Mandatory disclosure regimes expand, standardize, and strengthen participation in climate-related risk measurement and management frameworks. In 2022, 35 countries representing about 20 percent of global emissions have set some form of mandatory climate-disclosure requirements that are aligned with the Taskforce on Climate-Related Financial Disclosures (TCFD) framework — a significant improvement compared to the previous year (about 3 percent in 2021).
A major reason for the increase in coverage was the approval of the EU’s Corporate Sustainability Reporting Directive (CSRD) that will require reporting on a wide range of sustainability disclosures, including climate-related risks, pollution, and circular economy. It will also expand the scope of reporting to about 50,000 entities, including more than 10,000 non-EU firms, thereby effectively extending its requirements beyond EU borders to other countries.
Despite building upon the TCFD framework, the CSRD goes beyond it by incorporating the “double materiality” concept where corporations have to disclose not only how the environment impacts them financially (i.e., financial materiality) but also the material impacts of their businesses on the climate and society, including in non-financial aspects. This approach aims to make corporate disclosures serve a wider goal of corporate responsibility to society at-large beyond the narrow financial perspective.
A major development in 2023 in climate risk disclosure was the launch of the International Sustainability Standards Board (ISSB) inaugural standards on sustainability and climate disclosures. It builds upon the TCFD recommendations, requiring Scope 3 GHG emissions disclosure, which represents an important improvement. The ISSB is expected to set the global baseline for corporate climate disclosures as major countries and international bodies such as the International Organization of Securities Commissions have endorsed it. It will also take over the monitoring responsibilities from the TCFD starting in 2024, which will be disbanded. The ISSB climate standard is broadly aligned with the United States proposed rule of mandatory climate risk disclosures which is expected to be finalized despite significant political opposition.
Despite the recent positive developments, efforts remain off track and progress will need to occur about 1.5 times faster to reach the three-quarters target for 2030. There is also a need to ensure these disclosure policies include land-based emissions. If a few large-emitting countries follow the example of others in adopting mandatory disclosures, coverage of global emissions would experience rapid, nonlinear progress and rise dramatically. For example, China and the United States represent about 40 percent of global emissions combined, and United States capital market regulations would affect corporations well beyond US borders. Both countries are contemplating mandatory disclosure rules, which would get coverage on track to the target. Additionally, if major country members of the International Organization of Securities Commissions follow the organization’s endorsement of ISSB and call for its adoption, then coverage would grow significantly and accelerate adoption across the rest of the world.