The evolving regulatory landscape
The Paris Agreement outlines the international community’s commitment to limiting global warming to well below 2°C (preferably 1.5°C) compared to preindustrial levels. To meet this goal, greenhouse gas emissions must peak as soon as possible, and we must achieve net-zero emissions by 2050. Each signatory country submits a climate action plan with levers to address its highest-emitting industries.
Regulatory regimes often use disclosure requirements as a tool to promote well-functioning markets, and this includes encouraging more accurate pricing for climate change. For instance, the European Union’s (EU’s) Non-Financial Reporting Directive (NFRD) requires large companies to disclose their policies around environmental protection, and the European Commission has published guidelines on climate-related information.
While Europe is driving regulatory momentum, we also see jurisdictions like the United Kingdom, Hong Kong, and New Zealand considering implementing climate reporting requirements for listed companies. In the United States, the Securities and Exchange Commission (SEC) has proposed a rule to require public companies to report on material climate-related risks, greenhouse gas emissions, and net-zero targets or transition plans. If adopted, large companies would be required to begin disclosing this information by fiscal year 2024. As the regulatory landscape evolves, these requirements could become increasingly important for both public and private companies to consider.