New and Upcoming Climate Reporting Legislation to Watch for in 2024
The changing environment puts more importance on climate reporting legislation for companies and financial organizations. These legislations aim to enhance transparency and accountability regarding the environmental impact of businesses, industries, and governments. Even though the types of legislation and applications vary from country to country, legislation typically requires organizations to disclose their greenhouse gas emissions, climate-related risks, and sustainability practices.
Climate reporting and climate legislation are familiar concepts for companies, and several pieces of legislation are already in use in different parts of the world. However, relevant bodies regularly update these legislations to keep information flow consistent and transparent from the companies around critical trends and the context of the changing environment. In this article, we'll look at the new and upcoming climate reporting legislations to watch for in 2024 and their implementations for countries.
The EU's Corporate Sustainability Reporting Directive
The corporate sustainability reporting directive (CSRD) was adopted as a legislative proposal by Council and European Parliament in April 2021. Following this, the council agreed to update companies' rules for their sustainability reporting in June 2022. CSRD aims to address shortcomings in the existing regulations on the disclosure of non-financial information, which hinder the transition to a sustainable economy.
According to CSRD, organizations need to follow more detailed reporting requirements. This includes reporting on their actions around environmental rights, social rights, human rights and governance factors. CSRD also requires organizations to explicitly reference the European Sustainability Reporting Standards (ESRS) as a "source of guidance". To comply with CSRD legislations, the company must follow the first set of draft European Sustainability Reporting Standards (ESRSs), which are more strict and rigorous in scope and depth of disclosure requirements than the current Non-Financial Reporting Directive (NFRD). This means that when reporting, companies have to disclose hundreds of metrics and targets.
Starting in 2024, with the new CSRD legislation in process, about 50,000 companies will be obliged to provide sustainability reporting, including EU and non-EU countries. Although not all non-EU countries will be affected by CSRD, those with subsidiaries operating within the EU or listed on EU-regulated markets must follow CSRD.
There will also be a certification requirement for sustainability reporting attached to the CSRD, including improved accessibility of information. CSRD requires the publication of accessibility information in company management reports for full transparency.
Companies must complete their CSRD reporting in 2025 for the year ending in December 2024. As the deadline approaches, companies need to attain a deep understanding of the impacts of CSRD on their business and how to prepare for CSRD reporting.
International Sustainability Standards Board
The International Sustainability Standards Board (ISSB) was established to deliver a global climate and sustainability reporting baseline at the UN Climate Change Conference (COP26) in 2021. Following this, the board announced that global climate and sustainability disclosure rules will be effective for annual reporting periods beginning on after January 1st, 2024.
ISSB issued its first two IFRS Sustainability Disclosure Standards in June 2023. IFRS S1 includes the general requirements for the disclosure of sustainability-related financial information, and IFRS S2 refers to climate-related disclosures. Companies will be required to apply IFRS S1 and IFRS S2 together to complete compliance with IFRS Sustainability Disclosure Standards.
For the first year of the requirements, ISSB provides transition relief for some conditions. The ISSB also supports companies in implementing IFRS S1 and S2 through activities such as developing further guidance and training materials. Detailed information regarding the IFRS Sustainability Disclosure Standards can be found here.
Mandatory climate disclosure in Canada and Hong kong
The Canadian government announced that banks and insurance companies need to provide disclosures on their climate-related risks and exposures starting in 2024. This new requirement came as a part of the federal government's 2022 budget, which also proposed a $9 billion budget to address the changing environmental dynamics and a greener future.
The Office of the Superintendent of Financial Institutions (OSFI), Canada's financial regulator, will regulate the institutions’ compliance with mandatory climate disclosure. In general, OSFI will check the alignment of the institutions' climate disclosures with the Task Force on Climate-related Financial Disclosures (TCFD) framework. TCFD framework includes but is not limited to disclosing climate risks, strategies, and governance measures. OSFI's regulations check will also cover the clients of financial institutions' alignment with the requirements regarding their climate risks and emissions.
Canada is not the only country that proposed climate-related disclosures in ESG reports. Hong Kong also announced its commitment to mandated new rules aligned with ISSB and TCFD. The new rule will be effective on January 1st, 2024 and apply to the ESG reports published in 2025 for the companies in Hong Kong.
Getting closer to 2024, there are a few critical legislations on climate reporting for companies and organizations to keep an eye on. These legislations allow companies to provide a transparent and meaningful picture of climate risks and the opportunities in their sector. However, these legislations are no longer optional. All around the world, governments adopt and endorse standardized frameworks for climate reporting, as in the example of Canada and Hong Kong.
There is no doubt that many countries will follow this trend. Even though the framework and guidelines countries enforce changes, the main aim here is to streamline climate reporting processes and ensure consistency and comparability of climate-related information.
It is essential to stay updated on legislative developments in your specific country or region. To keep yourself updated, you can check government websites and industry publications. Intengine can also provide you with key information on climate reporting legislation and help you to find the most up-to-date and reliable sources.
Tags: corporate sustainability, csrd, climate disclosure, sustainability disclosure, climate legislation, issb, ifrs, sustainability reporting, climate reporting