Climate resiliency, as part of a broader environmental, social and governance (ESG) strategy, is showing global movement in regulatory activity and discussions around reporting requirements. Specifically, legislators in the United States, European Union and other parts of the world have proposed or passed climate impact reporting laws. Although the rate of change and point in the legislative process may differ across the globe, Sedgwick is closely monitoring and continually charting these developments and updates. Here, we will highlight a sample of impactful legislative happenings in the climate resiliency and environmental arena.
California Senate Bill 253
In October 2023, California became the first U.S. state to pass a climate disclosure rules act. More commonly referred to as SB 253, the Climate Corporate Data Accountability Act requires the California Air Resources Board to develop and adopt regulations by Jan. 1, 2025, that mandate businesses to publicly disclose their greenhouse gas emissions. This applies to all organizations doing business in California with annual revenues exceeding $1 billion. Reporting requirements will be determined by emission levels, commonly categorized as Scopes 1, 2 and 3. (For the definition of each scope, refer to the sidebar in our recent edge article on climate resiliency.)
As of the date of this post, no specific rules had been proposed. Additionally, California’s governor has not included funds in the state budget for the implementation of the newly enacted climate law.
U.S. Chamber of Commerce lawsuit against SB 253
Of high importance alongside the passage of SB 253 is the federal lawsuit filed in January 2024 by the U.S. Chamber of Commerce against the California climate disclosure measures. As a result, implementation of the rules under the bill remains stalled.
The lawsuit claims SB 253 is unconstitutional and violates free speech by compelling many businesses to make what are described as “costly, burdensome and politically fraught statements about their operations — not just in California, but around the world.” Since the January filing, the California Chamber of Commerce and other business coalitions have joined the suit. Moreover, this federal lawsuit has slowed and halted similar climate bills introduced in New York, Colorado and Illinois as states await the outcome of these legal proceedings. In late March, the California Air Resources Board filed a motion to dismiss the lawsuit, and court hearings are to begin in the coming months.
EU Corporate Sustainability Reporting Directive
A large part of the European Union’s environmental agenda is based on the Corporate Sustainability Reporting Directive (CSRD). The EU has introduced high-level principles, and member countries are tasked with embedding these principles into their national laws. Designed for a staggered rollout that began in January 2024 (companies’ reporting requirements begin with the 2025 fiscal year) and with the final phase scheduled for January 2028, the initial implementation and ongoing development are now in full swing.
Stemming from the Non-Financial Reporting Directive (NFRD) introduced in the EU in 2014, CSRD broadens sustainability objectives and expands data collection and reporting requirements. A double materiality reporting standard is central to CSRD, including both financial and impact materiality. Businesses must report on how their activities impact both their financial position and the environment.
Another significant characteristic of CSRD is that it expands the sustainability focus from supply chain to value chain, thereby encompassing the end-use of goods and services and their environmental impact. While some businesses may not fall within the direct scope of CSRD based on supply chain, they may be a part of a larger value chain. This means those businesses may be asked to provide additional data or comply with the policies and procedures of another organisation that is bound by the directive.
Interpretation of and compliance with CSRD can be particularly challenging due to lack of uniformity; member countries have discretion over what these new laws will dictate and how. Companies with a European footprint should carefully monitor CSRD developments across EU member countries, anticipate how they might impact data collection and reporting, and identify the added resources and expertise needed to comply with these new requirements.
SEC approval of a scaled-back climate rule — but it’s on pause
In March 2024, the U.S. Securities and Exchange Commission (SEC) approved climate-related disclosure rules for U.S. public companies. Under the rules, these companies would, for the first time, have to provide information in their annual reports and registration statements related to climate risks and plans for addressing those risks, the financial impact of severe weather events and, in some cases, greenhouse gas emissions. Notably, the SEC scaled back its initial proposal by removing the requirement for companies to report on Scope 3 emissions or those originating in their value chains outside direct operations.
However, within a couple of weeks of the SEC approval, more than half of U.S. states and multiple corporations, nonprofits and business advocacy groups filed lawsuits challenging the rules. On April 4, the SEC issued an order staying the implementation of the climate rules while the legal challenges proceed. The order states that the SEC will continue to vigorously defend the legality of the rules.
Sedgwick’s regulatory, compliance and ESG experts review hundreds of proposed, pending and enacted legislative matters each year to assess their potential impact on our business and our clients. We will continue to monitor the legislative landscape and share relevant updates here on the blog.
> Learn more — explore Sedgwick’s climate resiliency solutions, and read our climate-related thought leadership content in The winds of change and Edging up from the latest issue of our digital magazine, edge
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