Sustainability reporting around the world

Across the globe, governing bodies and regulators are making more sustainability reporting mandatory — and for more businesses. Despite efforts to harmonize reporting obligations, companies must still be aware of slightly different approaches taken by different jurisdictions. This means that, depending on where your business operates, you may need to accommodate regional reporting requirements. 

In this article, we’ll examine some of the biggest sustainability and ESG mandates to affect major jurisdictions around the world. 

Europe

In the EU, Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 (CSRD) amended Regulation (EU) 537/2014 and Directives 2006/43/EC and 2013/34/EU in regard to corporate sustainability reporting. This directive now mandates sustainability reporting for an increased number of businesses. Companies will also be required — for the first time — to report their sustainability information according to newly introduced mandatory EU sustainability reporting standards. The reported information will need to be comparable, to facilitate the supervision and enforcement of sustainability reporting. 

The CSRD expands on the existing Directive 2014/95/EU — the Non-Financial Reporting Directive (NFRD) — and extends the sustainability reporting rules to a wide range of companies: 

• All large EU companies, whether they’re listed on the EU regulated market or not, meeting at least two of the following criteria:
  – A balance sheet that totals more than EUR 25 million
  – A net turnover of more than EUR 50 million
  – An average of over 250 employees during the financial year 

• Listed small and medium-sized companies (SMEs) — except micro undertakings 
• Third-country companies — provided they generate a net turnover of more than EUR 150 million in the EU (at consolidated level) in the most recent 2 years and have a subsidiary in the EU that is listed on the European market, or have a branch in the EU that generates more than EUR 40 million net turnover 

The CSRD introduces more detailed reporting obligations to ensure companies provide information on both how their business model affects their sustainability and how external sustainability factors (such as climate change) impact their activities. This means companies must report using a double materiality approach — assessing and reporting on how their business is impacted by sustainability issues as well as how their activities impact society and the environment. 

Although the CSRD entered into force on 5 January 2023, its provisions need to be transposed into national legislation by the Member States by 6 July 2024 to become applicable. 

In practice, the new sustainability reporting rules will take effect at different times for different types of organization: 

• Companies already subject to the NFRD: 1 January 2024 (reporting in 2025) 
• Large companies not currently covered by the NFRD: 1 January 2025 (reporting in 2026) 
• Listed SMEs, small and non-complex credit institutions, and captive insurance undertakings: 1 January 2026 (reporting in 2027) 
• Third-country undertakings in scope: 1 January 2028 (reporting in 2029) 

As mentioned, the mandatory European Sustainability Reporting Standards (ESRS) is a crucial aspect of the new reporting obligations in the EU. These standards were developed by the European Financial Reporting Advisory Group (EFRAG) and adopted by the EU under Commission Delegated Regulation (EU) 2023/2772 of 31 July 2023 supplementing Directive 2013/34/EU of the European Parliament and of the Council as regards sustainability reporting standards. In force as of 1 January 2024, the ESRS are mandatory for companies in the scope of the CSRD and adopt the double materiality approach. 

So far, the EU has adopted 12 standards: 

• 2 cross-cutting standards with general requirements and disclosures 
• 5 standards on environment 
• 4 on social 
• 1 on governance 

These are standards that apply to all sectors. There will be sector-specific standards in the future, but their approval has been postponed. 

Switzerland

Outside the EU, but still in Europe, the Ordinance of 23 November 2022 on Climate Disclosures introduces climate disclosure requirements applicable to large companies operating in Switzerland as of 1 January 2024. Public companies, financial institutions, and insurance companies with 500 or more employees and at least USD 21.68 million in total assets (or more than USD 43.37 million in turnover) will have to publicly report on climate issues according to the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). 

This involves disclosing the financial risk that companies incur due to climate-related activities and the impact of business activities on the climate — again exercising double materiality. Companies must also describe the reduction targets they’ve set for their direct and indirect greenhouse gas (GHG) emissions, as well as how they plan to implement them. 

The report must be made available on companies’ websites in at least one human-readable and one machine-readable electronic format one year after the Ordinance comes into effect — meaning they will have until 1 January 2025 to publish the report. 

Companies will need to report based on “comply or explain” — meaning companies that don’t disclose climate issues according to the provisions of the Ordinance will need to either:  

• Demonstrate that they comply with the reporting requirement on climate issues in other ways. 
• Clearly declare that they don’t follow any climate concept and justify this decision. 

Brazil

On 23 October 2023, the Brazilian Securities and Exchange Commission (CVM) published Resolution 193 of 20 October 2023. It requires listed companies, securitization companies, and investment funds to voluntarily disclose sustainability-related financial information in accordance with International Sustainability Standards Board (ISSB) standards — namely IFRS S1 and IFRS S2 of the International Financial Reporting Standards (IFRS) Foundation — as of 1 January 2024. In addition, the standards are mandatory as of 1 January 2026 for listed companies, which will have to ensure their reports are reasonably assured by an independent auditor registered with the CVM. 

Shortly after, on 3 November 2023, the Brazilian Federal Accounting Council (CFC) adopted Resolution 1.710 of 25 October 2023 to allow the early adoption of the ISSB Standards for the disclosure of sustainability reports for 2024 and 2025. This is being used as a “placeholder” of sorts, until the Brazilian Accounting Standards for Sustainability Disclosure (NBC TDS) are issued. As of calendar year 2026, the standards will be mandatory whenever the reporting entity discloses a Sustainability Information Report.

The NBC TDS will be issued according to the said ISSB Standards. In addition, it’s important to highlight that accounting professionals have the technical responsibility of preparing and assuring Sustainability Information Reports in Brazil, as established in CFC Resolution 1.640/2021.

Concerning assurance, CFC will also issue Brazilian Accounting Standards for Sustainability Disclosure Assurance (Normas NBC TAS) aligned with the proposed International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements of the International Auditing and Assurance Standards Board. The draft ISSA Standard was under public consultation until 1 December 2023 and will be issued before the end of 2024. 

New Zealand

New Zealand’s climate-related disclosure framework is primarily covered by three Disclosure standards. On 14 December 2022, the External Reporting Board (XRB) of New Zealand published these three Disclosure standards: 

• Aotearoa New Zealand Climate Standard 1 Climate-related Disclosures (NZ CS 1) 
• Aotearoa New Zealand Climate Standards 2 Climate-related Disclosures (NZ CS 2) 
• Aotearoa New Zealand Climate Standards 3 Climate-related Disclosures (NZ CS 3) 

The mandatory reporting regime takes effect for accounting periods starting on or after  1 January 2023, under which large listed companies (i.e., companies with a market capitalization of more than NZD 60 million ) and large registered banks, licensed insurers, credit unions, building societies, and managers of investment schemes (with more than NZD 1 billion  in assets) must undertake climate-related disclosures in accordance with these standards. 

The climate-related disclosure framework is structured around four thematic areas that represent core elements of how organizations operate. As in Switzerland, they’re aligned with the TCFD Recommendations. The three Disclosure standards cover, in summary: 

NZ CS 1 is the primary disclosure standard and contains the climate-related disclosure requirements for each of the four thematic areas and the assurance requirements for GHG emissions disclosures. 

NZ CS 2 provides optional climate-related provisions that companies can adhere to. These include disclosing the current financial impacts of a company’s physical and climate transition impacts — such as outlining how a business model and strategy might change to address its climate-related risks and opportunities, and the extent to which a climate transition plan is aligned with its internal capital deployment and funding decision-making processes. 

NZ CS 3 covers the general requirements for climate-related disclosures, establishing principles and concepts for high-quality climate-related disclosures. For example, it contains the principles for information (such as relevance, verifiability, and comparability) and presentation (such as understandability, completeness, and consistency) and the underlying concepts (such as materiality), and the general requirements companies must adhere to when making their disclosures. 

Japan

On 31 January 2023, Japan’s Financial Services Agency (FSA) announced the Cabinet Office Ordinance Partially Revising the Cabinet Office Ordinance Concerning Disclosure of Corporate Information, etc., containing new rules on mandatory sustainability disclosure for listed companies in Japan. The revised ordinance follows Japan’s Corporate Governance Code, which requires listed companies to disclose sustainability initiatives and enhance the quality and quantity of climate-related disclosures based on TCFD recommendations. 

As a result, listed companies must disclose information in the Annual Securities Report (ASR), following the new rules from the start of the fiscal year ending March 2023. Under the new rules, listed companies must disclose, among other things: 

• Sustainability information in a new section of the ASR based on the TCFD recommendations 
• Human resource development and workplace environment improvement policies 
• Gender pay gap, the ratio of women in managerial positions, and the ratio of male workers taking childcare leave 
• More detailed information on the functioning of the Board of Directors, such as frequency of meetings, attendance, and agenda items 

Furthermore, the FSA is developing regulations that would mandate or consider specific sustainability standards for reporting in Japan. The Financial Accounting Standards Foundation (FASF) has created the Sustainability Standards Board of Japan (SSBJ), effective 1 July 2022, to develop Japanese sustainability standards and contribute to developing international ones. In January 2023, the SSBJ announced its project plan for developing Japanese standards aligned with the ISSB Standards. 

Recently, on 29 March 2024, the SSBJ issued the Exposure Drafts of Sustainability Disclosure Standards to be applied in Japan for public comments until 31 July 2024. The final standards are expected by 31 March 2025.  The Exposure Drafts comprise three disclosure standards: 

1. Universal Sustainability Disclosure Standard Exposure Draft “Application of the Sustainability Disclosure Standards” 
2. Theme-based Sustainability Disclosure Standard Exposure Draft No. 1 “General Disclosures”
3. Theme-based Sustainability Disclosure Standard Exposure Draft No. 2 “Climate-related Disclosures” 

Continued regulatory changes

While these examples aren’t exhaustive, they’re a clear indicator of the types of mandatory sustainability reporting regulations that are becoming more commonplace around the world. As more jurisdictions begin to adopt similar forms of policy, the expectation for organizations to be able to provide greater clarity and transparency related to sustainability is going to only increase — so much so that it’s evidently becoming a requisite rather than simply an expectation. 

Adherence to sustainability reporting requirements doesn’t have to be a siloed, onerous objective for businesses, though. Much of the information required is likely to already be included in EHS metrics that have been in place for a long time. Understanding how to leverage pre-existing EHS metrics to form the foundation of sustainability reporting is a great asset for many organizations in any jurisdiction.