From Voluntary to Mandatory: What You Need to Know About Emissions Disclosure Laws
For decades, companies have voluntarily opted to disclose their greenhouse gas emissions to demonstrate accountability, promote their progress, and address growing concerns from their investors. As the latest IPCC report shows, those voluntary actions taken together haven’t been remotely enough. We’re not on track to meet our global goal of decarbonizing by 2050.
Which is why the following is a good omen and urgent issue for business: emissions disclosure is quickly transitioning from voluntary to mandatory. Regulators and governing bodies around the world - including the European Union, the United States, and even some U.S. states - are rapidly moving to mandate that companies disclose their emissions, progress, and reduction targets.
Below are some examples of frameworks and laws causing the global wave of disclosure mandates, as well as some important considerations that Uplift recommends for companies who are starting their decarbonization journey.
Task Force on Climate-related Financial Disclosures (TCFD)
Widely enacted. A framework for publicly-traded companies and financial institutions. Initiated as a voluntary program then formally adopted in 2021 as mandatory by the UK, Canada, Switzerland, China, Australia, Malaysia, and many other nations.
Corporate Sustainability Reporting Directive (CSRD)
Enacted in the EU. CSRD is an update to a previous directive, the NFRD, which only covered certain categories of companies. CSRD will begin to apply to private companies of a certain size in 2024. The reporting standard developed as an outcome of CSRD, titled the European Sustainability Reporting Standards (ESRS), was proposed last year and defines the requirements for emissions disclosures, including third party verification of disclosed information.
UK NHS Disclosure Requirements for Major Suppliers
Enacted. To meet their net zero target across their supply chain by 2045, the UK’s National Health Services (NHS) is requiring suppliers with annual contracts above £5 million to disclose their emissions, including a subset of Scope 3 emissions, and publish a Carbon Reduction Plan (CRP). This information must be accessible from the supplier’s website by next month, April 2023. This program is an extension of the UK’s nation-wide initiative on carbon reduction. The US government has proposed a similar emissions disclosure program for its suppliers, which recently underwent public comment.
U.S. Security & Exchange Commission’s Climate-Related Disclosures: “The Enhancement and Standardization of Climate-Related Disclosures for Investors”
Proposed. Anticipated final ruling in April 2023. Publicly traded companies will need to annually disclose emissions and climate-related risks. Compliance may require some level of third-party assurance. Scope 3 emissions may be explicitly required but firmly in the “safe harbor,” meaning high-level best estimates will be acceptable at this phase.
California’s SB 253 - Climate Corporate Data Accountability Act.
Proposed. This legislation would require companies with over $1 billion in annual revenue to disclose their carbon emissions annually. Third-party assurance requirements would be defined at a later date by state regulatory agencies.
Emissions disclosure is important even for private companies and SMEs
Even if these laws don’t yet apply to your company because of its legal status, country of operations, or revenue, your customers and business partners are now expecting this level of transparency and accountability. So, regardless of your industry or size, your company’s carbon footprint is going to be salient to your business risks and opportunities.
It takes time and significant effort to set up an audit-ready carbon accounting system, and often takes several years of carbon reduction investments to see progress that is meaningful enough to promote. Defining a feasible roadmap for carbon reductions, energy efficiency improvements, and supply chain visibility is a major undertaking. Essentially, prepare yourself for delayed gratification - but the effort will be worth it. The work and results will be valued by your employees and business community.
The investment will also help to shield you from some risks, as more companies are establishing internal carbon pricing, which will shape procurement policies. This means it is only going to get more expensive and risky to be dependent on carbon-intensive industries. We’ll expand on this topic in subsequent blogs.
Important next steps for businesses on emissions disclosure
Anticipate rapid changes and continuously rising expectations.
Start with net-zero by 2050, but ensure that your internal targets include an absolute reduction figure for 2030.
Make it a corporate priority.
Embed the emission reduction targets into your business strategy and executive performance metrics.
Train Up. Identify Your Internal Carbon Expert.
Build internal capacity for Systems Thinking and Systems Design.
Ditch the Spreadsheets.
Find a data platform that works for you. Find one or build one if you have the internal data systems expertise. (We offer this as a service to clients if you need help.)
Scrutinize your business activities to uncover your carbon blindspots.
Is your workforce more than 10 percent remote? Does your company significantly depend on cloud data storage? After solidifying your Scope 1 and Scope 2 emissions, look holistically across your business activities to include relevant reduction targets in your decarbonization roadmap.
Prepare to be audited.
Whether it’s “limited assurance” or “reasonable assurance,” companies should be prepared for some level of third-party verification of their emissions figures.
The days of voluntary emissions disclosure are over for the vast majority of companies - whether that pressure is coming in the form of regulations or from investor and customer demands.
What is your team doing to be prepared?
The Uplift Agency
Uplift builds strategies, programs, and communication campaigns that advance ESG in workplaces, supply chains and communities.
We know how to navigate the road ahead because we’ve already been down it – 90 percent of our team has led environmental or social programs in corporations or nonprofits. Because ESG is all we do, our services are more comprehensive and integrated than most firms.
