If you’ve been following the developments in climate disclosure regulation, you know that many U.S. companies may well be subject to disclosure regulations beyond those of the SEC; regulations adopted in the European Union, countries outside the EU and in some states, such as California, could be applicable. And some aspects of those regulations are more sweeping—or just different—than those recently adopted by the SEC. For example, the EU employs the concept of “double materiality,” meaning the impacts of companies’ “business on the environment and society irrespective of the positive or negative effect of such impacts on companies’ financials”; by contrast, the SEC looks at materiality from the perspective of the reasonable investor making investment or voting decisions. In light of these and other differences, companies may face challenges in attempting to implement all of the applicable rules. This essential new Cooley Alert, Comparing the SEC Climate Rules to California, EU and ISSB Disclosure Frameworks, from our ESG group provides some welcome guidance in sorting through the requirements of the different frameworks.
Here’s an excerpt:
“For many companies, however, the SEC climate rules will apply in addition to other mandatory sustainability reporting frameworks already in force or imminently applicable. While the SEC’s climate rules touch on many of the same areas as the three 2023 California climate disclosure laws (Senate Bills 253 and 261 and Assembly Bill 1305) and the EU’s Corporate Sustainability Reporting Directive (CSRD), there are points of significant divergence. The reporting landscape is likely to become increasingly complex, with numerous jurisdictions, including Australia, Hong Kong, Singapore and the United Kingdom, planning to adopt, or having already adopted, legislation to integrate the climate-related disclosure framework developed by the International Sustainability Standard Board (ISSB)—International Financial Reporting Standards (IFRS) S1 and IFRS S2—into their corporate reporting….
“In addition, on March 15, 2024, the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) was approved by the Council of the EU. Subject to final approval by the European Parliament, expected in April, the CSDDD will become law and will apply to certain companies as early as 2027. For in-scope US companies, the CSDDD will generate additional climate-related obligations, including a mandatory requirement to adopt and put into effect a climate transition plan that aims to ensure, through best efforts, that their business models and strategies are compatible with the limiting of global warming to 1.5 °C. In addition to potentially impacting SEC climate target and transition plan disclosures, these CSDDD obligations may also impact how companies analyze climate risk and emissions materiality in future SEC disclosure.”
