With the Securities and Exchange Commission’s stayed climate rule in a state of legal uncertainty, sustainability reporting professionals are increasingly looking at international frameworks. In a significant development, the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) recently published a detailed analysis on how their respective climate-related reporting requirements intersect. This comprehensive guidance aims to streamline interoperability among major sustainability standards, an important consideration for multinational corporations.
One of the key takeaways from this new guidance is the creation of an extensive list of climate-related disclosures that companies need to monitor when adopting both sets of standards. These disclosures range from greenhouse gas emissions (including current and targeted reductions) to carbon credits, transition plans, and industry-specific metrics. The alignment in the definition of financial materiality is another critical aspect, offering companies the opportunity to leverage materiality assessments across different standards.
However, it’s important to note that while a unified definition of financial materiality can streamline some processes, identifying sustainability risks and opportunities remains a standard-by-standard process. This means companies may need to conduct additional analyses to ensure compliance with both ISSB and EFRAG standards. The complexity of these processes underscores the importance of robust data management systems, as highlighted by a KPMG survey, which found that while 83% of companies think they’re ahead on reporting, 47% still rely on spreadsheets to manage sustainability data.
In the U.S., the state of California recently finalized its climate laws, catching many by surprise. Unlike the still-paused SEC climate rule, California’s regulations explicitly consider interoperability, allowing companies to utilize existing reporting methods under recognized standards. However, the scope of California’s laws extends beyond public registrants to include private companies, presenting additional challenges.
To maximize interoperability and ease reporting burdens in this evolving landscape, multinational preparers should prioritize effective data management, break down internal silos, and conduct assurance readiness assessments. These steps are vital not only for compliance but also for realizing the potential efficiencies offered by the new joint guidance from ISSB and EFRAG.
While the recent advancements in global climate guidance are promising, there remains uncertainty about achieving true interoperability in practice. As countries continue to adopt ISSB standards and as the rollout of California’s laws progresses, companies must remain agile, adapting their reporting strategies to meet both voluntary and regulatory requirements while focusing on the broader value of sustainability initiatives.
For further insights into the new climate guidance and its implications for multinational corporations, read the full analysis by KPMG’s Maura Hodge here.