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Carbon legislation is quickly becoming an important factor for your organisation to consider when making decisions. This emerging landscape presents both risks and opportunities that businesses must be aware of, in order to remain compliant and competitive. Use this tailor-made list of carbon reporting frameworks to kick start your NetZero journey.
Adhering to mandatory requirements can help to protect your business from costly fines, reputational damage, and the loss of RFPs and government contracts. It also helps to reduce the risk of lawsuits and other legal challenges. Taking proactive steps to ensure compliance can provide peace of mind, strengthen your brand, and ensure your company's long-term success.
The European Green Deal's Corporate Sustainability Reporting Directive (CSRD) mandates over 50,000 companies, including large, listed, and third-country companies with EU undertakings, to report sustainability information under the European Sustainability Reporting Standards (ESRS). Reporting starts on or after 1 January 2024 for large public-interest companies, banks, and insurance companies already under the Non-Financial Reporting Directive (NFRD); 1 January 2025 for other large companies; and 1 January 2026 for small or medium-sized entities and other undertakings. The CSRD and ESRS incorporate double materiality, prospective information, information about the upstream and downstream value chain, and sustainability due diligence into their reporting requirements. All sustainability information in the management report must be verified by a third party. The first set of ESRS were approved in November 2022 and emphasizes the importance of tackling climate change. The ESRS aim to harmonize with various other standards like ISSB, TCFD, and GRI to avoid repeated disclosure efforts by companies. The ESRS will bring topics previously limited to voluntary reporting into the realm of regulatory requirements under the CSRD.
On April 21, 2021, the European Commission (EC) proposed the Corporate Sustainability Reporting Directive (CSRD) requiring companies to report according to European Sustainability Reporting Standards (ESRS), with the European Financial Reporting Advisory Group (EFRAG) serving as the technical advisor. The first draft of ESRS was released for public consultation by EFRAG on April 29, 2022, with the process concluding in August 2022. After reviewing all feedback, the EFRAG Sustainability Reporting Board and Technical Expert Group approved a first set of ESRS on November 15, 2022, to be submitted to the EC, which is expected to adopt these standards by June 2023. This first set of ESRS consists of 12 standards covering environmental, social, and governance matters and includes both general and specific standards. Future plans include the publication of sector-specific standards and standards for small and medium-sized enterprises (SMEs) not covered in the public consultation. The Council approved the proposal on November 28
The proposed CSRD shall apply for financial years starting on or after 1 January 2023, but based on the latest communication of the Council of the European Union, deadlines for implementation by companies (EU refers to undertakings) are proposed to change to:
Assurance of the sustainability reporting is proposed to be mandatory at the limited level, planning a transition to reasonable assurance in the upcoming years.
The sustainability reporting period should be aligned to the reporting period used for the financial statements.
Scope 1, 2 & 3 to be enforced on the NCS as from 01.01.2024
The first set of European Sustainability Reporting Standards (ESRS) establishes a structure for reporting sustainability information in a comprehensive manner. It includes four main reporting areas as set out in ESRS 2. These areas are:
The first set of draft standards under the European Sustainability Reporting Standards (ESRS) includes only cross-cutting and sector-agnostic standards. Sector-specific standards and those proportionate for Small and Medium Enterprises (SMEs) are still under development and will be presented for separate public consultation in the near future. Companies are required to include the sustainability information mandated by the ESRS in their management reports.
There are currently no mandatory global reporting frameworks for carbon emissions that are legally binding on all countries and companies, however, there are some mandatory reporting frameworks that apply to certain countries or sectors. For example, the Streamlined Energy and Carbon Reporting (SECR) framework is mandatory for large UK companies and large LLPs (Limited Liability Partnerships) that are required to report under the Companies Act 2006. This includes companies on the main market of the London Stock Exchange and companies with over 250 employees.
Additionally, there are mandatory reporting frameworks that apply to certain sectors, such as the EU Emissions Trading System (EU ETS) which covers the energy and industrial sectors in the European Union, and the California's Cap-and-Trade Program which covers the power and industrial sectors in California, US.
Streamlined Energy and Carbon Reporting (SECR) is a framework established by the UK government for mandatory reporting of energy and carbon emissions by certain organizations. SECR requires companies to report their energy use, energy efficiency and greenhouse gas emissions in their annual reports, and to set intensity-based reduction targets for energy and carbon emissions. The goal of SECR is to encourage organizations to reduce their energy consumption and greenhouse gas emissions, and to provide investors and other stakeholders with transparent and comparable information on the environmental performance of companies. SECR is mandatory for large UK companies and large LLPs (Limited Liability Partnerships) that are required to report under the Companies Act 2006. This includes companies on the main market of the London Stock Exchange and companies with over 250 employees.
All UK businesses in the following three categories have to comply, unless they meet certain exemption criteria:
Companies and LLPs are defined as large if they meet two or more of the following criteria:
Large unquoted companies and LLPs are exempt from reporting if they can show that their energy use is less than 40 MWh over the reporting period.
According to the UK’s SECR legislation, quoted companies must report:
Large unquoted companies and LLPs must report:
The Task Force on Climate-related Financial Disclosures (TCFD) is an organization established by the Financial Stability Oversight Council (FSOC) with the goal of providing recommendations for voluntary climate-related financial disclosures. The TCFD's recommendations are intended to help companies identify and disclose information that would be material to the understanding of their exposure to risks and opportunities related to climate change. The main goal of the TCFD is to increase transparency and accountability of companies on their climate-related risks and opportunities and provide useful information for investors, lenders, insurers and other stakeholders to assess the long-term value of companies.
The Securities and Exchange Commission (SEC) is an independent federal agency that oversees the securities industry and protects investors. In relation to the environment, the SEC plays a role in ensuring that companies disclose accurate and relevant information about the material risks and impacts of climate change and environmental issues on their business operations and financial performance. The SEC has issued guidance to companies on the disclosure of climate-related risks in their financial filings, and has taken enforcement actions against companies that have failed to provide adequate disclosure of such risks. Additionally, SEC has also issued interpretive guidance on the use of Non-GAAP measures and encourage companies to include Environmental, Social, Governance (ESG) information in their financial filings. The SEC also monitors the activities of companies and investors to ensure compliance with securities laws and regulations, and to detect and prevent fraud and other forms of misconduct related to environmental issues.
Among other things, companies would need to disclose the following:
The EU’s Non-Financial Reporting Directive (NFRD) applies to certain large companies and public-interest entities which meet two of the following three criteria.
NFRD is set to be replaced by CSRD for the 2023 reporting year.
These companies will have to disclose information on the policies, risks, and outcomes of their activities that are material to the understanding of the impact of their activities on the environment and society. Also, large listed companies will have to disclose information on their diversity policy for the administrative, management, and supervisory bodies. With respect to environmental impact, it is recommended that companies disclose Scope 1, 2, and 3 emissions, as well as absolute reduction targets. It is recommended that banks and insurance companies focus on their Scope 3 emissions, despite the difficulties.
The Corporate Sustainability Reporting Directive (CSRD) is a directive of the European Union (EU) that requires certain large companies to report on their environmental, social, and governance (ESG) performance. The companies that have to comply with the CSRD are the ones that meet two of the following three criteria:
In addition, listed SMEs, and non-EU-based companies with subsidiaries or securities in the EU must also comply with CSRD.
The CSRD was signed into law on November 10 2022 and is set to replace the NFRD, starting in the financial year 2024. Listed SMEs are given until 2027 to comply.
These companies will have to provide a non-financial statement as part of their management report and disclose information on their policies, risks, and outcomes related to environmental, social, employee-related matters, respect for human rights, anti-corruption and bribery matters and diversity. The CSRD is also known as the Non-Financial Reporting Directive (NFRD) The directive aims to improve the transparency and accountability of companies on their sustainability performance and to support investors, consumers, and other stakeholders in assessing the long-term sustainability of companies.
Under the CSRD, companies must report on five core areas:
There are several advantages of adhering to to these frameworks including; greater transparency, improved management, reputation and brand enhancement, safe guarding against future mandatory policies and regulations, cost saving and, continuous improvement.
The SME Climate Commitment is a global initiative that encourages small and medium-sized companies to halve their greenhouse gas emissions before 2030 and reach net zero emissions before 2050. The commitment also includes yearly progress disclosures to ensure accountability and transparency.
The Global Reporting Initiative (GRI) is an international organization that provides a framework for organizations to report on their economic, environmental and social performance, and promote sustainability reporting. GRI's framework is widely used, flexible and includes guidelines on a variety of sustainability topics, such as governance, labor practices, human rights, and environmental impact. The main goal of GRI is to increase transparency and accountability of organizations and support stakeholders in assessing the long-term sustainability of companies.
This is a voluntary framework.
The GRI is one of the most common sustainability reporting standard, used by over 10,000 organizations around the world.
The Task Force on Climate-related Financial Disclosures (TCFD) is an organization established by the Financial Stability Oversight Council (FSOC) with the goal of providing recommendations for voluntary climate-related financial disclosures. The TCFD's recommendations are intended to help companies identify and disclose information that would be material to the understanding of their exposure to risks and opportunities related to climate change. The main goal of the TCFD is to increase transparency and accountability of companies on their climate-related risks and opportunities and provide useful information for investors, lenders, insurers and other stakeholders to assess the long-term value of companies.
The Science-Based Targets initiative (SBTi) is a partnership between CDP, the United Nations Global Compact, World Resources Institute (WRI) and the World Wide Fund for Nature (WWF) that helps companies set science-based targets for reducing their greenhouse gas emissions. The SBTi provides companies with a clear and transparent method for setting targets that are in line with the latest climate science, and helps them to align their goals with the Paris Agreement. The main goal of SBTi is to help companies to contribute to the reduction of emissions in the order of magnitude necessary to meet the Paris Agreement and to limit global warming to well-below 2 degrees Celsius above pre-industrial levels.
This is a voluntary framework.
The Carbon Disclosure Project (CDP) is a non-profit organization that aims to encourage companies and cities to disclose their environmental impact information, such as greenhouse gas emissions, and to manage and reduce their environmental impact. CDP works with investors, companies, cities, states and regions to disclose their environmental impact data through CDP's platform. The main goal of CDP is to encourage companies to take action on climate change, water security and deforestation by providing them with the necessary data and tools to manage their environmental impact and make informed decisions.
This is a voluntary framework.
To comply with the CDP, companies must disclose the following emission metrics: