Heading into 2024, enterprise business leaders with operations in the European Union will need to meet climate risk and sustainability reporting mandates while preparing for similar requirements in the U.S.
Globally, the momentum behind green initiatives is growing as investors and consumers push businesses to provide more information about their environmental impacts and governments pass new climate rules requiring climate impact data. For example, companies will have to comply with new requirements such as scope 1, 2 and 3 carbon emissions reporting laid out in climate rules in the European Union and California.
Scope 1 emissions are controlled directly by a company, scope 2 are created indirectly through the purchase of electricity, and scope 3 are emitted by third parties within a company's supply chain.
"Most firms haven't yet fully realized that a green market revolution is at play," Forrester Research analyst Thomas Husson said. "Until now, most companies have been viewing environmental sustainability as primarily an ethical responsibility with added benefits to [their] brand and modest cost savings. But moving forward, it will become a financial and regulatory obligation they can't ignore."
Below are some of the new and proposed climate rules for 2024 and beyond.
1. EU Corporate Sustainability Reporting Directive (CSRD)
The EU CSRD mandates companies with operations in the EU earning roughly $166 million annually to report on their environmental and social impact, as well as their environmental, social and governance efforts, starting in 2024. The scope of the CSRD is much broader than climate risk reporting, as it includes reporting on sustainability goals and carbon emissions.
Thomas HussonAnalyst, Forrester Research
Despite CSRD mandates starting in 2024 -- meaning the first reports will be due in early 2025 -- Forrester predicts that only 20% of companies that fall under the scope of CSRD will meet the reporting deadline. Husson said most do not have a "clear understanding of their environmental impact."
"If you must report on 2024 and aren't already preparing, get cracking," Husson said.
2. California state laws
California Gov. Gavin Newsom signed two climate bills into law in 2023, which companies with operations in California will need to comply with starting in 2026.
The Climate Corporate Data Accountability Act will require companies operating in California with an annual revenue of more than $1 billion to report their scope 1, 2 and 3 carbon emissions. The Greenhouse Gases: Climate-Related Financial Risk Act will require both public and private companies exceeding $500 million in gross revenue to create a report outlining their climate-related financial risks and measures adopted to reduce and adapt to those risks.
"Firms operating in California certainly should have a close look at what's going on in the European Union," Husson said. "There will be lessons to learn from the implementation of CSRD."
It takes time to get a climate reporting system in place for companies that don't have it already set up, which is why businesses need to start now, said Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets. Though California's climate reporting requirements don't go into effect until 2026, businesses will be using 2025 data to make the reports and will need data capture and reporting systems in place by then.
"We think it's important to get ready now," Rothstein said.
3. U.S. Securities and Exchange Commission (SEC) final climate risk disclosure rule
The SEC first proposed its climate risk disclosure rule in 2022 and has faced obstacles on its way to finalization, which was initially anticipated in the fall of 2023. If finalized in 2024, the SEC's proposed rule would require publicly traded companies to file reports indicating climate-related risks facing the business, such as flooding, wildfires, hurricanes and other extreme weather events.
The SEC's proposed rule received 16,000 comments during the public feedback period, and 80% of the comments appeared to be supportive of the rule, Rothstein said. He anticipates it being finalized in the first quarter of 2024.
"We are hopeful, but we're also eager they complete this as soon as possible," Rothstein said.
Even without the SEC's reporting rule, companies will still face pressure to respond to investors and consumers regarding their climate commitments and risks, Husson said.
Makenzie Holland is a news writer covering big tech and federal regulation. Prior to joining TechTarget Editorial, she was a general reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.