A Guide to Preparing for Greater Climate Disclosure in 2023
Throughout 2022, regulators in the United States (U.S.), the United Kingdom (UK), Canada and the European Union (EU) took action to enhance and synchronize ESG reporting standards globally.
Standard-setting bodies such as the International Sustainability and Standards Board (ISSB) and the International Organization of Securities Commissions (IOSCO) voiced support for greater disclosure and encouraged global regulators to adhere to established and reliable frameworks for improvement.
Given this momentum, companies can expect other countries and regions to follow and adopt new reporting standards as well. Organizations should monitor proposed changes to standards so they can prepare for what is ahead.
Global Regulators Push for Greater Climate Disclosure Standards
Government regulators have been busy proposing and implementing climate and broader sustainability disclosures in 2022. Consider some of the following developments:
- In March, the U.S. Securities and Exchange Commission (SEC) proposed more comprehensive climate-related disclosure that would bring U.S. company reporting requirements more in line with other regulations globally. The SEC said it expected final rules before the end of the year, but it’s possible that will extend into 2023. The agency is reopening comment periods for 11 proposals, including the proposal for climate-related disclosures which, observers speculate, could delay the overall rulemaking process.
- In April, the UK amended the Companies Act of 2006 to implement the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). As a result, large and listed companies are now required to incorporate TCFD-aligned disclosures in 2021-2022 annual reporting.
- In May, the Office of the Superintendent of Financial Institutions (OSFI) in Canada issued a draft version of Guideline B-15: Climate Risk Management, which proposed a prudential framework that recognizes the impact of climate change on managing risk. It also introduces mandatory climate-related financial disclosures aligned with the TCFD’s framework.
- Submitted in June and now enacted as law, the EU’s Corporate Sustainability Reporting Directive (CSRD) aims to address shortcomings on transparency and disclosure of non-financial information. Regulation takes place in three stages beginning in January 2024, although the draft standards have yet to be finalized.
In each of these proposals, there is a mutual acceptance of and alignment to the TCFD’s recommendations on climate-related financial disclosures. Over the past five years, the percent of companies disclosing the TCFD’s recommendations in financial filings or annual reports has increased each year. In fact, more than 70 percent of companies surveyed by the TCFD for its annual report implemented its recommendations for fiscal year 2021 compared to 45 percent for fiscal year 2017.1