Organizations are now operating in a context where decarbonization and climate transition planning are increasingly table stakes. In the past year, the first companies subject to the Corporate Sustainability Reporting Directive (CSRD) were required to apply the new rules. California signed into law SB-253 and SB-261, and many US states proposed similar climate disclosure bills. As climate-related regulations begin taking shape, organizations may need to implement new ways of working to ensure compliance and take proactive steps to keep ahead of impending regulations.
For those who question the degree of impact that new legislation will bring, recall that there was a similar movement for financial regulation and disclosure that changed how the government monitored financial reporting. What started as a shift in the prioritization of transparency evolved into a growing number of checkpoints to ensure that information was available to the public and reported consistently and accurately. A similar shift in corporate transparency and accountability is occurring with climate-related risks and opportunities.
The European Union’s Corporate Sustainability Reporting Directive requires that companies disclose information on material climate-related risks and opportunities, as well as their transition plans for moving away from fossil fuels. The goal is to ensure that their business models meet environmental targets that keep the world on a 1.5C temperature increase pathway to 2100. Examples include the Paris Agreement and the EU's 2050 climate neutrality target.
The state recently passed two climate-related disclosure bills:
While these bills have made notable impacts on the requirement for mandatory disclosure, there is also a continued effort by various agencies to increase the amount of mandatory disclosure at a national and international level.
Additional states are following California’s lead. Three US states have recently proposed climate corporate reporting bills that largely mirror California’s:
Companies should be proactive and start putting mechanisms in place to adhere to the new guidelines. The reporting process can be complex, and sourcing the appropriate data to support this process takes time.
Compliance reporting should not be done in a vacuum. Instead, it should be woven into holistic decarbonization plans. This involves allocating sufficient time and resources, which may require dedicated internal teams and securing buy-in for prioritizing disclosure.
Companies often face internal knowledge and talent gaps as they develop their disclosure practices. Additionally, obtaining clear and concise data can be time-consuming and may require specialized tools and expertise. Regional differences and managing multiple business units also necessitate alignment efforts. Despite these challenges, refining data-gathering practices, particularly for Scope 3 emissions, is crucial to effectively inform future disclosures.
While the work is complex, organizations should not become lost in a quest for perfect data at the expense of investing in meaningful decarbonization. Perfection can become the enemy of progress, and delaying action around disclosure can put a company at risk. As mandatory disclosure regulations are put in place, customers, partners, and investors will have access to view organizations’ commitment to decarbonization. Even with incomplete data, disclosure can still be beneficial. Staying transparent with climate reporting demonstrates a commitment to addressing decarbonization concerns, which can help bolster an organization's reputation among stakeholders and position the company as proactive and responsible in the face of climate challenges.
Mandatory reporting plays a pivotal role in advancing a comprehensive decarbonization strategy for companies, serving as a fundamental tool to steer them toward sustainability and a low-carbon future. By mandating transparency, accountability, and informed decision-making, these reporting requirements provide critical insights into the alignment of business models and strategies with a low-carbon economy. Acting as a form of gap analysis, they illuminate areas where companies need to bolster their efforts in mitigation and adaptation strategies to ensure readiness for the evolving economic landscape. The emerging disclosure requirements point to the need to create an adaptable strategy and business processes, and many organizations require a partner to transform their theoretical ideals into tangible best practices.
ENGIE Impact focuses on resilience to the inevitable risks and impacts of climate change on the business. We build climate transition plans for organizations to ensure their business models and strategies are compatible with a low-carbon economy. Our experts can help you determine what emissions goals are most important to your organization.
It is a matter of time before organizations are operating in an era where decarbonization and climate transition planning are required. Starting the disclosure process now, before incurring non-compliance penalties, will have positive repercussions for the business. The first step is recognizing the implications of this changing landscape. Then, find a partner that can help your organization prepare for the future.
Talk to our experts about navigating the era of climate reporting.
