The Regulations Driving Climate Risk Reporting
As the global climate crisis intensifies, governments and regulatory bodies are responding by implementing policies that require businesses to disclose their climate-related risks and strategies. This shift aims to provide transparency to investors, stakeholders, and governments, ensuring that companies are actively assessing and mitigating climate risks.
In this post, we’ll outline key regulations driving climate risk reporting, focusing on California’s SB 219, the SEC Climate Disclosure Rule, the EU’s Corporate Sustainability Reporting Directive (CSRD), and the Federal Supplier Climate Resiliency Rule.
Beehive’s software makes it easy to comply with this regulation. Reach out to our Founder/CEO, Adriel Lubarsky at adriel@beehiveclimate.com to learn how.
California SB 219 (aka Sb 261)
Overview: California Senate Bill 219 (SB 219) is a state-level mandate requiring large companies to assess and disclose their climate-related financial risks.
Requirements: Companies must prepare and submit a climate-related financial risk report detailing both physical and transition risks from climate change. The report must include plans to address these risks, covering anticipated effects on the business.
Who It Applies To: SB 219 applies to all U.S.-based companies that do business in California and have annual revenues exceeding $500 million.
Timeline: SB 219 was signed into law on September 27, 2024. The first reporting deadline is January 1, 2026, with biennial reporting requirements thereafter.
Penalties: Non-compliance can lead to fines of up to $50,000 per year.
SEC Climate Disclosure Rule
Overview: The SEC’s Climate Disclosure Rule is a significant federal initiative aimed at enhancing transparency on climate-related risks within public companies. It introduces specific guidelines on how businesses should report climate-related risks, emissions, and governance practices.
Requirements: The rule mandates that public companies disclose:
Climate-related risks likely to have a material impact on their business.
Greenhouse gas (GHG) emissions, including Scope 1, 2, and in some cases Scope 3.
How climate risks are incorporated into the company's risk management and governance structures.
Who It Applies To: This rule applies to all publicly traded companies in the U.S.
Timeline: The SEC climate disclosure bill has been stayed, so implementation dates are uncertain and will depend on the November US Election. Originally, the legislation proposed that companies had to first report in 2026.
December 3, 2024 Update: With a Trump administration, it is unlikely that this law goes into effect on the scheduled timeline or in its current form.
Penalties: Companies that fail to comply face enforcement actions, including fines and sanctions from the SEC.
EU Corporate Sustainability Reporting Directive (CSRD)
Overview: The CSRD is a European Union regulation that significantly expands the scope and depth of sustainability reporting requirements for companies operating in the EU.
Requirements: Companies must report detailed information on how environmental, social, and governance (ESG) factors, including climate risks, impact their business. The directive also introduces an assurance requirement, meaning companies must have their reports verified by a third party.
Who It Applies To: The CSRD applies to all large companies (defined by exceeding two of the following: €40 million in net turnover, €20 million in total assets, and 250 employees) and all listed companies in the EU. It also includes non-EU companies with significant operations in Europe (so any US company with >$150m in revenue in the EU.)
Timeline: Reporting begins in 2025, covering the 2024 financial year. Smaller listed companies have until 2026. Non-EU companies have until 2029.
Penalties: Penalties for non-compliance vary by country but can include significant fines and restrictions on business operations, or jailtime for executives.
Federal Supplier Climate Resiliency Rule
Overview: The Federal Supplier Climate Resiliency Rule focuses on suppliers working with the U.S. federal government, requiring them to assess and disclose climate risks and greenhouse gas emissions.
Requirements: Federal suppliers must disclose their Scope 1, 2, and relevant Scope 3 emissions. They must also assess and disclose their climate-related risks and provide science-based targets for emissions reductions.
Who It Applies To: The rule applies to major federal contractors—defined as companies with contracts exceeding $7.5 million in annual revenue—and other significant suppliers to the federal government.
Timeline: More information is expected to come out in Fall 2024.
Penalties: Failure to comply may result in penalties such as exclusion from future federal contracts or losing existing government business.
Conclusion
The regulatory landscape around climate risk reporting is rapidly evolving, with more regions implementing stringent requirements. Businesses, especially those operating across multiple jurisdictions, must stay informed and proactive in meeting these regulations. Non-compliance can lead to significant financial penalties and reputational risks, emphasizing the importance of understanding and preparing for these climate disclosure requirements.