As we move deeper into the era of sustainability and climate consciousness, businesses worldwide face an increasingly complex web of regulations related to climate disclosure, each with its own nuances and expectations.
In this new regulatory landscape, four notable frameworks have emerged – the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), the SEC climate disclosure rules and California’s SB 253 and SB 261, known collectively as the Climate Accountability Package.
The SEC’s rules apply to certain classes of publicly listed companies, and SB 253 and SB 261 apply to public and private companies that operate in California. In addition to EU companies, the CSRD and CSDDD also apply to thousands of non-EU companies.
The CSRD challenges companies to report broadly on sustainability topics including climate, pollution and biodiversity. The CSRD also has social impact reporting requirements related to a company’s workforce and their supply chain. Unique to the CSRD is the concept of double materiality, which urges businesses to identify the financial and environmental topics that are most important to their business. While 2024 is the first reporting period for the CSRD, the scope of companies impacted is limited.
The CSDDD, on the other hand, intertwines human rights with the climate, compelling companies to adopt transition plans that align with the Paris Agreement. The SEC rules mandate reporting on greenhouse gas emissions and climate-related risks for select SEC registrants.
Tackling compliance with a plan
Many organizations face the hurdle of integrating sustainability into their existing corporate structures and cultures. The complexity and variability of reporting standards across different regions and frameworks can be overwhelming for companies trying to reconcile conflicting requirements, leading to significant inefficiencies and ambiguities in their reporting processes.
Furthermore, the data collection needed for robust sustainability reporting is often intricate and time-consuming. Companies must gather accurate data across their entire value chain, which means involving suppliers and partners, each with their own varying degrees of commitment and capability. Additionally, resistance to change, lack of internal expertise and insufficient resources can impede progress. Finally, companies that are in the nascent stages of their sustainability journeys may struggle with setting realistic yet ambitious goals, tracking progress and demonstrating meaningful impact.
To achieve compliance, a multidimensional approach is required. There are five basic steps for creating an actionable compliance plan:
- Assess the current state of your business.
- Establish a robust governance and oversight mechanisms.
- Formulate and document strategic targets and goals.
- Ensure data quality and auditability.
- Clearly communicate your plan with stakeholders to foster buy-in.
Digitalization
Digital transformation can prove beneficial in meeting these compliance objectives. Software can centralize data collection and reporting, thereby making these processes more efficient. Additionally, voluntary reporting frameworks such as the CDP can complement these efforts by providing a platform for benchmarking, enhancing reputation and marketing.
Harmonizing reporting frameworks and utilizing centralized software allows you to strategically address multiple regulatory requirements using a single calculation. As companies begin this process, they should concentrate on three key areas:
- Improving data quality
- Supplier engagement
- Setting meaningful sustainability goals
Scope 3
Scope 3 has come to the forefront of the conversation, with an emphasis on the importance of considering upstream and downstream impacts of your products. This includes the consideration of the double counting of GHG emissions when suppliers compute their Scope 1 and 2 data.
The good news is that companies are not left without guidance in this complex realm of regulations. Resources such as the GHG Protocol’s Corporate Reporting Standard offer detailed advice on dealing with specific situations. Additionally, SpheraCloud Corporate Sustainability Software has proven effective in facilitating Scope 3 and ESG reporting.
The information provided in this blog is for general information purposes only, may not be updated in real time and does not constitute legal advice. Please consult with your legal and other advisors to discuss your particular needs and circumstances.
