Prepare for climate disclosure, unlock business value, and gain a competitive edge with strategic reporting. Learn key takeaways from sustainability experts.As companies face a wave of new climate disclosure standards from around the globe, the question of preparation looms large. Last month, three experts in sustainability and compliance gathered to provide insights during our Climate Disclosure Roadmap Webinar.
Persefoni Chief Sustainability Officer and Deputy General Counsel Kristina Wyatt joined Kristen Sullivan, sustainability and ESG services lead at Deloitte & Touche LLP, and Dave Curran, co-chair of sustainability and ESG at Paul, Weiss, to discuss the practical steps businesses can take to get ready for disclosure requirements — and how strategic reporting can unlock value and prepare organizations for regulatory scrutiny.
Here are five key takeaways from their conversation:
1. Climate disclosure is all about business value.
The climate crisis is creating new risks and opportunities for businesses, with lasting economic consequences. Organizations face physical risks like damage to infrastructure and supply chains from severe weather and disasters. They also face transition risks that are arising as the world shifts to a low-carbon economy — including new carbon disclosure mandates.
Leaders must now contend with an alphabet soup of regulations and standards aimed at increasing transparency about corporate greenhouse gas emissions and climate-related financial risk.
These include guidance from the European Union’s Corporate Sustainability Reporting Directive (CSRD) and Sustainable Finance Disclosure Regulation (SFDR); the International Sustainability Standards Board (ISSB); the US Securities and Exchange Commission (SEC); and the state of California.
While several of these directives are still not finalized, they are part of a sea change that is raising transparency expectations for businesses around the world. Against this backdrop, extraordinary opportunities are emerging.
Companies not only stand to benefit from technological solutions for decarbonization — by getting ahead of regulations, they can set themselves apart and earn a competitive advantage. Rigorous emissions tracking and disclosure can help companies increase efficiency, boost their reputations, and communicate with stakeholders.
ESG is all about business value, Kristen pointed out, and organizations that view their climate reporting through the lens of enterprise risk and opportunity will find it easier to adapt to a rapidly changing economy. “It’s a data-driven way to understand risk dependency and future value creation,” she said.
2. Don’t wait for the dust to settle. Disclosure is inevitable.
While it may be tempting to wait until climate regulations are finalized before beginning the disclosure process, experts advise against it.
Despite political pushback, disclosure is inevitable. Nearly everyone is already reporting on emissions in some manner, whether it’s strategic or not. In 2022, 96% of the S&P 500 put out sustainability reports. Even if companies aren’t releasing reports or following a formal process like CDP disclosure, they’re likely publishing some kind of data in marketing materials or sharing it with customers and stakeholders. And rating and ranking bodies are creating profiles of companies that can have lasting implications.
Regardless of who provides it, climate information — or its absence — informs decisions about organizations, including who gets access to capital, and how much. Even private companies that may think they don’t need to report are not immune, Dave noted. “You’re in somebody’s supply chain, so inevitably, you’re reporting to somebody about something.”
Businesses that take control of the narrative ahead of time will have an advantage. Investors are looking at what will provide certainty about the future of cash flows, and what could put them at risk. By following proposed frameworks and disclosing proactively, companies can communicate confidently about how they’re navigating these challenges.
3. Investor-grade reporting is imperative.
Businesses are facing unprecedented attention to their ESG reporting — not just from regulators but from customers, shareholders, partners, and plaintiffs’ lawyers. Leaders need to approach emissions accounting with the same thoroughness they bring to their financial accounting.
“There's so much more scrutiny over this information. There's going to be a real premium on being able to back up your statements and reporting with high quality,” Kristina said.
One critical development that could help finance departments with disclosure is the new sustainability guidance from the Committee of Sponsoring Organizations (COSO), the internal control and fraud deterrence initiative. COSO’s framework for internal control over sustainability reporting (ICSR) aims to increase the consistency and accuracy of reporting, which will build transparency and trust.
In today’s regulatory and cultural environment, the rigor and integrity of a company’s data are everything. But calculating emissions — even for scope 3 — doesn’t have to be overwhelming. Companies can simplify the process by prioritizing the biggest emitters in their supply chains and using industry averages and estimates for smaller suppliers. Carbon accounting software takes the burden off teams and helps ensure these calculations are on target.
While accuracy is essential, teams should not be afraid to share forward-looking projections about their climate risks and impact. The world is changing rapidly, and auditors and assurance providers are navigating evolving frameworks themselves. If a company’s outcomes ultimately diverge from predictions, the Private Securities Litigation Reform Act can provide a safe harbor.
4. Start by aligning internally.
One of the most important steps an organization can take to protect the integrity of its data and prepare for assurance is to work across departments and coordinate closely throughout the disclosure process.
“Get everyone in the same room and agree to what you’re disclosing,” Kristina said. “Make sure that you have one consistent message and that you can back up those disclosures with actual data.”
Siloed teams create serious problems when it comes to ESG reporting. A company could find itself in trouble if its PR materials, sustainability report, and regulatory filings all say different things. “That kind of thing is exactly what the SEC is looking for,” Kristina noted. “Plaintiffs’ lawyers are also going to be looking for those kinds of inconsistencies.”
Tools that provide a single source of truth across departments will prevent errors and inconsistencies.
5. It all comes down to good governance.
Ultimately, high-integrity reporting relies on the rules and processes the company puts in place. Sustainability approaches that bypass traditional governance mechanisms won’t cut it anymore.
Governance lies at the core of climate disclosure and is built into regulations and frameworks from bodies like the Task Force on Climate-Related Disclosure (TCFD) and the SEC.
Transparency about governance gives investors and stakeholders insight into how senior leaders in a company consider sustainability in their decision-making. It also helps reinforce internal controls.
Now, more than ever, organizations must be deliberate about establishing the skills, monitoring mechanisms, and infrastructure to track emissions. One way to do that is by forming strategic teams and oversight councils dedicated to sustainability and disclosure — a trend many leaders are embracing. Deloitte’s research found that in 2022 nearly 60% of surveyed CxOs had established cross-functional ESG working groups, a three-fold increase over the previous year.
Today’s regulatory landscape provides a prime opportunity to re-examine policies and procedures and, if necessary, put new ones in place. “If not now, when are you going to push for governance within your organization?” Dave asked. “It’s a good time to do spring cleaning and take a look at everything you’re doing.”
Embrace Sustainability Reporting: Building Transparency, Alignment, and Integrity
Sustainability reporting is here to stay. Though disclosure frameworks and policies are still evolving, businesses increasingly have to answer to investors and customers who want to know precisely how they are responding to climate risks and opportunities.
Organizations shouldn’t wait to begin the reporting process. They can start by aligning internally to ensure everyone is working with the same information and shared understanding of the company’s climate journey; and by committing to high-integrity data that will stand up to scrutiny.
Most importantly, businesses need to establish robust internal controls and good governance — and be ready to show that their leaders take sustainability seriously.
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