The US Securities and Exchange Commission (SEC) has finalized a set of new rules¹ to enhance and standardize climate-related disclosures. The new disclosures include:

• Climate risk management;
• Strategy;
• Governance;
• Climate targets and goals;
• Greenhouse gas (GHG) emissions (Scope 1 and Scope 2); and
• Material expenditures and impacts.
• In addition, there are specific disclosures related to internal carbon pricing, transition plans, and the use of scenario analyses that must be provided, if a company utilizes such information and it is material.

The SEC has stayed the effective date of the final rule pending judicial review of petitions challenging it. The stay does not reverse or change any of the final rule’s requirements. Since the outcome of the litigation is unknown and the review may take several months or longer, it is uncertain whether the SEC will retain or extend the final rule’s existing mandatory compliance dates. Irrespective of this uncertainty, companies will need to make decisions related to implementing the rule’s requirements.

In addition, the Biden administration has proposed a rule² requiring major federal contractors to publicly disclose their GHG emissions and climate-related financial risks. Under the proposed rule, they must set science-based targets³ for emissions reduction.

Although the SEC’s final rule applies only to publicly traded companies, the proposed rule for federal contractors would apply to private and public companies alike if the threshold for annual federal contracts is met, underscoring the importance for all companies to understand the potential impact of ESG rules and regulations.

The European Parliament has adopted the Corporate Sustainability Reporting Directive (CSRD) and the accompanying European Sustainability Reporting Standards (ESRS), with reporting set to begin as early as 2024.

ESRS is much more robust than the SEC’s climate disclosure rules and consists of 12 standards across environmental, social, and governance matters. The CSRD also includes a stakeholder-focused double materiality assessment that will require companies to specify how sustainability matters affect the company and how the company’s activities affect people and the environment.

While the majority of listed companies in Europe will be subject to these new disclosure requirements, the CSRD will also apply to companies not established in the European Union but that are listed on EU-regulated markets, as well as EU subsidiaries of non-EU companies. This means that many US-based entities are going to be subject to these requirements; in some cases, under a more accelerated implementation period than the SEC climate disclosure requirements, and with an expanded scope of reporting and assurance requirements.

In the United Kingdom, large companies⁴ began mandatory ESG reporting in April 2022.⁵ The reporting requirements are based on recommendations set forth by the Task Force on Climate-related Financial Disclosures (TCFD).⁶ Hong Kong, Singapore, Japan, and Malaysia have announced their own mandatory climate disclosures in line with TCFD recommendations.

The United Kingdom has also signaled its intention to mandate disclosures aligned with standards set by the International Sustainability Standards Board (ISSB), a sister board to the International Accounting Standards Board. China has revealed plans to adopt ISSB as well. Elsewhere in Asia, the ASEAN Taxonomy Board released the ASEAN Taxonomy for Sustainable Finance to help member states address environmental objectives.