The landscape of corporate reporting has shifted dramatically. As climate change intensifies, regulators worldwide are demanding a new level of transparency.

Large firms must now articulate their exposure to environmental threats, integrate sustainability into financial planning, and ensure accountability at every level.

Understanding the New Mandates

In early 2024, the US Securities and Exchange Commission (SEC) finalized rules requiring public companies to disclose material climate-related risks and greenhouse gas emissions. Meanwhile, California enacted landmark state legislation that expands these requirements to private entities with significant revenues.

Internationally, the European Union’s Corporate Sustainability Reporting Directive (CSRD) has set a high bar for exhaustive environmental, social, and governance disclosures.

Key Requirements for U.S. Federal Companies

The SEC’s climate rule applies to publicly traded companies, with further thresholds for large accelerated filers. Key provisions include:

• Governance and Risk Management: Describe board oversight and integration of climate risk into strategy.
• Material Risk Disclosure: Detail risks and their likely impacts on operations and finances.
• GHG Emissions Reporting: Report Scope 1 (direct) and Scope 2 (indirect) emissions if material, with independent attestation for the largest filers.
• Financial Statement Impacts: Disclose costs of severe weather and climate-related events in audited filings.

Scope 3 emissions remain voluntary, though firms must discuss significant supply chain vulnerabilities if they are material to business health.

California’s Pioneering State Legislation

California’s twin laws—SB 253 and SB 261—extend climate transparency requirements beyond public companies. They target businesses based on revenue thresholds, driving accountability across the economy.

Key features of these laws include:

• Scope 1, 2, and 3 Disclosures: All GHG emissions data must be reported, with phased implementation from 2026 through 2027.
• Third-Party Assurance: Initial limited assurance for Scopes 1 & 2 in 2026, rising to reasonable assurance by 2030; Scope 3 assurance may follow by 2030.
• Risk Reports: Biennial TCFD-aligned risk and mitigation reports under SB 261, starting January 1, 2026.
• Penalties for Non-Compliance: Up to $500,000 annually for SB 253 and $50,000 for SB 261.

By mandating disclosures for firms with over $1 billion or $500 million in global revenue, California has set a precedent that resonates well beyond its borders.

Global Context: Europe’s CSRD

The EU’s CSRD affects more than 50,000 companies, including foreign entities with substantial EU operations. It emphasizes double materiality—requiring firms to report both the impact of climate on their finances and their impact on the environment.

Companies must disclose a broad range of ESG metrics, including Scopes 1, 2, and 3 emissions, with robust external assurance. The phased roll-out began with fiscal year 2024, with full compliance expected by the late 2020s.

Comparing Regulations at a Glance

While each regime reflects local priorities, common threads bind them: the aim to combat greenwashing, empower investors, and encourage global harmonization.

Implementation Timelines and Challenges

Timely implementation remains a challenge. The SEC rule was finalized on March 6, 2024, with disclosures slated for FY 2025 filings in 2026 but currently paused due to litigation.

California’s laws require first data filings in 2026, with risk reports due the same year. EU firms began reporting in 2025 for FY 2024, under pressure to scale data systems and assurance mechanisms rapidly.

The complexity of measuring Scope 3 emissions, coupled with evolving assurance standards, demands robust internal processes and clear governance structures.

Impacts and Opportunities for Businesses and Investors

Mandatory disclosures promise to enhance global standardization and transparency, leveling the playing field for investors assessing climate exposure.

By surfacing hidden risks, firms can anticipate supply chain disruptions, optimize resource use, and discover new markets for green products.

Investors benefit from standardized metrics, reducing uncertainty and enabling more precise portfolio allocation. Moreover, assured data can help restore trust in corporate sustainability narratives.

Moving Forward: Best Practices for Compliance

Firms that embrace these regulations proactively can turn compliance into a competitive advantage. Consider these strategies:

• Integrate risk management into core business functions, establishing clear accountability.
• Engage stakeholders early—suppliers, investors, and communities—to gather reliable data.
• Invest in robust data collection systems, combining technology and expert oversight.
• Seek third-party verification and assurance early to identify gaps and build credibility.
• Communicate progress transparently, framing disclosures as a story of resilience and innovation.

Conclusion

The shift to mandatory climate risk disclosures marks a pivotal moment for corporate governance. It signals an era in which environmental stewardship and financial performance are inseparable.

By embracing transparency, companies can navigate uncertainty, inspire investor confidence, and contribute to a more sustainable future.

Ultimately, these regulations offer not just a framework for reporting, but a roadmap to balanced view of opportunities that align profit with purpose.