The Securities and Exchange Commission’s final rule on climate-related disclosures concludes a lengthy endeavor to equate sustainability reporting to financial reporting in the US. Meanwhile, other international entities such as the California legislature, European Financial Reporting Advisory Group, and International Sustainability Standards Board have been concurrently setting their own rules.
These changes will significantly shape how organizations strategize and report on sustainability. Yet, questions remain on how these transformations will unfold and who will be accountable for them. The SEC climate rule requires cross-departmental involvement, with forty-one percent of respondents to KPMG’s 2024 ESG Organization Survey citing internal communication barriers as a hindrance to streamlining sustainability strategy into broader business operations.
As regulatory activities surge, there is a shift towards appointing devoted ESG controllers or Chief Sustainability Officers to oversee reporting and controls. But regardless of who takes charge, it’s important to recognise that sustainability impacts every aspect of a business and this must be reflected organization-wide.
Companies often ask if disclosure standards from one jurisdiction will fulfil requirements in another—a question that sparks discussions around interoperability and equivalence. While we’re not yet certain where equivalence may be granted, there are notable differences among jurisdictions in their adoption of standards. To understand such disparities, organizations need to carefully review the specifics of the SEC climate rule.
While all the prevailing standards require disclosure aligned to governance, strategy, risk management, targets, and metrics, they diverge on definitions of materiality, range of sustainability disclosures, treatment of Scope 3 greenhouse gas emissions, and timelines for implementation.
Despite being excluded from the SEC climate rule, Scope 3 emissions are still within the ESRSs, ISSB standards, and California climate laws. US multinationals must therefore still consider how they will collect, measure, and disclose their Scope 3 greenhouse gas emissions to meet other regulatory requirements.
Lastly, while sustainability reporting may be a hefty task, compliance and strategy need not be mutually exclusive. By mapping out reporting requirements and aligning them with business strategies, companies can better appreciate the full value that sustainability initiatives can bring to their enterprise.