Climate Reporting & Disclosure

“The board should ensure that material climate-related risks, opportunities and strategic decisions are consistently and transparently disclosed to all stakeholders—particularly to investors and, where required, regulators.”

Principle 7, How to Set Up Effective Climate Governance on Corporate Boards
World Economic Forum

Implications of Climate Disclosure in 2024 and Beyond

The US Securities and Exchange Commission’s (SEC) finalized climate disclosure rules, and California’s climate legislation (SB 253 and SB 261)—despite facing legal challenges—signal that boards must prioritize climate governance to navigate these significant regulatory shifts and meet rising market expectations. These rules require analysis and potential disclosure of climate-related risks and greenhouse gas emissions, emphasizing the need for robust governance and rigorous internal controls over reporting. To that end, the SEC requires disclosure of the company's governance of its climate-related risk and specifically the board's oversight of such risk. Moving forward, US boards should anticipate continued pursuance of climate regulations throughout the states and heightened market expectations, aligning the US standards more closely with global standards. In addition to California, climate disclosure bills have also been introduced in Illinois, Minnesota, New York, and Washington.

Globally, the International Sustainability Standards Board (ISSB) has taken over the role of the Task Force on Climate-Related Financial Disclosures (TCFD), as more than 20 jurisdictions have active processes underway to mandate ISSB-aligned reporting (representing over 50% of global GDP and over 40% of global market cap). The ISSB’s framework, along with the European Union’s Corporate Sustainability Reporting Directive (CSRD), is setting the stage for more rigorous reporting requirements that include broader coverage across sectors, sizes, and geographies. These standards are expected to exert significant influence on US markets, even in the absence of immediate domestic regulation, with an estimated 3,000 US companies  expected to be subject to reporting obligations.

Key Focus Areas for Boards

The shift from largely voluntary climate reporting frameworks to regulatory requirements will require data and associated processes at a level of rigor comparable to financial disclosures. As a result, boards should reassess  their governance processes to ensure the company—and board—are prepared for increased transparency and accountability in climate governance.

Enhance Governance Structures

To address the increasing complexity of climate-related risks, boards should evaluate how they are integrating climate oversight into existing governance structures and consider any necessary realignments among board committees as disclosure requirements shift from voluntary to mandatory reporting. This may involve revising oversight responsibilities, such as moving certain aspects of climate or sustainability oversight that may have previously been assigned to another committee (e.g., nomination and governance committee) to the audit committee, which will now need to review, approve, and stay informed on specific regulatory compliance matters. Additionally, climate issues may require more prominent attention at the full-board level, particularly in the context of risk assessment and long-term strategy. Management reporting and committee agendas may need to be adjusted to reflect these new requirements, ensuring clarity in governance roles and structures.

Oversight of Rigorous Disclosure Controls for Improved Data Quality

Effective climate governance relies on robust disclosure controls and procedures. Boards must ask the right questions of management to ensure that they establish systems capable of accurately tracking and reporting climate-related data, such as greenhouse gas emissions, climate risks, and progress toward sustainability goals. This shift necessitates more robust processes around data capture, ensuring consistency, correctness, and thorough review of the data.

Boards must also consider who will perform the third-party attestations for their disclosures. While some boards may rely on their independent financial auditors to perform attestation, it is critical to take a rigorous approach with the necessary controls to climate reporting to ensure the company is prepared when third-party assurance and attestation becomes a requirement. 

Encourage Proactive Alignment with Global Standards

Given the global nature of climate-related risks and reporting requirements, boards should guide their companies to align with international standards, such as those set by the ISSB. The ISSB’s standards provide a comprehensive approach to climate reporting, focusing on the financial materiality of climate risks. By aligning with these standards, companies can ensure that their climate disclosures are consistent, transparent, and interoperable on a global scale, which is increasingly important as investors, regulators, and customers continue to demand more rigorous, comparable climate reporting. Using the common baseline of the ISSB standards, companies may then build onto their reporting suite, based on compliance and stakeholder expectations; for example, adding impact materiality to financial materiality reporting for the CSRD.

Case Study: Project Gigaton

Walmart, the world’s largest retailer, launched Project Gigaton in 2017 with the ambitious goal of reducing its CO2 emissions by one billion metric tons by 2030. The company has focused on transparent progress reporting based on verifiable data and science-based methodologies. Walmart’s nominating and governance committee is charged with the responsibility to “review and advise management regarding the Company’s social, community and sustainability initiatives, including those related to climate change” and this role is clearly noted on the organization’s website. The committee’s updates, which include insights into energy transformation and climate advocacy, are shared with the full board to ensure alignment with corporate governance and regulatory requirements. In addition, the company has integrated physical and transition climate risks into their annual ERM process, and the results of these assessments are shared with the audit committee.

Questions for Boards to Consider

For directors, this evolving landscape means that effective oversight of climate-related risk and reporting is more critical than ever. To ensure their companies are not only compliant with US mandates but also aligned with the more rigorous global standards, boards should consider the following questions:

• Are we confident that the management team has an effective and repeatable process to locate, capture, review, and report climate information to meet the rigor of regulated reporting and disclosure requirements? Who is leading this process?
• Are we confident in the accuracy and reliability of the climate data provided by management? What controls are in place to ensure the integrity of this data? Is the reported data consistent with information released by the company in its sustainability or ESG reports, website, press releases, and other public information?  
• How are we engaging with stakeholders, particularly investors and customers, to ensure our climate disclosures meet their expectations?
• What steps has the management team taken to align the approach to and “interoperability” of climate disclosures with evolving, globally recognized standards; voluntary frameworks; and regulatory frameworks (such as those from the ISSB)?
• How does our current governance structure ensure that climate-related risks and opportunities are appropriately integrated into strategic decision-making?
• Does the organization face litigation risk from what it is or is not choosing to disclose? Is effective governance oversight implemented throughout all climate-related statements and reports?

This article is part of an 8-part series that provides guidance in applying climate governance principles in the US boardroom. Click here to  access the full series and learn more about NACD resources for effective climate governance.