5 Steps To Be Regulatory Ready: Where Businesses Should Begin

Jun 11, 2024 1:00 PM ET
Sustainability Reporting

In recent years, there has been a significant increase in the number of bills and regulations aimed at enhancing transparency regarding the societal and environmental impacts of business operations.

These policies include the Securities and Exchange Commission (SEC) Enhancement and Standardization of Climate-Related Disclosures, California Senate Bill 253 Climate Corporate Data Accountability Act and the California Senate Bill 261 the Greenhouse Gases: Climate-Related Financial Risk, with others being discussed. While the SEC climate disclosure rule continues to be debated, the California regulations are pressing onward, with their first wave of reports due beginning in 2026.

Companies need to be aware of their legal obligations and begin preparing now.

Organizations, especially those who already generate voluntary sustainability reports that are aligned to frameworks like the Task Force on Climate-Related Financial Disclosures (TCFD), Global Reporting Initiative (GRI), or the Sustainability Accounting Standards (SASB), will be well-positioned to respond to these new regulations.

This is because there are several familiar components embedded within these regulations such as emissions reporting; Environment, Social, and Governance (ESG) strategies; identification and quantification of certain climate-related risks and opportunities; and more. Businesses who have yet to establish a sustainability program or disclose to the likes of EcoVadis or CDP (formerly known as the Carbon Disclosure Project), however, may find themselves overwhelmed and already behind schedule.

Other companies may find that they are not directly subject to these new regulations, and therefore believe they will not be affected by their rulings.

However, many of the ESG-oriented regulations also incorporate responsibility for a company’s value chain. Consider the European Union’s Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D). These two laws go hand-in-hand, charging companies with establishing practices to address their identified material impacts on the environment as well as their impacts on human rights. The scope extends from a company’s own operations and their subsidiaries’ operations to also include the impacts associated with their supply chains’ operations.

So, while an organization itself may not be directly tied to the regulation, their value chain might. Companies should therefore prepare to respond to their customers and other stakeholders who fall within the scope of these new regulations.

There are four tactical steps companies can take to be ready:

  • Identify your legal obligations – consider which regulations do and/or will apply to your organization. In several instances, there are ramp-up periods where additional information will be required in future years.
  • Conduct a readiness gap assessment – take stock of your current practices as they relate to the new disclosure requirements. Develop action plans and strategies to fill these gaps.
  • Calculate GHG emissions – begin with scopes 1 & 2 which are directly tied to your operations. For some companies, you will also need to begin assessing your scope 3 which means involving your value chain. Once you have calculated your emissions, consider defining your approach in what is called an “Inventory Management Plan.” This document outlines the process for which your organization collects, calculates, and manages their GHG data and serves as an important tool for third-party assurance or verification.
  • Report your required non-financial information – leverage frameworks, like TCFD, to effectively communicate and address your stakeholders on material ESG topics. In doing so, you demonstrate maturity as you report on your company’s ESG objectives, strategies, goals and performance.

Bringing it all together

After you have identified and established your stakeholder obligations and reporting deadlines, the fifth step is to begin to create a collaborative team to properly address these challenges. Involving your finance, operations, supply chain, and legal teams will support the success of your sustainability program. This will allow your organization to synergize and streamline the work, leverage existing resources and best practices, and put your company in a position to disclose with confidence. Sustainability, and its related ESG reporting, is a journey.

The new regulations are designed to help guide you along the way, but we know that with more and more pressure and noise, it can be hard to see the forest through the trees. Our ESG experts can help you conduct readiness gap assessments, conduct GHG emissions inventories for Scopes 1, 2, and 3, support strategy development, generate reports aligned to various frameworks like TCFD, GRI, and SASB, and much more.

Contact our team today for help with your corporate sustainability reporting and disclosure!