Mandatory climate reporting is here: Are you ready?

With new climate disclosure regulations being enacted worldwide, thousands of public and private U.S. companies could face required reporting from multiple jurisdictions, including the state of California and the European Union (EU), for reporting periods as early as 2024.

The California Climate Accountability Package (CCAP) is the most recent in a line of climate-related disclosure regulations, including the EU's Corporate Sustainability Reporting Directive (CSRD), that mandates companies to disclose the impact of climate either on or by their business. 

The goal of such actions is to enable consistent, comparable and reliable climate disclosures while also pushing companies to adequately identify and address climate risks, leading them to more deeply embed sustainability in the way that they do business.

It is now imperative for public and private companies to understand if and when they must disclose on climate issues to maintain compliance in their operational jurisdictions and avoid financial and reputational risk. While climate disclosure may be unfamiliar, elements of climate reporting can help companies hone their strategy in the years to come, identifying not just risks but also opportunities that could positively affect the business’s future value, improve resilience and maintain stakeholder trust. 

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Common components of climate reporting

Many climate reporting requirements, including those proposed by the SEC as well as those enacted in California and the EU, draw from the recommendations of the Task Force for Climate-Related Financial Disclosures (TCFD). As a result, companies can benefit from applying a consistent four-part disclosure framework found across many reporting requirements:

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Additionally, most regulations draw from or reference the GHG Protocol to help identify and calculate Scope 1, 2 and 3 emission metrics.

Regulators are taking action globally but there is a silver lining

As jurisdictions worldwide take action, there is a silver lining. Because these jurisdictions are using TCFD as a foundation for their climate reporting mandates, companies have the opportunity to leverage synergies for consolidated climate reporting. This can help satisfy multiple jurisdictional mandates and save compliance costs in the long run. Below is a summary of key climate-related mandates affecting the North American market and their applicability to companies:

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Climate-related regulatory developments that company leaders should be monitoring include:

• California Senate Bills (SB) 253 and 261

The state of California enacted two bills in October 2023 — SB 253 and SB 261 — that mandate both climate risk and greenhouse gas disclosures for certain public and private companies “doing business” in California. Grant Thornton’s overview of both SB 253 and 261 is available to read here.

SB 253, “Climate Corporate Data Accountability Act”

Under SB 253, the Climate Corporate Data Accountability Act, reporting entities with over $1 billion (USD) in total annual revenue that “do business” in California must disclose and subsequently gain assurance over their Scope 1, 2 and 3 GHG emissions annually, noting preference for the GHG Protocol as a disclosure framework. Compliance with SB 253 is required for reporting entities starting in 2026. Phased-in assurance requirements will also begin in 2026. Failure to comply with or violations of SB 253 could result in administrative penalties of up to $500,000 in a reporting year.

SB 261, “Greenhouse gases: Climate-related financial risk”

Meanwhile, covered entities with over $500 million (USD) in total annual revenue that “do business” in California must digitally publish a TCFD-aligned climate risk report biannually to comply with SB 261, Greenhouse gases: Climate-related financial risk. Compliance with SB 261 is required for covered entities on or before Jan. 1, 2026. Failure to comply with or violations of SB 261 could result in administrative penalties of up to $50,000 in a reporting year.

• SEC Proposed Rule: The enhancement and standardization of climate-related disclosures for investors

In March 2022, the SEC issued a proposed rule that would require all registrants to disclose climate-related qualitative information as well as GHG emissions Scope 1 and 2 metrics in their registration statements and periodic reports. Scope 3 emissions would be mandated only if material to the registrant or if the registrant had a stated Scope 3 emissions reduction goal. Registrants would also be required to first seek limited, and eventually, reasonable assurance over their emissions metrics. While the proposed rule remains under review, it aims to strengthen existing disclosure requirements, including the SEC’s 2010 climate-related interpretive guidance. An overview of the proposed rule by Grant Thornton is available to read here.

• EU‘s Corporate Sustainability Reporting Directive (CSRD)

The CSRD is expected to affect up to 50,000 entities that are not currently required to report on environmental, social and governance (ESG) activities under the EU’s Non-Financial Reporting Directive (NFRD). For certain U.S. parent entities that operate in the EU, the CSRD can create reporting obligations at both a consolidated parent and EU-subsidiary level. The CSRD’s environmental disclosure expectations are detailed in the European Sustainability Reporting Standards (ESRS), which contain five environmental topical standards, one of which is specific to climate change. Entities that deem climate change to not be material must provide an explanation regarding the conclusions of their materiality assessment with regard to climate change. An overview of CSRD and its ESG disclosure thresholds and requirements for U.S. entities operating in the EU by Grant Thornton is available here.

• Additional climate-related regulatory disclosures

In addition to the disclosures listed above that directly affect the United States and the EU, other jurisdictions are also working on regimes to regulate climate and ESG reporting. The United Kingdom announced its intent to adopt the standards of the International Sustainability Standards Board (ISSB), which has established a “global baseline” for ESG reporting and uses TCFD as the basis for its International Financial Reporting Standards (IFRS) Standard 2 (S2) —Climate-related Disclosures. Other jurisdictions such as Canada, Australia and South Korea are establishing national sustainability standards boards to cooperate with the ISSB as a global foundation to build their own standards, making robust climate reporting foundational for companies worldwide. Read Grant Thornton’s overview of ISSB and its relevance for companies here.

What can companies do to prepare

While regulations continue to evolve, the foundational elements of climate reporting are established. To be prepared to comply with these evolving regulations, companies can take five steps, depending on the maturity of their climate reporting efforts:

1. Assess climate-related risks to better understand the impact climate has on the business while meeting the reporting expectations of both stakeholders and regulators. Knowing both climate-related risks and opportunities informs the company’s near- and long-term strategy.
2. Develop a GHG emissions inventory management plan that allows the company to enhance governance over its emissions data, understand emissions sources, and prepare complete and accurate reporting of Scope 1, 2 and 3 emissions. Creating and executing an inventory management plan can prepare companies for regulatory disclosure across numerous jurisdictions and help determine the baseline for reduction goals in the future.
3. Conduct a materiality assessment to narrow the scope of a company’s sustainability focus areas to what is most important to the business and its reporting requirements. This would allow the company to identify and address its most material risks and opportunities to meet investor and other stakeholder reporting needs.
4. Conduct a disclosure readiness assessment to increase the quality of your company’s climate-related processes, controls and data, enhance confidence in your company’s climate reporting, and prevent surprises during future assurance. Identifying the company’s disclosure gaps before the required assurance takes effect will alleviate questions and concerns prior to reporting.
5. Seek third-party attestation over the company’s sustainability-related disclosures to increase market confidence and meet compliance requirements. Obtaining limited or reasonable assurance, depending on the regulatory requirements and where your company sits in the disclosure timeline for specific regulations, will support your company’s adherence with third-party validation requirements across climate disclosure regulations.