Environmental disclosures – a rapidly evolving landscape – are perhaps the most pressing issue facing company boards and executives, with various regulators and standard setters establishing requirements for certain sustainability-related information on a continuous basis. In 2021, the International Sustainability Standards Board (ISSB), in partnership with the International Financial Reporting Standards which monitors companies in 168 country jurisdictions, established comprehensive standards for sustainability-related disclosures. In the European Union, the Corporate Sustainability Reporting Directive (CSRD), requires companies to report their Scope 1 greenhouse gas emissions (GHG) (direct emissions from company’s operations), Scope 2 GHG emissions (indirect emissions from the generation of purchased energy by the company), and Scope 3 GHG emissions (indirect emissions that occur in the company’s value chain, both upstream and downstream). These disclosure requirements are phased in for large EU listed companies and non-EU companies with revenue greater than €50 million in the EU market effective in the 2029 fiscal year.[1] In the US, the SEC’s Climate Disclosure rules focused on Scope 1 and Scope 2 climate-related disclosures for large public companies and was slated to take effect in fiscal year 2025.[2] However, in late March 2025 the SEC voted to end its defense of these final rules effectively halting them from going into effect. And in July 2025 declined to say if it will uphold the rule if the lawsuit challenging the rule ultimately fails in the Eighth Circuit Court.

Regardless of this uncertainty, many firms will need to make disclosures under existing international climate-related disclosure requirements, such as the European Union’s CSRD or others based on the ISSB framework as well as respond to continual investor pressure on climate risk. For example, in both the UK and the US, the board still has oversight of the company’s climate-related risks and report the process and frequency by which it discusses these risks while management is tasked with describing its role in assessing and managing climate related risks. In response to the evolving US policy landscape, The Conference Board found that 80% of sustainability executives have adjusted their strategies. Common actions include strengthening legal and risk oversight, refining public messaging—substituting charged terms like “ESG” with “sustainability” or “resilience”—and placing greater emphasis on demonstrating the return on investment of sustainability efforts. At the same time, many firms continue to reassess their supply chains to take more control in order to comply and avoid negative ESG disclosures, illustrating the effect that regulation has already had on the ability of shareholders and stakeholders to challenge firm behavior.

One of the biggest challenges for boards is being able to stay on top of the frequently changing court decisions and regulations central to the governance of the firm alongside their own compliance efforts. They also need to fully understand materiality and create a disclosure committee; this provides a forum to work through disclosure complexity such as the differences in materiality based on the company’s reporting jurisdiction. Due to the politically volatile market and an uncertain regulatory environment, companies may want to align their efforts with highest global standards to future-proof their reporting framework.

One of the biggest challenges for management is to provide increasing levels of transparency on company climate risks and greenhouse gas emissions as well the firm’s sustainability efforts to both the board and regulators – along with whether the firm has assigned climate-related responsibilities to a committee and how it monitors these issues. Helpful is conducting a materiality assessment. It also needs to assess the impact of new regulations on firm strategy, compliance and overall corporate culture.

Footnotes:

[1] Originally, companies with more than 250 employees or with a net revenue above €50 million were required to report on their environmental and social impact. Due to the change on February 26, 2025, this rule will apply only to companies with more than 1,000 employees and at least €50 million in revenue. It is estimated that approximately 80% of the companies that were required to report have now had those requirements lifted.

[2] In April 2024, the SEC issued an order to stay these rules while it addresses state-led lawsuits over its validity. On March 27, 2025 the SEC withdrew its defense of the federal rules. The withdrawal of the SEC’s defense of the climate rules does not necessarily mean the end of the rules because the Eighth Circuit court must still rule on the legal challenges to the rules. On April 24, 2025, the Eighth Circuit issued an order pausing the lawsuit and instructed the SEC to provide a status report within 90 days indicating whether it intends to review or reconsider the rule. After that 3-month period ending July 24, 2025, the SEC told the U.S. Court of Appeals that it does not intend to review or revisit its climate disclosure rules for companies and asked the court to rule on any legal petitions that were filed against the rules.