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Kevin O’Connell headshot

Mandatory Climate-Related Disclosures Usher in a New Era of Transparency

Seventy-six percent of employees and 71 percent of consumers think it’s important for companies to disclose their environmental impact, and more than two-thirds want businesses to disclose their climate-related risks, according to PwC’s 2024 Trust Survey.
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(Image: Pedro Lastra/Unsplash)

Transparency demands related to corporate sustainability practices have reached new heights. Stakeholders, including consumers, investors and employees, are becoming more vocal about their expectations for businesses to provide trustworthy information. In fact, PwC’s 2024 Trust Survey found that 76 percent of employees and 71 percent of consumers think it’s important for companies to disclose their environmental impact, and more than two-thirds want businesses to disclose their climate-related risks.

The U.S. Securities and Exchange Commission's climate-related disclosure rules are the most recent example of regulatory bodies implementing mandatory guidelines, joining an evolving regulatory landscape that includes rules already introduced from California, the European Union and the International Sustainability Standards Board

Companies can build trust and accelerate their sustainability goals by being upfront and transparent about how they are managing climate risks, meeting established goals and weaving sustainability into their business strategy. Reliable and confirmed environmental, social and governance (ESG) reporting can be a key component of driving meaningful action around sustainability.

Navigating climate disclosures holistically

As leaders look to comply with the current regulatory environment, it’s important that they approach climate disclosure rules holistically instead of dealing with them in siloes. Operationally, this approach enables companies to streamline their ESG reporting processes. It also helps them build trust with their stakeholders by telling one, holistic sustainability story.

For example, many companies currently disclose their carbon footprint by reporting on Scope 1 and Scope 2 emissions, which cover direct and indirect greenhouse gas emissions from company-owned sources, such as vehicles and facilities, and purchased electricity or heat. However, they will likely need to expand their reporting frameworks to meet reporting requirements like the EU’s Corporate Sustainability Reporting Directive (CSRD), which requires the inclusion of Scope 3 emissions, or the emissions generated by suppliers that source, produce and transport a company’s materials in addition to the logistics, use and disposal of the products they make. 

For a retail company that needs to report its Scope 3 emissions, for example, this means they’ll likely need to collect and disclose data around the emissions generated by the people they work with, such as the companies that make the products they sell, the trucks that bring the products to the store, and what happens to the products when people are done using them. With the right approach, the store can report their emissions in a way that shows one meaningful, consistent picture to their stakeholders while complying with varying regulations.

This holistic approach can also help companies navigate legal complexities around ESG reporting like the recent stay on the SEC climate disclosure rules. Given the overlapping nature of many of the sustainability requirements worldwide, there are systems, processes and controls that can be developed to position a company to produce data in support of any current or emerging sustainability reporting responsibilities, helping to set up companies to comply with the SEC rules in a timely fashion if the stay is lifted.

Establishing the right team

Sustainability initiatives have typically been overseen by the chief sustainability officer (CSO). However, considering the recent regulatory requirements, chief financial officers (CFOs) should be actively involved as sustainability data becomes integrated into a company's annual report, such as the 10-K filing. 

Given the diverse and specific requirements of various climate regulations, the CFO and CSO should collaborate closely on the company's sustainability initiatives and its ESG reporting.

ESG controllers, an emerging role under the CFO given growing sustainability regulatory requirements and initiatives, will likely play a significant role as the sustainability landscape continues to evolve. These professionals, responsible for overseeing and verifying the reliability of ESG reporting, can act as a bridge between an organization’s finance and sustainability teams by bringing the relevant experience to collect and verify sustainability information. 

ESG controllers can help their organization see the whole picture when it comes to ESG reporting. Where the CSO may lack experience around financial information and sustainability might be new to the CFO’s job description, the ESG controller can help break down barriers between financial and non-financial reporting.

A tech-enabled approach

Meeting the data requirements for climate-related disclosures in ESG reporting can be a daunting task. However, companies can overcome this challenge by harnessing the potential of technology, such as emissions collection systems, data lakes, ERP modules or cloud-based software to capture last-mile reporting. With investments in the right software and systems, businesses can streamline the collection, verification, and reporting of vast amounts of internal and external data.

PwC's leadership in financial and ESG reporting offers clients a valuable advantage by helping to streamline the process of adopting leading practices and establishing holistic processes right from the start. For instance, PwC assists clients in enhancing the benefits of their technology investments in ways such as leveraging cloud-based software to create an automated environment that fosters governance, transparency, and the production of quality ESG reports. 

The integration of data with sustainability metrics goes beyond reporting; it enables businesses to drive sustainable practices, identify areas of high environmental impact, and implement targeted strategies to mitigate risks and improve their ecological footprint. Through advanced analytics, businesses can identify patterns, trends and correlations within their sustainability data.

Meeting the ESG reporting moment

The regulatory environment around ESG reporting is shifting from voluntary to mandatory disclosures, signaling a leap forward for corporate sustainability initiatives more broadly. Regardless of where a company might be on their ESG reporting journey, the growing list of state, federal and international regulatory bodies now requiring disclosures signal that it’s time for companies to take action, or risk falling behind.

Kevin O’Connell headshot

Kevin O’Connell serves as PwC’s US Trust Solutions Sustainability Leader. With his team, he helps design enterprise-wide, forward-looking sustainability strategies that enable clients to assess, manage, and communicate progress on their ESG initiatives. Kevin has 30+ years of experience in third-party assurance, information governance and internal controls reporting.

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