Since at least the summer of 2022, we’ve been documenting the procedural and political hurdles that US rules for climate disclosures face. Now, about a year and a half later, the proposed SEC rule is – by all outward appearances – no closer to being finalized than it was then (despite whisperings of movement in early December).
Two consecutive self-imposed deadlines – in April and October this year – passed with little to no official statement from the SEC, the federal body responsible for the proposed rules. The SEC continues to make noises of progress, as grinding gears might, but as we are now careening towards a US presidential election there’s less hope than ever of things resolving in 2024.
Fans of climate disclosures, which would likely include a number of US corporations who’d welcome the standardization, the investors for whose sake the rules were first mooted and – of course – climate-focused NGOs, the UN, and public bodies, may feel despair. Consultants and software providers who see their sales pipelines directly impacted, may feel more.
For all the anti-ESG rhetoric being thrown about in the US, the primary obstacle to the rules seems to be technical. Corporations and their auditors have expressed doubts in the ability to report Scope 3 emissions – stemming from firms’ extended value chains – in a way that would ensure consistency and clarity across all filing businesses, their suppliers and customers.
For example, Amazon has already demonstrated how a little creativity with respect to Scope 3 definitions can lead to radically different emissions profiles. And Verdantix benchmark data shows that business-to-business variances in Scope 3 boundaries can lead to wildly diverging emissions intensity data. Ultimately, Scope 3 reporting is an eminently solve-able problem, and European firms are already solving it, but the US SEC has simply still not decided how best to proceed with it.
If you’re a corporate leader in the US or elsewhere, here is how to think about disclosure developments:
- Set aside thoughts of the SEC, in exchange for greater focus on California.
While federal administrators have struggled to finish their work, their peers in California have finalized their own climate disclosure rules – and had these signed off by the governor. California legislation SB 253 requires firms to provide greenhouse gas emissions data for Scope 1, 2 and 3 emissions and disclosures on climate-related risks, opportunities and scenario analysis, with limited and reasonable assurance. These California emissions disclosures take effect in 2026 for the Scope 1 and 2 emissions, and 2027 for Scope 3. Further, all organizations “doing business in California” are impacted, though the state has yet to formally define what that means. Even modestly defined, it will impact tens of thousands of firms in the US and abroad. - Ask not for whom the EU CSRD bell tolls (it tolls for thee).
The EU has, of course, already released expansive climate disclosure regulations: its Corporate Sustainability Reporting Directive. The CSRD will already effect every business that was impacted by its predecessor (the NFRD) by 2024, but its influence will expand rapidly within the EU in 2025 and 2026, and finally cover non-EU firms with more than €150 million in turnover in the EU from 2028. This latter group numbers as many as 10,000 organizations, according to Refinitiv. The EU’s ESRS reporting standards establish clear definitions for Scope 1, 2 and 3 emissions, with the latter required only if material. - The ISSB is likely to grow as the de facto regulatory catch-all across jurisdictions.
Previous standard-holders for climate disclosures, the TCFD and CDP, are increasingly folding their work into the finalized ISSB S1 and S2 standards completely (with the latter effectively being subsumed by ISSB). As such, this framework becomes the new template for countries to use for a standard set of climate and sustainability disclosures. Last generation’s TCFD-aligned regulations in Brazil, Canada, New Zealand, Singapore, Switzerland and the UK will become tomorrow’s ISSB-aligned rules.
The takeaway for leaders is that carbon emissions reporting and carbon accounting requirements will continue to grow more rigorous, if still with unpredictable advances and lags from policymakers. This uncertainty becomes its own kind of transition risk, as firms with ambitious climate agendas seek to avoid negative commentary for moving early and organizations with lagging climate agendas seek to put off investment without risking fines or market backlash. Start taking the steps to manage this today.
