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A new era of opportunity is emerging as sustainability disclosure requirements — from California’s climate laws to the EU’s Corporate Sustainability Reporting Directive (CSRD) — continue to take shape. Rather than just adding complexity, these developments are opening the door for companies to strengthen and unify their sustainability and financial reporting practices like never before. Many companies are focusing on the common foundations that underpin both domestic and international requirements and areas of strategic focus to streamline their reporting efforts and make efficient use of limited resources.
By understanding interoperability — that is, focusing on common data foundations and how disclosure frameworks overlap and differ — and then embedding sustainability into financial reporting processes, your company can proactively build a resilient, future-ready reporting ecosystem, and potentially leverage sustainability data to identify ways to create long-term value for the business.
Sustainability reporting shift Navigating the challenges — and opportunities — of an evolving reporting landscape
For US companies, the evolving sustainability reporting landscape – shaped by the 2024 election and shifting global sentiments – presents both challenges and new opportunities. The SEC’s March 2024 climate-related disclosure rules have an uncertain future under the new administration, which has begun rolling back many sustainability-related regulations. In the absence of federal standards, many individual states are following California’s approach and proposing their own unique disclosure requirements. Though varied in scope and timing, these state-level initiatives offer companies the chance to build flexible reporting systems that can adapt to regional nuances while contributing to a broader culture of transparency.
At the same time, both global and US companies are monitoring a steady stream of global regulatory changes, including efforts to make reporting more accessible and practical. The European Commission’s Omnibus simplification package has led to proposed revisions to the European Sustainability Reporting Standards (ESRS) and the Taxonomy Regulation, as well as relief for wave 1 CSRD reporters — all of which are aimed at simplifying the reporting itself. Around the world, emerging sustainability regulations increasingly include third-party independent assurance requirements, reinforcing the importance and credibility of sustainability data.
While the breadth of global standards can be complex, many companies are discovering areas of alignment and overlap. These common threads allow for a more integrated reporting foundation — an encouraging sign that despite the patchwork nature of some regulations, there are pathways to streamline data collection, reduce duplication and improve reporting efficiency. This opportunity to establish a streamlined approach could slash costs, reduce resource use and enable your organization to quickly adapt to new regulations.
But how can your company achieve these benefits? This new era of sustainability reporting requires a fresh approach. To support end-to-end reporting your organization should consider combining deep knowledge of sustainability frameworks with emerging technologies, new carbon accounting software and AI and generative AI (GenAI) to help streamline processes and enhance internal controls. Your company can wisely use any extra time it now has before new reporting deadlines kick in to implement a scalable approach that can transform what could be viewed as a convoluted compliance exercise into opportunities to capture synergies and drive business value, including improved target setting, transition planning, real-time progress monitoring and greater operational efficiency.
Define interoperability How can interoperability improve sustainability reporting efficiency?
CFOs and ESG controllers are increasingly working with sustainability leaders to guide sustainability efforts because they have the technical acumen to produce sustainability reporting alongside traditional financial disclosures and can align these efforts with long-term strategic planning. As they discuss compliance with these regulations throughout the C-suite, the conversations likely turn to a key concept: interoperability.
Given the multitude of reporting requirements, your CFO or ESG controller may ask: “Can’t we just use the reporting we produced for one country’s requirements to meet another’s regulations?” For now, there are limited opportunities to use reporting produced using a particular framework to satisfy regulations in other regions or countries that use a different framework in its entirety. This is why your company should understand how the underlying data may be interoperable — or, how disclosure frameworks overlap and differ — to be able to gather data once and use it across regulations. ESRS and the IFRS Sustainability Disclosure Standards (issued by the International Sustainability Standards Board (ISSB)) have a high degree of alignment — structured around governance, strategy and risk management topics — that is only expected to increase following the EFRAG’s ESRS revisions. EFRAG and the ISSB have even provided interoperability guidance, with a specific emphasis on climate-related disclosures.
Interoperability won’t magically erase reporting obligations. For example, there may be regional, country and state-specific regulatory nuances, including the obligation to report at a subsidiary level. But if you act now you can use the remaining runway to prepare thoughtfully and convert any effort spent into measurable value.
Reporting and technology Five steps for building a reporting process in a complex regulatory landscape
Imagine a US manufacturer maneuvering through this regulatory environment, sourcing components from Asia while distributing products across Europe, the US and other global markets. The company may need to meet California’s climate reporting requirements, the CSRD and other international regulations. It should thoroughly understand how to implement a sustainability reporting strategy to help meet multiple requirements as compliance becomes mandatory. In this example, this means having the ability to report under several reporting regimes — including ESRS and ISSB reporting frameworks — by implementing a scalable reporting process.
So how can CFOs and ESG controllers tasked with this responsibility work with the sustainability function to pull it off? Here are some considerations that may drive your company’s approach to sustainability reporting:
Sustainable value A regulatory strategy that can help drive business outcomes beyond compliance
It may be tempting to be reactive to the compliance requirements that companies should meet. But those that take a “wait and see” approach may fall behind more proactive peers on realizing the value of reliable, decision-useful data beyond compliance to better analyze business trends, identify potential risks and opportunities and measure progress against goals. Effective reporting strategies can also allow companies to directly engage with stakeholders to tell a compelling story on the actions they are taking to improve operational efficiencies and reduce costs and their carbon footprints.
In today’s regulatory environment, CFOs and ESG controllers should consider adopting a proactive, tech-enabled approach to sustainability reporting that starts with assessing the interoperability of applicable regulations. Doing so will allow companies to focus attention on areas with the highest likely ROI – from both compliance and strategic perspectives – while also being more streamlined with resources and potentially reducing risk in an era of increasing regulatory complexity.
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Key insights on global sustainability regulations
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