Until recently, businesses have had to wrestle with a variety of disjointed climate reporting frameworks. The result has largely been inefficiency and widespread confusion for both investors and enterprises. Thankfully, that’s changing. For better.
Reporting rules and standards from different jurisdictions are now beginning to converge around shared principles, following a deliberate effort by international standard setters and regulatory bodies to harmonize reporting requirements.
This trend is shifting the direction of climate disclosure worldwide — and it answers an acute need from investors and stakeholders for transparent, comparable, and high-quality information about corporate climate impacts and risks.
In this article, we’ll take a look at the key standards and frameworks that are shaping the future of climate reporting.
The Current Shift: Global Momentum in Climate Reporting
We are witnessing a dramatic shift in the global regulatory environment as sustainability reporting standards coalesce. Just a few years ago, organizations had to navigate a maze of different voluntary standards, along with emerging regulatory expectations — more than 100 sustainability reporting provisions have been introduced around the globe since 2016. Now, as new and enhanced regulations roll out, the core requirements for climate risk reporting are beginning to align.
Milestones in this shift include California’s adoption of climate disclosure legislation (SB 253 and SB 261), the recent finalization of climate disclosure rules by the US Securities and Exchange Commission (SEC), the European standard setter EFRAG’s issuance of the European Sustainability Reporting Standards (ESRS) pursuant to the EU’s Corporate Sustainability Reporting Directive (CSRD), as well as general and climate standards from the International Sustainability Standards Board (ISSB) — all of which will have a lasting impact on the future of sustainability reporting.
The Common Ground: Foundational Climate Reporting Frameworks
Amidst the varying proposals and regulations, a common thread has emerged. While the details of the policies differ, they consistently align around two foundational frameworks: the Greenhouse Gas Protocol and guidance from the Task Force on Climate-related Financial Disclosure (TCFD). These frameworks form the backbone of the convergence and have come to serve as a consistent centerpiece for climate disclosure standards, rules, and laws across jurisdictions.
Greenhouse Gas Protocol (GHGP)
Created in 1998, the Greenhouse Gas Protocol (GHGP) is the most widely used carbon accounting framework. It provides guidance for how organizations can develop inventories of GHG emissions.
Most notably, the protocol breaks emissions down into different scopes based on the type of activity that generates them. For example, scope 1 refers to emissions from a company’s owned operations, like the combustion of fossil fuels in vehicles and boilers. Scope 2 emissions come from the generation of purchased electricity, and scope 3 emissions are generated by activities in a company’s value chain, like the transportation of goods by a supplier. These scopes are widely used to guide climate disclosure around the globe.
Task Force on Climate-Related Financial Disclosures (TCFD)
The Task Force on Climate-Related Financial Disclosures (TCFD) was created in 2015 to provide a common framework for reporting on the risks and financial impacts of climate change.
TCFD’s recommendations apply to organizations across all jurisdictions and sectors, and aim to provide investors with reliable and comparable information about their climate-related financial risks so they can make better decisions. The TCFD guidance addresses four fundamental areas: Governance, strategy, risk management, and metrics and targets. These principles helped shape new standards from the International Sustainability Standards Board (ISSB), which we describe below. The TCFD’s four pillars also form the contours of landmark regulations around the globe, including the SEC climate rule and the reporting standards underpinning Europe’s CSRD.
Key Regulations and Standards Converging
The landscape of regulations and standards governing climate reporting is undergoing a significant transformation. Key entities such as the International Sustainability Standards Board (ISSB), the US Securities and Exchange Commission (SEC), and the European Union (EU) are spearheading initiatives aimed at harmonizing sustainability disclosure requirements. These efforts mark a pivotal shift towards standardized and comprehensive reporting practices, influencing companies worldwide.
International Sustainability Standards Board (ISSB)
One of the most significant developments of the past few years was the establishment of the International Sustainability Standards Board (ISSB) in November 2021 at COP 26. The ISSB is charged with establishing a global set of standards that are inclusive, proportional, and designed to evolve with time.
On June 26, 2023, the ISSB finalized its first two standards—General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and Climate-related Disclosures (IFRS S2)—marking a turning point in climate disclosure. With the standards, the ISSB has formally ushered sustainability into the world of securities regulation and established a new disclosure norm for capital markets. The ISSB has also sought feedback from the global community on plans for developing future standards on other sustainability topics.
In July 2023, the Financial Stability Board — the body responsible for the formation of the TCFD — announced that it was officially passing the baton from the TCFD to the ISSB. The ISSB will now carry on the TCFD’s legacy as the primary global framework for climate disclosure.
Just as many companies have historically looked to the TCFD Recommendations to guide their voluntary reporting of climate-related financial risk, they can now look to the ISSB Standards to do the same. In 2024, CDP incorporated the ISSB climate disclosure standard into its commonly used voluntary climate disclosure questionnaire. Moving forward, organizations using the ISSB standards will also be able to meet multiple demands from investors and commercial partners, potentially reducing the ‘questionnaire fatigue’ many companies face.
Meanwhile, regulators and stock exchanges around the world are considering incorporating the ISSB Standards into their rules and regulations. In July 2023, the International Organization of Securities Commissions (IOSCO) announced its endorsement of the standards for use by securities regulators around the world and called on its 130 member jurisdictions — representing 95% of global financial markets — to consider how they might adopt or apply ISSB’s guidance. Momentum is well underway, with consultations in several jurisdictions, and many others considering taking action.
SEC Climate Disclosure Rule
The US Securities and Exchange Commission’s Climate Rule, finalized in March 2024, aims to protect investors by ensuring companies disclose clear, consistent information. Under the rule, businesses must inform investors of their approach to addressing climate-related financial risk, including their governance and strategies and carbon emissions. The rule draws heavily from both the GHG Protocol and TCFD guidance and aligns in many regards with the ISSB framework.
The SEC rule applies to public companies (including foreign private issuers) that file periodic reports with the agency, and mandates disclosure of climate-related financial risks in annual reports and statements filed to register securities offerings or securities.
Corporate Sustainability Reporting Directive (CSRD) and European Sustainability Reporting Standards (ESRSs)
The European Union’s Corporate Sustainability Reporting Directive (CSRD) is a landmark law designed to mainstream comprehensive corporate sustainability reporting and enhance the consistency and reliability of disclosures.
The CSRD expands mandatory sustainability reporting requirements to nearly 50,000 companies. It applies to EU-based public and private enterprises and certain non-EU-based companies, including those with subsidiaries in the EU (based on certain size thresholds). The first reporting year commenced in 2024, with additional companies coming into scope over the next few years.
Organizations subject to the CSRD must look to the European Sustainability Reporting Standards (ESRSs) for direction on what to report and how to make those disclosures. The ESRSs cover a wide set of environmental, social, and governance topics, including climate change. Companies must disclose both how these topics affect their business and how their activities impact the environment and society — a concept known as “double materiality.”
The ESRSs also build on the foundation of the TCFD Recommendations, directing companies to report on their governance, strategy, risk management, and metrics and targets related to sustainability. On climate change, companies must report on GHG emissions, and the ESRSs incorporate the GHG Protocol. They also require companies to report on policies and action plans, as well as any targets and strategies to meet those targets.
The ESRSs and the ISSB Standards share the same pillars, with many parallels on climate — ultimately resulting in enhanced consistency between the EU and other global jurisdictions.
The Deliberate Effort: Driving the Convergence
The convergence of these climate reporting standards is not a coincidence. It is the outcome of a concerted and intensive effort by various standard setters and global entities, including the IFRS Foundation, IOSCO, G-7, and G-20 — and their member regulators and countries — to streamline sustainability-related financial disclosures. The motivation behind this effort is to ensure that investors can make informed decisions about corporate climate impacts and risks. The EU’s sustainability reporting regime also shares this common objective and adds requirements for companies to report not just on how climate affects a company’s financial outlook, but also on how the company impacts people and the planet.
The ISSB’s new standards are accelerating the convergence, with broad support from the G-7, G-20, IOSCO, the Financial Stability Board, African Finance Ministers, and Finance Ministers, and Central Bank Governors from more than 40 jurisdictions. Processes to adopt reporting requirements that align with the ISSB framework are underway around the world, including Australia, Brazil, Canada, Hong Kong, Japan, Malaysia, Nigeria, Singapore, and the UK, among others, and we can expect more in the future.
“Rarely do governments, policymakers, and the private sector align behind a common cause. However, all agree on the importance of high-quality, globally comparable sustainability information for the capital markets.” - Emmanuel Faber, ISSB Chair
Private Sector Demand: Responding to Net Zero Commitments
The private sector’s demand for more consistent climate reporting has played a pivotal role in driving regulatory convergence. A growing wave of companies, financial institutions, and nations have pledged to achieve net zero emissions, and transparent climate reporting is essential for their success.
Initiatives like the UN's Race to Zero — which includes over 70 countries and 1,200 companies — and the Glasgow Financial Alliance for Net Zero (GFANZ), along with the Net Zero Asset Managers’ Initiative, reflect the building momentum toward a lower-carbon economy. As consumer demand and regulations reshape global markets, the need for reliable and comparable climate data is becoming more acute.
Preparing for the Harmonized Reporting Era
While regulations continue to evolve, there will likely be differences around the edges, but you don’t have to wait for the dust to settle to build the foundations for your own reporting. You can proactively prepare now.
You need look no further than the GHG Protocol, TCFD, and ISSB, which underpin the current convergence of global standards. By gathering the baseline information outlined in these frameworks, you can set your organization up for success — and confidently prepare to meet future regulatory demands.
Learn how Persefoni can help you build auditable, transparent, and accurate climate disclosures.
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