Corporate Climate Disclosure Rules: A Global Overview
The landscape of corporate climate-related disclosure — which includes reporting on greenhouse gas (GHG) emissions, climate risks, and measures taken in response — is changing rapidly. A few years ago, companies could decide whether and how to disclose information on climate-related risks and GHG emissions. Now, a wave of new policies is making climate-related disclosures mandatory for a large swath of the global economy. Financial regulators have introduced mandatory climate-related disclosure rules in markets around the world – not only in the United States and European Union, but also in New Zealand, China, Singapore, Hong Kong, Nigeria, the UK and elsewhere.[1] Of the jurisdictions where climate-related disclosure rules have been introduced, eleven have become law.[2] The global scope of new climate-related disclosure rules means that public and private multinational companies may soon have to meet more robust disclosure requirements across multiple jurisdictions. These new rules will apply to many of the world’s largest food and agriculture companies, some of whom have operations in multiple countries, with significant climate footprints and track records of misleading voluntary reporting.[3] Meanwhile, a greater number of smaller companies will be required to disclose for the first time, as some disclosure rules seek to phase in small and medium size enterprises (SMEs) over longer time periods. The details of new disclosure rules vary, but one thing seems clear: the early stages of the era of mandatory reporting are here.
Figure 1: Map showing the global scope of climate-related disclosure rules. Shaded countries have climate-related disclosure rules either currently in effect or in process.
What are climate-related disclosure rules and why are they important?
Governments are moving to develop mandatory climate-related disclosure rules because climate change presents unique risks to businesses, including physical risks (like those associated with more frequent, severe, and costly weather events induced by climate change) and transition risks (like the risks associated with dependence on carbon-intensive business practices as the world transitions to renewable energy).[4] Information on corporate climate risk is especially important today, as investors are increasingly making decisions based on climate risk assessments. A recent survey conducted by Stanford and the MSCI Sustainability Institute found that 93% of investors say that climate change will impact investment performance over the next two to five years.[5] This is why the language in many new climate-related disclosure rules is crafted primarily with investors in mind. For example, the Security and Exchange Commission (SEC) asserts that the chief purpose of the new SEC climate-related disclosure rules is to improve the “consistency, comparability, and reliability of climate-related information for investors” so that they “will be able to make more informed investment and voting decisions.”[6] Beyond helping investors make good financial decisions, climate-related disclosure rules help direct capital toward companies with low-carbon business practices that experience less climate risk. They also can help manage global financial stability in the face of increasing climate-related market volatility[7]. Thus, climate-related disclosure rules have become a key arena for climate action.
The agricultural sector is particularly exposed to climate risks. Extreme weather events resulting from climate change increasingly threaten crop and livestock production, causing disruptions in global food supply chains.[8] But emissions from large companies in the agricultural sector, especially meat and dairy companies, continue to grow. The world’s five biggest meat and dairy companies are responsible for more GHG emissions than Exxon, Shell or BP.[9] In the absence of mandatory climate-related disclosure rules, meat and dairy companies have been able to publish misleading, incorrect, or incomplete emissions data, in effect circumventing investor scrutiny regarding climate risk. New climate-related disclosure rules offer opportunities to hold major meat and dairy companies accountable for their climate impacts.
New climate-related disclosure rules have been influenced by the Taskforce on Climate-related Disclosures (TCFD) and its successor, the International Sustainability Standards Board (ISSB). Adherence to these frameworks has resulted in general agreement between regulators on climate-related disclosure rules, and new rules have many similarities across jurisdictions. There has also been a concerted effort on the part of regulatory and legislative bodies to develop rules that align as closely as possible with existing rules and frameworks, so as not to put an unreasonable burden of compliance on companies that operate across multiple jurisdictions.[10] However, there are key differences that affect the legitimacy, transparency and efficacy of new climate-related disclosure rules.
We have developed the following table (Table 1) as a tool for comparing climate-related disclosure rules. The table lists the major climate-related disclosure rules currently in effect[11], offers simplified information on how they compare across seven categories (explained in detail below) and provides a link to the official documents.
Table 1: Climate-related disclosure rules
Categories
The seven categories used to compare global climate-related disclosure rules are explained below.
Affected firms:
Affected firms are companies that fall under the scope of a jurisdiction’s climate-related disclosure rule and will be required to report in alignment with the rule. Some disclosure rules only apply to public or large companies, while others apply to private or SMEs as well.
Reporting of GHG emissions:
The most obvious way to assess the stringency of a climate-related disclosure rule is to look at what emissions companies are required to report. More stringent rules require companies to disclose Scope 1, 2, and 3 emissions, which covers both direct (such as from a processing plant) and indirect (the energy to power that processing plant) emissions as well as the company’s supply chain. More stringent rules would also require emissions reporting regardless of materiality or using a “double materiality” concept (see definition of “material” below). Because Scope 3 emissions, particularly for the food sector, typically represent 90% of a company’s total emissions, disclosure rules that do not require companies to report Scope 3 emissions are overlooking a large portion of a company’s climate risk.[12]
Definition of “material”:
According to the accounting concept of “materiality,” information about a company is material if it directly influences a company’s financial standing and therefore would impact a “reasonable” investor’s decision to buy stock.[13] The EU’s Corporate Sustainability Reporting Directive (CSRD) is noteworthy because the reporting requirements are based on the “double materiality” concept. This means companies must not only disclose the sustainability risks affecting them but also how the company impacts society and the environment.[14] Disclosure rules that employ the double materiality concept are expected to produce more comprehensive and holistic reporting on climate risk, provided that other key requirements are met.[15]
Broken down by GHG:
None of the climate-related disclosure rules examined in this article specifically require emissions reporting to be broken down by GHG. This is problematic, because GHGs have different effects on global warming, different “lifetimes” in the atmosphere, and different policy responses. For example, agricultural emissions mainly consist of methane from livestock production and nitrous oxide from nitrogen fertilizer use. Methane has about 80 times more global warming potency than carbon dioxide but is shorter-lived in the atmosphere than carbon dioxide or nitrous oxide. Because methane has a short lifespan of only about 12 years, targeted reductions in methane emissions can more immediately slow climate change, buying time for more reductions across all GHGs.[16]
Reporting on use of carbon credits:
Some climate-related disclosure rules prohibit integrating offsetting claims into emissions reporting, and instead require the use of carbon credits to be reported separately. This is crucial for transparency in emissions reporting, as actual emissions are often hidden behind “net” emissions calculations which incorporate climate action financed through carbon credits or removals. As voluntary carbon markets face multiple scandals for fraudulent or ineffective carbon credits[17], it will be important for companies purchasing credits to be transparent in the type of credits they purchase, the quality of those credits and how they use them.
Assurance:
Emissions data provided by climate-related disclosure rules is only meaningful if it can be verified by a third party. Third party verification increases transparency of climate-related data and limits the ability of companies to greenwash reports with false or misleading emissions claims. The outcome of third-party verification is assurance, which is categorized as either limited assurance (less rigorous) or reasonable assurance (more rigorous). Climate-related disclosure rules vary widely when it comes to assurance, and some don’t require assurance at all. The timeline of assurance requirements on climate-related disclosures is also important to note, with some assurances not required until 2030 or later for some companies.
Timeline:
The timeline of implementation and enforcement proposed in the disclosure rules vary. Most disclosure rules employ a phased-in implementation approach, with larger public companies generally being affected first and SMEs affected last. With the world poised to surpass the 1.5-degree target in less than 10 years, shorter timelines should be prioritized. Longer timelines that stretch into the 2030s are inadequate to address climate change in time to meet global climate goals
Moving forward
As mandatory climate-related disclosure rules come into effect in more jurisdictions, emissions reporting will soon be unavoidable for many companies. According to an article published by the World Resources Institute (WRI) in May 2024, 40% of the world’s economy will soon be covered by climate-related disclosure rules. That figure is likely to be even higher when factoring in all jurisdictions with disclosure rules.[18]
Given the global scope of climate-related disclosure rules, many large companies, including in the food and agribusiness sector, will soon be required to report across multiple jurisdictions. As companies navigate multifaceted reporting requirements, their strategies may evolve in response to the pressure of compliance. For example, a company that would have attempted to not treat their emissions as material but must do so for one jurisdiction may be more likely to do so in other jurisdictions as well. It is also possible that the existence of more stringent disclosure rules in the EU, California and other ISSB-aligned jurisdictions may encourage regulators elsewhere to adopt stronger rules. However, even the strongest disclosure rules examined in this article do not require emissions reductions, which are necessary to meet climate goals. These new rules are simply the first step toward informing investors and the public about corporate climate-related risk. Only time will tell if mandatory climate-related disclosure rules will catalyze meaningful corporate climate action.
IATP will be closely following developments in this arena, and future articles will unpack the effects of new disclosure rules on agriculture and food systems. Specifically, we will investigate the effect of mandatory disclosure rules on major meat and dairy processing companies. Multiple reports by IATP have highlighted the severe lack of transparency and credibility in climate reporting of major meat and dairy companies, as well as their outsized impact on climate through methane emissions. By tracking the effect of new disclosure rules on the climate reporting of major meat and dairy companies, we aim to promote a more accurate view of how much meat and dairy companies are contributing to climate change and what can be done to mitigate their impact. Furthermore, we hope to uncover lessons that can be translated into policy and action in other sectors to support a just transition in our food system
Endnotes
[1] Data compiled by author, reflective of the corporate climate disclosure landscape as of October 2024. See Figure 1 and Table 1 for more information.
[2] See Map 1 for information on which jurisdictions have climate-related disclosure rules currently in effect.
[7] Christophers, B. (2017). Climate change and financial instability: Risk dis-closure and the problematics of neoliberal governance. Annals of the American Association of Geographers, 107(5), 1108–1127. https://doi.org/10.1080/24694452.2017.1293502; Farbotko, C. (2019). Global financial stability, rapid transition to a low-carbon economy and social justice: Can climate-related financial risk disclosure do it all? Australian Geographer, 50(3), 273–278. https://doi.org/10.1080/00049182.2018.1519874;
[10] The EU CSRD states: “Sustainability reporting standards should be proportionate and should not impose an unnecessary administrative burden on companies that are required to use them. In order to minimise disruption for undertakings that already report sustainability information, sustainability reporting standards should take account of existing standards and frameworks for sustainability reporting and accounting where appropriate.” (43).
[11] Table 1 does not include climate-related disclosure rules that are in process or otherwise have not yet become law. See Figure 1 for a map of jurisdictions with climate-related disclosure rules including those that are in process.
[14] The rule requires in-scope companies “to report both on the impacts of the activities of the undertaking on people and the environment, and on how sustainability matters affect the undertaking. That is referred to as the double materiality perspective, in which the risks to the undertaking and the impacts of the undertaking each represent one materiality perspective.” (29). Directive - 2022/2464 - EN - CSRD Directive - EUR-Lex
[15] Although China’s PRC Sustainability Reporting Guidelines also employ the double materiality concept, it is not expected to result in comprehensive and holistic reporting by Chinese firms in the absence of assurance requirements or scope 3 emissions reporting requirements.
[18] The WRI calculations included Brazil, Canada, Hong Kong, European Union, New Zealand, Singapore, the United Kingdom and the United States. This leaves out China, Nigeria, Switzerland, Turkey, Australia, and other jurisdictions. See Figure 1 for a map of all disclosure rules, either in process or in effect.
