06/05/2024 - Corporate Climate Disclosures - Net Zero Commitments

Driving Transparency and Aligning Climate-Related Risk Disclosure Requirements

by Abby Husselbee, Sara Dewey

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As the impacts of climate change accelerate, companies face growing risks, including worsening natural disasters, changing consumer preferences, and evolving regulatory landscapes. These climate-related risks can create financial risks for companies. At the same time, many companies have set greenhouse gas reduction targets, including net zero goals, but it is hard for stakeholders to obtain reliable, complete information about companies’ progress toward those targets. As climate risks grow, regulators around the globe are taking steps to require companies to disclose the climate-related risks that affect their business and provide more information about company target setting.

In light of new corporate climate-risk disclosure requirements from the Securities and Exchange Commission (SEC), the state of California and other jurisdictions, regulators, and stakeholders are considering ways to ensure that mandatory disclosures make climate-related reporting more accurate and transparent. As mandatory reporting grows, it is important to ensure that regulators achieve their goals and that unintended adverse or counter-productive consequences are limited. Regulators, investors, and consumers must be able to verify that companies making net zero commitments, or setting other climate targets, are making progress toward those goals, and achieving measurable emissions reductions.

In this analysis, we describe the rise in mandatory climate-related reporting by the SEC, California, and the European Union and briefly compare requirements across these jurisdictions. We discuss recent studies assessing how these requirements are affecting corporate behavior and anticipate questions and areas for research as the shift from voluntary to mandatory disclosure takes hold.