This September, thousands of global leaders across business, governments and NGOs converged on New York City for Climate Week NYC 2023. Many, like me, were hunting for the latest news on what’s happening in the fast-changing world of corporate sustainability today. We also continued our endless search for the most accurate of Magic 8 Balls to predict what’s going to happen in our world tomorrow. Honestly, there’s never been a more exciting time to play in this space. I do have the coolest job; allow me to explain the evolution of my world of corporate sustainability.
Corporate Sustainability initiatives, or as they were known back then, ‘Corporate Social Responsibility (CSR)’, started to really take hold in the 1990’s. Being a new corporate initiative, we didn’t have a whole lot of metrics to base the program on, but we knew it was the right thing to do so we persevered. Towards the late 1990’s when the Global Reporting Initiative (GRI) was founded, the GRI framed the first accountability mechanism to ensure companies adhered to responsible environmental, social and economic conduct. The Greenhouse Gas (GHG) Protocol then launched its corporate reporting standard to normalize the way organizations report emissions.
With all these new metrics, the sustainability world caught the attention of investors as they realized that this “sustainability” thing may, among other benefits, be another useful way to assess corporate risk. With investor interest, the world of Environmental, Social, Governance (ESG) was born, and with that came more ways of qualitatively measuring a company’s performance in this area.
This led to the release of the Task Force for Climate-Related Financial Disclosures (TCFD) which provides recommendations on the types of information companies should disclose to support investors, lenders and insurance underwriters’ assessments and pricing of organizational risks to climate change. The one thing all these reporting standards had in common (apart from their subject) were that they are voluntary.
But the world is changing, and what was once voluntary is beginning to become mandatory. Here’s a list of what we know is happening today and what is on the horizon:
- The EU’s Corporate Sustainably Reporting Directive (CSRD) will require some 50,000 companies to disclose audit-ready material ESG data starting in 2025.
- SEC’s Cybersecurity Disclosure Rule requires disclosure of material cybersecurity incidents within four business days, as well as annual cybersecurity risk management, strategy and governance disclosures.
- The IFRS released the International Sustainability Standards Board’s first two Sustainability Disclosure Standards (S1 and S2) which, rumor has it, will make the TCFD defunct. These are currently voluntary.
- The Task Force for Nature-Related Financial Disclosures was released in September, setting voluntary disclosure recommendations and guidance for organizations to report and act on evolving nature-related dependencies, impacts, risks and opportunities.
- California’s SB 235 requires all large companies doing business in California to disclose verified Scope 1, 2 and 3 data and to prepare and submit an annual climate-related financial risk report (just like the TCFD).
- The SEC’s Climate Disclosure rule is expected to come out in October 2023 (mind you, the SEC was originally releasing this rule in the Spring of 2023, so when we’ll actually see it is anyone’s guess)- while we are still waiting to learn the final language, we anticipate that US publicly traded companies will need to adapt the TCFD and report audit-ready Scope 1, 2 and possibly 3 emissions in their financial disclosures.
- The SEC is drafting a Human Capital Disclosure that will require US publicly traded companies to provide more detailed information on, naturally, their human capital.
- The EU Corporate Sustainability Due Diligence Directive (CSDDD) is currently in draft form and will be designed to foster sustainable and responsible corporate behavior and to anchor human rights and environmental considerations in companies’ operations and corporate governance.
So, what does this all mean for corporations today? As was evident at Climate Week 2023, the plot is thickening as the lens that has been focused on Corporate Sustainability for years has intensified. Here are some high-level takeaways I found relevant from the conference this year:
- Regulators across the globe have either launched ESG disclosure mandates (EU CSRD, CA SB 253 and 261) or are planning to (SEC, EU CSDDD), and these disclosures must be third-party verified. This means that we need to adapt/ build our Corporate Sustainability reporting process to ensure that all material ESG data is audit-ready as one day it will end up on financial disclosures. (okay, I didn’t learn this during Climate Week 2023, but it was talked about at length).
- The EU CSRD’s implementation language is still in flux – we hope to see final language in December, which would be nice as our friends in Europe will need to implement these requirements next year so they can report in 2025.
- It is expected that the EU CSDDD’s final language will be released soon, and this is big for corporate governance so make sure you’re paying attention.
- Even without the EU CSDDD, defining how the boards of directors oversee and impact Corporate Sustainability programs is getting more and more important so if you haven’t truly engaged your board yet, you should get started.
- Some folks are betting that the SEC’s Human Capital Disclosure will be finalized before their Climate Disclosure Rule.
- Everyone is getting smarter so organizations taking some creative liberties with their sustainability efforts are more likely to be subject to greenwashing claims.
In short, Corporate Sustainability initiatives are no longer a nice thing to have, they are a necessity. While I did not find the elusive answers I was searching for during Climate Week, I did come back with increased knowledge on all the different reporting requirements on the horizon and, most importantly, a renewed fire to ensure core and evolving Corporate Sustainability principles are continually integrated into the DNA of our business.