are making it so that greenwashing is coming with increased regulatory, reputational and litigation risks.

Every day, more companies are being called out for greenwashing, and it’s easy to Google lists of accused offenders, compiled by environmental watchdog organizations. This signals that consumers and investors are becoming more savvy to deceptive practices and many want change.

What Is the SEC Doing About Greenwashing?

For some time now, the SEC has been discussing mechanisms to crack down on greenwashing. 

Despite the growing popularity of ESG funds, many funds include investments that aren’t green, but that are highly profitable, in order to offset lower-profit green investments. Fund managers are under pressure to ensure their funds remain competitive and deliver optimized returns for investors. And sometimes that means padding green funds with dirty investments.

While the majority of ESG funds focus on sustainability and environmental protection, a small but growing number support other social issues, like LGBTQ+ rights.

March 2021

In March 2021, the SEC formed a Climate and ESG Task Force within their enforcement division to use existing laws to fine companies involved in greenwashing and to proactively identify ESG-related disclosure and investment misconduct. Although enforcement was proving difficult due the fact that greenwashing remained undefined, the SEC started fining companies for making misleading statements about their ESG funds.

August 2023

In August 2023, the SEC issued subpoenas and launched investigations into several assets managers relating to their green marketing claims. Though the details of these investigations are still unknown, it does indicate that the SEC is paying closer attention to these claims.

September 2023

Then, on September 20, 2023, the SEC announced amendments to the “Names Rule” made under the Investment Company Act, signaling a deeper crack down on greenwashing. 

The Investment Company Act of 1940 contains regulations that require companies to disclose information about their investment policies and financial conditions to investors on a regular basis. These changes to the Names Rule and related naming regulations are intended to modernize the Act and promote enhanced transparency, accountability and integrity. 

During the announcement, SEC Chair Gary Gensler commented, “As the fund industry has developed over the last two decades, gaps in the current Names Rule may undermine investor protection. Today’s final rules will help ensure that a fund’s portfolio aligns with a fund’s name. Such truth in advertising promotes fund integrity on behalf of fund investors.”

As a result of the amendments, any funds that suggest a specific focus based on its name (e.g., funds that use words like “green”, “sustainable”, “ethical” and so on in its name), must ensure that at least 80% of its investments are actually invested in a way that aligns with that name. Funds are now also required to review their assets at least every quarter to ensure they’re meeting this threshold, and if they find they’re out of compliance, they have 90 days to rectify it. 

Finally, the amendments also roll out new disclosure and record keeping requirements, including:

  • enhanced prospectus disclosure requirements for terminology used in the names of funds
  • the requirement that any term used in a fund name that suggests an investment focus must be consistent with that term’s plain English meaning; and
  • additional record keeping requirements for compliance with names-related regulations.

Dissenters to these changes argue that the new requirements may end up wiping out ESG funds, saying that many ESG funds were already underperforming and now the 80% rule may make them no longer a viable investment option. Others say SEC’s requirements, “would be impracticably subjective, cause confusion among investors, and encourage superficial judgments based solely on names.”

Regardless of opinion, the SEC’s crack down on greenwashing of ESG funds isn’t going away anytime soon, and it’s only likely to increase.

Moving Forward: How To Avoid Greenwashing at Your Organization

The SEC isn’t the only player posing legal risk for investment funds involved in greenwashing. State-level legislation is also being passed to combat ESG misinformation. Additionally, environmental activists are bringing alleged bad actors to the public’s attention, creating risks for those actors’ reputations.

Moreover, the tightening of rules isn’t just restricted to ESG funds. The requirement to disclose information in an accountable and transparent manner is only increasing. The European Union approved the European Sustainability Reporting Standards in July 2023, and the SEC is set to release new rules around ESG reporting and climate disclosures Fall 2023.

The takeaway? Greenwashing is risky business.

Whether companies are concerned with investors, consumers, or both, there are many steps they can take to avoid greenwashing. 

Of course, specific legislation and rules might apply to different scenarios, but as a general rule of thumb, companies should consider the following actions:

1. Commit to Transparency 

When it comes to avoiding greenwashing, a true commitment to transparency is the first step. Don’t disseminate vague, non-specific claims that leave people with more questions than answers. Instead, share concrete claims openly and honestly and make sure your information is backed up with verifiable evidence, data and metrics. 

Additionally, don’t just share your wins. Being transparent about both your achievements and shortcomings is what builds trust. If you didn’t meet a target, be honest about it, take ownership and show how you’re working to achieve it.

To help you, consider creating a scorecard, dashboard or even microsites – like the ones offered by FigBytes’ Sustainability Platform – to keep your progress front and center, and enable your company to share important information with your stakeholders. 

Transparency equals trust, and trust builds loyal customers. Though greenwashing might be tempting for short-term wins, it’s long term loyalty and brand equity that moves the dial.

2. Collect Auditable, Investor-Grade Data

It’s easy to make statements like, “we’re committed to protecting our rivers and oceans for generations to come” or “we stand for climate action, now”. However, most consumers are waking up to the fact that those sorts of statements are often indications of greenwashing.

Instead of making marketing-speak claims, set a few realistic KPIs and work towards them. Collect auditable, investor-grade data about them. Start with KPIs that you know you can track, and make sure your data is rock-solid. Don’t try to tackle too much at once, or your data might be too thin.

With a tool like FigBytes’ Sustainability Platform, you can manage your data easily by centralizing data collection, calculations and analytics. You can even automate reporting and track your progress along your whole supply chain.

3. Be Consistent

When a product rebrands their packaging to use green tones, add natural images or include logos of unverified certification programs, it can be an indication of greenwashing. 

It’s easy to change up your branding, put out ads about how green you are, and share a news story or two about a donation you made. But, it’s much harder to do the real work, and share your efforts on a consistent, year-over-year basis.

A true commitment to ESG isn’t a one and done exercise. It can’t be accomplished in a quarter. And it certainly won’t come about through a packaging design change. The better approach is to put the work in, track your progress over months and years, and share this honest and verifiable information with your stakeholders on a regular basis.

With steady, consistent progress, the market will notice your efforts and you’ll build credibility and trust that adds lasting value to your organization.

Fight Back Against Greenwashing Today

As the regulatory, reputational, and litigation risk of greenwashing increases, there are many things your business can do to develop an ESG program based on accountability, transparency and trust. FigBytes can help you get there. 

To see how FigBytes can automate and streamline your ESG data collection, management, and reporting processes, reach out today and speak to a FigBytes expert.

ESG Data Basics: Complete Guide to Management & Reporting

Close-up photo of spider web with rain drops stuck in the fibers.

Got a case of compliance complexity? The sustainability landscape is evolving so rapidly that it can feel like you need to spend all your time staying up to date on new standards and reporting requirements. There’s no time left to actually build reports and achieve meaningful targets.

Setting up your company’s Environment Social and Governance (ESG) program is a huge undertaking. You need to be able to meet the needs of corporate leadership, investors, customers and suppliers, along with other stakeholder and community members. 

But where do you start? Government and other jurisdictions are setting targets for carbon reduction, but don’t prescribe specific methodologies. Investors want you to follow frameworks that result in data that will meet their needs. Those frameworks have methodologies, but don’t give a complete list of the data you’ll need to gather for a complete report.

If you’re overwhelmed and your ESG data is starting to look more like a spiderweb of spreadsheets than something that will absolutely be useful for your business, there are solutions that reduce the complexity and streamline your efforts.

What Are the Types of ESG Data To Be Collected? 

Before diving into the challenges of managing and reporting ESG data, let’s make sure we understand the different types of ESG data that organizations typically deal with. ESG data can be broadly categorized into three main pillars:

  • Environmental
  • Social
  • Government

Environmental Data

Sustainability is often used synonymously with issues surrounding climate change, so the environmental data most commonly collected is related to calculated carbon emissions. This includes data related to the Scope 1, Scope 2, and Scope 3 emissions, offering a comprehensive view of their environmental impact.

Related to carbon emissions, though sometimes reported under its own heading depending on the ESG standard being used, is energy consumption. Data includes energy use and efficiency, renewable energy adoption, and energy-saving initiatives.

Other aspects of environmental data gathering include waste, water management and forestry. Depending on the nature of a business’s operations, this could include information about waste generation, recycling efforts, water conservation measures, reforestation efforts and other stewardship initiatives.

Social Data

Social data looks at a company’s workforce and its relationship to the community. Under this heading, the ESG team will need to liaise with HR to pull data on diversity, gender equality, and the company’s efforts to promote an inclusive workplace.

Other social data to collect includes Information about employee working conditions, wages, benefits, and labor union relationships.

Finally, social data looks outside the company to assess community engagement. This might include pulling details on data related to philanthropic initiatives, community investments, and partnerships.

Governance Data

Governance data helps measure and assess how a company’s leadership is organized, how decisions related to sustainability are incorporated into large policies and procedures, and how factors like compensation can be used to incentive the board and C-suite to prioritize sustainability.

When gathering governance data, the ESG team will look at details about the board’s diversity, independence, and expertise. They’ll also ask for information on executive pay structures and alignment with performance. Governance data also includes information regarding the company’s adherence to ethical and compliance standards.

What Are the Biggest Challenges in ESG Data Collection and Management?

Managing ESG data presents several challenges for companies, ranging from data collection to reporting. Here are five challenges companies commonly face.

Data Collection and Integration

ESG data often comes from various departments within an organization, making it challenging to consolidate and integrate data effectively. It may involve data from finance, HR, purchasing, sales, health and safety, IT, sustainability, and more. And that’s just the people you’ll have to reach out to in your own organization.

Companies often rely on external sources for ESG data, which can be less controllable and require validation and integration into internal systems. You’ll need to reach out to suppliers and customers. There’s no guarantee that they will buy into the goals of your ESG program or provide the high quality data you need to make your program effective.

Data Quality and Accuracy

As we’ve already discussed, ESG reporting lacks universal standards, leading to variations in data collection and reporting methodologies. Some examples include:

  • The data you need to meet government requirements might be different from what your investor is requesting 
  • Your supplier might have an ESG program of their own using a different standard, meaning the data they have available is also different 
  • The standard you used for your program last year might have been rolled into a newly released standard this year, resulting in different supporting materials being made available

All of these can result in discrepancies and hinder accurate comparisons, both by your investors and also year-over-year. Ensuring the accuracy of ESG data can be challenging, and companies may need to invest in verification processes or external audits.

Data Volume and Complexity

Data overload is a real problem. ESG reporting requires the collection of extensive data, especially for large corporations with global operations. Managing the sheer volume of data can be overwhelming. And in cases of employee turnover on the ESG team, you can’t hope that new hires will be able to untangle the mess of spreadsheets their predecessors left behind.

Not to mention, ESG metrics can be complex and multifaceted, making it challenging to assess their impact and relevance accurately. The first step of any effective ESG program is to accurately define boundaries and assess materiality. The team needs to understand and balance competing priorities from leadership, investors, and community stakeholders.

Reporting Framework Selection

Companies must choose from various ESG reporting frameworks such as GRI, ISSB, TCFD, and others. Selecting the right framework that aligns with their industry and goals can be a daunting task. They also need to know what to do when their standard becomes defunct or incorporated into another, similar to the way TCFD has now been replaced by ISSB.

In addition to the shifting sands of ESG frameworks, governments are changing their reporting requirements all the time. Companies need to stay updated on regulatory changes and adapt their reporting accordingly, without creating unnecessary duplications in an effort to meet both legal and investor requirements.

Stakeholder Expectations

Along with documented and quantifiable requirements from ESG frameworks and sustainability regulations, companies have to navigate the expectations of a wide range of stakeholders, including investors, customers, employees, regulators, and advocacy groups. Meeting these diverse expectations can be challenging.

Maintaining transparency and building trust through accurate and meaningful ESG reporting is crucial but can be difficult to achieve. There is often sensitive and confidential data to be collected, like leadership compensation or the details of environmental discharges. Knowing what to disclose, how to disclose it, and who has the authority to share is a critical part of any successful ESG program.

Addressing all of these challenges requires a proactive approach to ESG data management. Companies should invest in robust data collection systems, establish clear data governance procedures, and continuously monitor and improve their ESG reporting processes. 

How To Collect ESG Data

Collecting ESG data can be a complex and time-consuming process. Sometimes it can feel like the ESG team spends the entire year just collecting data and generating reports and never has an opportunity to build the processes that will result in your company hitting its ESG targets and commitments. 

But proper ESG data collection is a critical step toward effective ESG management and reporting. The team simply needs to find a way to do it in an efficient manager. Some of the key steps of data collection are discussed below.

Identify Relevant Metrics

Start by identifying the ESG metrics that are most relevant to your industry and business. These metrics should align with your sustainability goals and stakeholder expectations. A materiality assessment will keep you from wasting time gathering data that is either irrelevant to your operations or won’t bring value when it comes time to set goals and targets. 

Industry-specific frameworks like the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB) can provide guidance on the most material metrics to consider for your operations.

Establish Data Sources

Determine where the necessary data resides within your organization. ESG data can be sourced from various departments, including finance, HR, operations, and sustainability teams, as well as outside your organization like from suppliers. Departments need to buy into the value of ESG for the organization, rather than seeing it as a paper exercise. 

Collaboration and data-sharing mechanisms are crucial. Everyone is busy and doesn’t want to waste time collecting data that will be emailed into a black hole never to be seen again. Finding ways to collect data in the units individual departments have readily available, and providing support on how to find the information you need will make the flow of information easier.

Data Collection Methods

Data collection will depend on your operations and the methodologies you choose to use for questions like emissions estimates and financial impacts. Methods may include direct measurement, production data, surveys, audits, and third-party data providers. 

Automation tools and software can streamline data collection. For example, FigBytes has internet-of-things and API integrations that enable organizations to pull information directly from equipment and software, rather than waiting for hard copy records like invoices.

Data Validation and Verification

High quality data results in high quality reporting. To ensure data accuracy and reliability, implement validation and verification processes. This may involve conducting internal audits, engaging external auditors, or using data validation software.

Data Aggregation and Standardization

Aggregate and standardize ESG data to create a coherent and consistent dataset. This step is crucial for comparing performance across different time periods and benchmarking against peers. An ever-changing dataset opens your reporting up to errors which can falsely inflate environmental impacts or show year-over-year progress that isn’t real.

How To Manage ESG Data

Effective data collection is only the beginning. Once you’ve collected ESG data, effective management is essential to derive meaningful insights and drive sustainability improvements. There are five key steps to managing ESG data.

Centralized Data Repository

Establish a centralized data repository or ESG management platform where all collected data can be stored, accessed, and analyzed. Remember, spreadsheets can be lost or corrupted, both by human error or digital failure. 

Cloud-based solutions are increasingly popular for their scalability and accessibility. This is especially important when data collection and report generation happen in different locations. Regional offices and suppliers want a convenient and easy-to-use interface to provide requested information.

Data Governance

Too many cooks spoil the soup, and too many access points to ESG data can result in poor version control, accidental deletions, and incomplete datasets. Implementing robust data governance practices ensures data quality, security, and compliance. Assign responsibilities for data management, establish data stewardship protocols, and audit these procedures regularly.

Data Integration

Just like ESG policies and risk assessments should be incorporated with larger corporate policies and risk assessment procedures, ESG data should be integrated with your broader business data systems, such as Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) systems. 

ESG data and reporting can’t exist in a vacuum. By integrating it with other systems, your organization will understand that achieving ESG goals has the same priority level as financial performance and customer satisfactions, and provide a holistic view of your organization’s overall performance.

Performance Tracking

Building an ESG program isn’t a one-and-done undertaking. The real value comes in measuring annual performance, identifying areas for improvement, and celebrating successes. 

Set key performance indicators (KPIs) for ESG metrics and track them regularly. Visualization tools and dashboards can help clarify trends, both negative and positive, and make reports easy to follow for company leadership, financial institutions, and other stakeholders to follow. 

Stakeholder Engagement

Engage with internal and external stakeholders, such as employees, investors, customers, and regulators, to understand their ESG expectations and concerns. An effective ESG program is a lot of work, but one that doesn’t meet stakeholder needs is a waste of time. Use stakeholder feedback to refine your ESG strategy going forward.

Still Feeling the Complexity Squeeze?

Gathering, managing, and reporting ESG data is no small task, especially for large organizations managing reports for facilities and operations across the country and around the world. Your team needs time to verify data, seek stakeholder feedback, and implement the programs that will result in progress for future reports.

It’s not easy. Using home-grown data collection tools means the reporting team will be one step behind any time regulations change or stakeholders adopt a new reporting framework.

A cloud-based software solution like FigBytes helps streamline the complexity. Through partnerships with reporting programs, FigBytes makes sure your data is compiled in a way that will give meaningful and verifiable metrics. It simplifies data gathering, keeps your information secure, and can be customized to meet your needs. If you need help untangling your ESG data web, speak with one of our experts today.