Governments are quickly imposing regulations that necessitate and mandate strict climate-related disclosures for investors by publicly-traded companies.
As an example, the Securities and Exchange Commission (SEC) of the United States of America in March 2022 announced requirements that will force companies to report climate-related risks that are reasonably likely to have a material impact on their businesses, results of operations, or financial conditions.
This required information would also include disclosure of organizations’ greenhouse gas emissions, which have become a commonly used metric to assess an organizations’ exposure to such risks. Additionally, certain climate-related financial metrics would be required in organizations’ audited financial statements.
It is also expected that companies will be required to report the carbon emissions footprints of their supply chains.
Similarly, the Corporate Sustainability Reporting Directive (CSRD) is the new European Union legislation that requires all large companies to publish regular reports on their environmental and social impact activities.
These requirements are intended to help investors, policymakers, consumers, and other stakeholders evaluate large companies’ non-financial performance. This has radically changed companies’ scopes and types of sustainability reporting and, with CSRD, the European Commission has defined a common reporting framework for non-financial data for the first time.
In Asia, the story is much the same.
Singapore Exchange (SGX) has announced climate reporting will become mandatory for listed businesses in the financial, energy, agriculture, food, and forest products sectors from 2023, whereas reporting will become mandatory for businesses in the materials and building transportation sectors from 2024.
Likewise, Japan’s Financial Services Authority (FSA) has announced plans to make it mandatory for large companies to make climate-related disclosures starting in 2022, impacting upwards of 4,000 companies.
Trust in companies’ ESG and climate data is now at stake, and the time to transform reporting processes is now.
Developing simplified, repeatable processes is key to adapting to future regulatory requirements and the evolution of stakeholders’ expectations.