Emily Olson, Nicole Mallett, Jason Coccia, and Jenny Warfield from Tetra Tech’s global sustainability practice discuss milestones in sustainability disclosure regulations and standards, including the U.S. Securities and Exchange Commission (SEC) mandatory climate-related disclosures. Mary Beggs contributed to this article.
Almost two years after the U.S. SEC first announced its draft climate disclosure regulation, the agency adopted the final rules on March 26, 2024: The Enhancement and Standardization of Climate-Related Disclosures for Investors. The rules mark a monumental shift from an era of industry-led voluntary sustainability reporting to SEC-mandated reporting on environmental performance. Tetra Tech experts can help companies understand these new standards and navigate compliance requirements.
The SEC ruling is the latest important milestone in climate disclosure reporting. The ruling follows the state of California’s October 2023 Climate Accountability Package, the International Sustainability Standards Board (ISSB) standards released in June 2023, and the European Union’s (EU) Corporate Sustainability Reporting Directive (CSRD), in effect as of January 2023. These rules and standards can motivate companies to proactively assess their practices, mitigate risks, and tailor their disclosure strategies to align with their specific circumstances.
Companies must carefully analyze the amalgamation of these new regulations and standards in the broader context of environmental, social, and governance (ESG) reporting. This involves clarifying their reporting obligations, identifying any regulatory intersections, and crafting customized sustainability and climate disclosures. Tetra Tech evaluates the details of each new milestone in sustainability disclosure regulations and standards: the U.S. SEC mandatory climate-related disclosures; California’s Climate Accountability Package; the ISSB standards; and the EU CSRD.
Enhancing and standardizing climate-related disclosures for investors with U.S. SEC Rules
The SEC rules are mandatory requirements for registrants to disclose climate-related information in registration statements and annual reports. These rules emerged from more than a decade of rising demand from investors, the recommendations of an ESG Subcommittee, and a year-long public comment period. The rules incorporate frameworks on climate risk and greenhouse gas emissions from the Taskforce on Climate-related Financial Disclosures (TCFD) and the Greenhouse Gas (GHG) Protocol.
Once the rules are fully implemented, SEC-registrant reporting will provide stakeholders with consistent and reliable information on the potential impacts and management of climate-related risks to the business, helping to inform investment decisions. The final rules require U.S. publicly traded companies to disclose information on climate-related risks, including:
- The material climate-related risks for the business
- How the company mitigates or adapts to such risks
- How the company employs their board of directors’ oversight of climate-related risks and management’s role in managing material climate-related risks
- The company’s climate-related targets or goals that are material to their business, operational performance, or financial condition
The final rules include a phased-in compliance period for all registrants, with the compliance date dependent on the registrant’s filer status and the content of the disclosure. Under the rules, Large Accelerated Filers and Accelerated Filers will be required to disclose their Scope 1 and Scope 2 GHG emissions and obtain assurance reports when their emissions meet the defined threshold. Smaller Reporting Companies and Emerging Growth Companies are exempt from emissions disclosure. Scope 3 emissions are excluded from the final rules. Table 1 shows the timelines for implementation of the rules.
| The Enhancement and Standardization of Climate-Related Disclosures: Final Rules Compliance Timeline1 | ||||||
|---|---|---|---|---|---|---|
| Registrant Type | Disclosure and Financial Statement Effects Audit | GHG Emissions and Assurance | Electronic Tagging | |||
| All Reg. S-K and S-X disclosures2 other than as noted in this table | Item 1502(d)(2), Item 1502(e)(2), and Item 1504(c)(2)3 | Scopes 1 and 2 GHG Emissions (Item 1505) | Limited Assurance (Item 1506) | Reasonable Assurance (Item 1506) | Inline XBRL tagging for subpart 150024 (Item 1508) | |
| Large Accelerated Filer (LAF) ≥ $700 million public float5 | FYB 2025 | FYB 2026 | FYB 2026 | FYB 2029 | FYB 2033 | FYB 2026 |
| Accelerated Filer (AF) public float ≥ $75 million but < $700 million | FYB 2026 | FYB 2027 | FYB 2028 | FYB 2031 | N/A | FYB 2026 |
Non-Accelerated Filer (NAF) Smaller Reporting Company (SRC) Emerging Growth Company (EGC) | FYB 2027 | FYB 2028 | N/A | N/A | N/A | FYB 2027 |
| 1 As used in this chart, “FYB” refers to any fiscal year beginning in the calendar year listed. 2 Inclusive of financial statement disclosures and all other disclosures excluding material expenditures and impacts and GHG emissions. 3 Inclusive of disclosures about material expenditures and impacts. 4 Financial statement disclosures under Article 14 will be required to be tagged in accordance with existing rules pertaining to the tagging of financial statements. See Rule 405(b)(1)(i) of Regulation S-T. 5 Public float refers to the number of outstanding shares held by public investors that are available for trading. 6 An SRC is an issuer that is not an investment company, an asset-backed issuer (as defined in 17 CFR 229.1101), or a majority-owned subsidiary of a parent that is not an SRC and that: (1) had a public float of less than $250 million; or (2) had annual revenues of less than $100 million and either: (i) no public float; or (ii) a public float of less than $700 million. 7 An EGC is a registrant that had total annual gross revenues of less than $1.235 billion during its most recently completed fiscal year and has not met the specified conditions for no longer being considered an EGC. | ||||||
Examining California’s Climate Accountability Package
California’s Climate Accountability Package consists of two landmark state bills: the Climate Corporate Data Accountability Act (SB 253) and the Greenhouse Gases: Climate-Related Financial Risk Act (SB 261). These bills mandate climate-related disclosures and apply to both public and private companies doing business in California. Together, the bills are anticipated to affect more than 10,000 U.S. businesses.
SB 253 applies to companies with over $1 billion in annual revenue, requiring graduated disclosure of Scope 1, Scope 2, and Scope 3 emissions with limited assurance and in accordance with GHG Protocol standards. SB 261 applies to companies with over $500 million in annual revenue and requires biennial climate-related financial risk reports developed in accordance with TCFD. Both rules require companies to make their disclosures publicly available, either through a state-determined platform or on their websites. Details for each bill are shown in Table 2.
| California Climate Accountability Package | ||
|---|---|---|
| SB 253: The Climate Corporate Data Accountability Act | SB 261: The Climate-Related Financial Risk Act | |
| Affected Entities | All U.S. companies8 with total annual revenues in excess of $1 billion (for the prior FY) and that do business9 in California. | All U.S. companies8 with total annual revenues in excess of $500 million (for the prior FY) and that do business9 in California. Reports are to be consolidated at the parent level (subsidiaries do not need to complete separate reports). |
| Reporting Scope | Scope 1, Scope 2, and Scope 3: Greenhouse gas emissions in accordance with GHG Protocol guidance. | Disclosure of climate-related financial risk in accordance with TCFD recommendations and measures taken to address the disclosed risks. |
| Compliance Timeline10 | Scope 1 and Scope 2: Scope 3: | The first report is due by January 1, 2026. Reports are to be filed biennially thereafter. |
| Assurance Requirements | Scope 1 and Scope 2: Scope 3: | Verification of any claims describing GHG emissions or emissions mitigation is required from an independent third-party verifier. |
| 8 Defined as “partnerships, corporations, limited liability companies, or other business entities formed under the laws of California or any other U.S. state or the District of Columbia or under an act of the U.S. Congress.” 9 “Doing business” means actively engaging in any transaction for the purpose of financial or pecuniary gain or profit. 10 For SB 253, noncompliance and late filing penalties are up to $500,000 per reporting year. For Scope 3, between 2027 and 2030, penalties can only be assessed for nonfiling. No penalty for misstatements on Scope 3 emissions disclosures made in good faith and with reasonable basis will be applied. For SB 261, noncompliance penalties are up to $50,000 in a reporting year. | ||
Consolidating sustainability standards: IFRS’s ISSB
The IFRS Foundation (IFRS) is an international non-profit organization that oversees financial reporting standard-setting. The ISSB was established under IFRS to develop IFRS sustainability-specific standards to provide a global baseline of sustainability disclosures that inform economic and investment decisions. ISSB’s inaugural standards—IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures—mark significant progress towards the consolidation of reporting standards.
ISSB assumed responsibility for both SASB Standards and TCFD recommendations, which have historically served as the foundational tools providing capital markets with sustainability- and climate-related financial disclosure guidance. IFRS S1 and IFRS S2 can support comprehensive sustainability and climate disclosure, as these standards fully incorporate TCFD and build upon SASB’s industry-based approach. Many governing bodies are adopting these voluntary standards, which went to effect on January 1, 2024, to structure mandatory reporting obligations. Table 3 gives an overview of ISSB IFRS S1 and S2.
| International Sustainability Standards Board (ISSB) IFRS S1 and S2 | ||
|---|---|---|
| IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information | IFRS S2: Climate-related Disclosures | |
| Objective | Disclosure of information about sustainability-related risks and opportunities that:
| Disclosure of information about climate-related risks and opportunities that could reasonably be expected to affect the entity’s prospects, i.e., cash flows, access to finance, and cost of capital. |
| Integrated Frameworks11 | TCFD SASB Integrated Reporting Framework Climate Disclosure Standards Board International Accounting Standards Board | TCFD SASB GHG Protocol |
| 11 For details on the how these frameworks are integrated and built upon within IFRS S1 and S2, see the guidance on IFRS website: Introduction to ISSB and IFRS Sustainability Disclosure Standards. | ||
Understanding the European Union Corporate Sustainability Reporting Directive
The EU mandates under its Non-Financial Reporting Directive (NFRD) that large, listed companies on EU-regulated markets must annually disclose information regarding the ESG risks to their businesses and how their business activities affect both people and the environment. This transparency helps investors, civil society organizations, consumers, and other stakeholders assess the sustainability performance and risk profile of these companies.
The CSRD, effective as of January 5, 2023, strengthens NFRD reporting requirements. These rules aim to enhance access to information for evaluating companies’ impact and assessing financial risks related to sustainability issues. Under the CSRD, a broader set of large companies and listed small- and medium-sized enterprises (SMEs) will be obligated to report on sustainability matters. Some non-EU companies will also need to report if they generate over EUR 150 million net turnover in the EU market. A breakdown of the undertaking categories subject to CSRD is shown in Table 4.
| Undertakings Subject to CSRD12 | ||
|---|---|---|
| Article 19a | Article 29a | Article 40a |
Large Undertakings
| EU Parents of Large Group
EU parents will file consolidated group reports, inclusive of their non-EU subsidiaries. | Global Groups with Significant EU Presence
The group must generate more than €150 million in net turnover for the preceding two financial years. The EU-based subsidiary/branch will file a consolidated report on behalf of its global group. |
Small and Medium Undertakings
| ||
| 12 Article 19a “Sustainability reporting,” Article 29a “Consolidated sustainability reporting,” and Article 40a “Sustainability reports concerning third-country undertakings,” are three provisions of the CSRD which describe the new sustainability reporting rules and the expanded criteria used to define the entities subject to CSRD sustainability reporting. | ||
Required companies are obligated to disclose information using a double materiality perspective. This entails considering both the internal risks and opportunities stemming from social and environmental issues, as well as the external impact of their activities on people and the environment. By adopting this comprehensive approach, companies provide a more holistic view of their sustainability practices and their effects on various stakeholders. This differs from the SEC’s single materiality disclosure requirements based solely on disclosure of internal information intended to inform investment decision-making.
CSRD is expected to impact approximately 50,000 companies, and each will be required to obtain limited assurance and provide mandatory digital reporting. The CSRD has 12 reporting standards and 82 disclosure requirements, making it the most data-intensive sustainability reporting regulation to date. The CSRD compliance timeline is shown in Table 5.
| CSRD Compliance Timeline Summary | ||
|---|---|---|
| Company Type | Reporting Requirements Begin | First Report Issued |
| Companies already subject to NFRD | 1 January 2024 | 2025 |
| Large undertakings and EU parents of large groups not subject to NFRD | 1 January 2025 | 2026 |
| Small and medium public interest undertakings | 1 January 2026 | 2027 |
| Global group | 1 January 2027 | 2029 |
Defining Your Company’s Disclosure Ambition
In just over one year, issuance of the CSRD, the ISSB standards, the California Climate Accountability Package, and now, the final SEC rules represent landmark shifts in the standardization of climate and sustainability disclosures. While in the United States, the SEC climate-disclosure rules and California Climate Accountability Package are only applicable to companies meeting certain revenue thresholds, companies outside of regulated jurisdictions will also be affected through interrelated value chains. This presents companies of all sizes and geographic locations with the opportunity to determine their sustainability strategy and disclosure reporting level of ambition: from mandatory compliance to a forward-thinking, holistic approach.
Tetra Tech is uniquely positioned to partner with companies to determine what’s next for their ESG progression and regulatory compliance across jurisdictional requirements. With more than 50 years of environmental expertise and global experts in every sustainability discipline, Tetra Tech is Leading with Science® to help mitigate climate change and contribute to a better world.
Sources
U.S. Securities and Exchange Commission. 17 CFR 210, 229, 230, 232, 239, and 249, [Release Nos. 33-11275; 34-99678; File No. S7-10-22], RIN 3235-AM87, The Enhancement and Standardization of Climate-Related Disclosures for Investors. Access: sec.gov/files/rules/final/2024/33-11275.pdf
U.S. Securities and Exchange Commission. Fact Sheet: The Enhancement and Standardization of Climate-Related Financial Disclosures: Final Rules. Access: 33-11275-fact-sheet.pdf (sec.gov)
Senate Bill No. 253, Chapter 382, An act to add Section 38532 to the Health and Safety Code, relating to greenhouse gases, and making an appropriation therefor. Access: Bill Text – SB-253 Climate Corporate Data Accountability Act. (ca.gov)
Senate Bill No. 261, Chapter 383, An act to add Section 38533 to the Health and Safety Code, relating to greenhouse gases, and making an appropriation therefor. Access: Bill Text – SB-261 Greenhouse gases: climate-related financial risk. (ca.gov)
25 CCR § 231010. Article 1. Definitions and General Provisions [23101 – 23114]. Access: Law section (ca.gov)
IFRS Foundation, 2023. IFRS S1 General Requirements for Disclosure of Sustainability-Related Financial Information. 2023. IFRS – IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information
IFRS Foundation, 2023. IFRS S2 Climate-related Disclosures. 2023. IFRS – IFRS S2 Climate-related Disclosures
IFRS Foundation, 2024. Introduction to ISSB and IFRS Sustainability Disclosure Standards. IFRS – Introduction to ISSB and IFRS Sustainability Disclosure Standards
Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting. Directive – 2022/2464 – EN – CSRD Directive – EUR-Lex (europa.eu)
Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament, and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC. Directive – 2013/34 – EN – ifrs – EUR-Lex (europa.eu)
About the authors
Emily Olson
Emily Olson, MBA, is a sustainability director at Tetra Tech with more than 25 years of industry professional experience.
She has more than 15 years as a leading sustainability consultant for Fortune 500 clients and serves as a subject matter expert on global, integrated sustainability strategies. Her expertise includes sustainability framework design and implementation, pre-competitive collaborative industry initiatives, and regenerative business systems. She also focuses on impact reduction target setting and roadmaps, materiality and risk assessment, climate change adaptation and resilience planning, environmental, social, and governance portfolio acquisition due diligence, biodiversity assessments, sustainability communications, and reporting.
Additionally, Emily is skilled in product portfolio eco-design; diversity, equity, and inclusion leadership; circular economy initiatives; supply chain management; and sustainability education. She integrates frameworks and guidance from leading bodies into her work in the finance, food and beverage, pharmaceutical, personal care, household goods, fashion, land and agriculture, manufacturing, technology, transportation, and retail sectors. Emily regularly guest lectures at universities and speaks at conferences globally on regenerative, sustainable business. She holds a Master of Business Administration in Sustainable Enterprise from Dominican University and a Bachelor of Arts from The Evergreen State College.
Nicole Mallett
Nicole Mallett, MBA, is an environmental, social, and governance (ESG) and program services manager at Tetra Tech specializing in ESG and sustainability market analysis.
Her five years at Tetra Tech have included research and development of guidance on voluntary and regulated climate disclosure, ESG program development, and ESG and sustainability competitive and services landscape. She supports client research, including the evaluation of ESG program maturity.
Additionally, Nicole provides contract and risk management support to various commercial and federal business lines through financial management, project controls, proposal cost and pricing preparation, GAAP compliance, and program administration activities. Her prior experience includes the development of methods to assess post-investment ESG impact in public equity, fixed-income, impact, and multi-asset funds. Nicole has a Master of Business Administration in Sustainable Innovation from the University of Vermont and executive education certificates in Corporate Climate Change Risk Management and Sustainable Finance and Investment from the Yale School of Management.
Jason Coccia
Jason Coccia, CPA, Tetra Tech’s director for sustainability and nature-based solutions, helps clients achieve sustainability goals while managing risk tied to climate change and biodiversity loss.
He focuses on developing comprehensive solutions that meet adaptation, resiliency, and mitigation needs while enhancing the co-benefits of ecosystems services and human well-being. He represents Tetra Tech on the international Taskforce for Nature-related Financial Disclosures (TNFD) Forum and is professionally certified by the International Union for Conservation of Nature (IUCN) on its nature-based solutions standard. He has helped Fortune 500 companies implement carbon sequestration projects and other resource mitigation through large-scale ecosystem restoration. An actively licensed certified public accountant, he holds a Master of Business Administration in Sustainable Enterprise and a Master of Environmental Management in Resource Ecology.
Jennifer Warfield
Jennifer Warfield, MBA, is a program manager for environmental commercial accounts specializing in environmental, social, and governance (ESG) and sustainability services.
With more than 20 years of experience in environmental, health, safety, and sustainability consulting, Jennifer specializes in interdisciplinary solutions for corporate global teams, to create synergy and efficiency toward high-quality outcomes. She focuses on portfolio and management techniques for ESG Strategy advancement and greater climate resiliency.
Jennifer has expertise in a range of ESG-related projects, including strategy, policy statements, reporting and disclosures, and GHG inventory, as well as stakeholder engagement and materiality assessment projects. She has managed global organizational transformation initiatives for clients, resulting in culture shift and process improvements. She has expertise in global environmental compliance and audit program management, as well as environmental and ESG due diligence associated with mergers, acquisitions, and divestitures.
Jennifer has a Bachelor of Science in Civil Engineering from Rice University and a Master of Science in Environmental Engineering from the University of Texas at Austin.