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Climate Regulation 101

Climate regulation is a critical component of global efforts to combat the impacts of climate change and safeguard our planet for future generations.

Governments and international organisations are recognising the need for comprehensive climate regulation, but the ever-evolving melting pot of regulations requires some untangling.

Below are the regulations, guidance (and acronyms!) you need to know about:

Climate Regulations and Guidance

Reporting Regulations:

CSRD: Climate's Answer to GDPR

The EU Corporate Sustainability Reporting Directive (CSRD) lays out new requirements for companies to report on their sustainability. To comply with the new requirements, companies need to publish comprehensive information, including qualitative, quantitative, and both forward and backward-looking data, covering their entire value chain.

Amongst other things, companies will need to report on: decarbonisation strategies and transition plans, calculating carbon footprints, creating credible targets and tracking progress.

Who is impacted by CSRD?

We expect around 50,000 companies in the European Union will need to publish their sustainability information, starting in 2025 for financial year 2024. All large companies and all companies listed on regulated markets (except micro-enterprises) need to comply with CSRD reporting requirements.

ESRS: New Reporting Standards

The European Sustainability Reporting Standards (ESRS) have provided new reporting standards for companies falling within CSRD. The framework covers reporting on sustainability practices, including governance, impact, risks and opportunities. There are several key focuses to be aware of:

  • Double Materiality: you need to assess the materiality of sustainability-related topics from both financial and impact perspectives.

  • Value Chain Reporting: your company must report on impacts, risks, and opportunities across the entire value chain. That means going further than just looking at your own operations.

  • Covering various topics: you need to make sure you have the data and expertise to report on topics that might be new to you - from biodiversity to the circular economy.

  • Governance Transparency: you need to clearly outline how you intend to govern and address sustainability topics, including their impact on key performance indicators.

  • Timely Reporting: you should publish your sustainability report at the same time as publishing your financial statements.

  • Policies, Action Plans, and Targets: you’ll need to provide granular details on your company policies, action plans, and targets across all sustainability-related topics.

  • Assurance: be prepared that disclosures could be subject to assurance, so you’ll need a robust audit trail and documentation of processes and controls.

SECR: Reporting emissions and energy usage

The Streamlined Energy and Carbon Reporting (SECR) regulation in the UK requires large companies, quoted companies, and Limited Liability Partnerships (LLPs) to annually report a) their total energy usage, b) their Scope 1 and 2 carbon emissions and c) at least one emissions intensity ratio for their GHG emissions, e.g. tCO2e per full-time employee.

Who is impacted by SECR?

  1. Quoted companies of any size, already subject to existing greenhouse gas reporting regulations.

  2. Large UK incorporated quoted companies, defined as meeting two of the following conditions:

    1. £36m+ annual turnover

    2. £18m+ in total assets on the balance sheet

    3. 250+ employees.

  3. Large LLPs, which meet the same definition of a "large" company under the Companies Act 2006.

Reporting Guidance

TCFD: Bringing Rigour to Climate Reporting

The framework by the TCFD (The Taskforce on Climate-Related Financial Disclosures) urges companies to treat climate reporting with the precision and diligence of financial reporting. There are four key components of the framework:

Governance: the systems, practices, and structures your company has in place to manage and oversee climate-related risks and opportunities.

Strategy: the consideration of how climate-related risks and opportunities impact your company’s business, overall strategy and financial future.

Risk management: the processes you have in place to identify, assess, and manage climate-related risks.

Metrics and targets: defining specific targets and metrics to encompass a wide range of environmental and financial data, e.g. greenhouse gas emissions, energy consumption, water usage, and financial aspects like the return on investment for your sustainability initiatives.

Targets & Measurement

IPCC: Setting an Early Net Zero Target

In 2018, the Intergovernmental Panel on Climate Change sounded the alarm: to avoid climate catastrophe, we must cap global warming at 1.5°C. To do that, we need to halve greenhouse gas emissions by 2030, and drop to net zero by 2050. The clock is ticking, and every sector has a crucial role to play.

Though it’s not yet a legal requirement, thousands of companies have already set early net zero targets. Companies with net zero commitments represent sales of nearly $14 trillion, which is 33% of total sales across the top 2,000 public companies and roughly the size of China‘s GDP.

Setting an early net zero target will save you time, money, and a lot of headaches in the long run. The sooner you start measuring and reducing your emissions, the better off you’ll be as new climate regulations start to emerge.

GHG Protocol: Understanding Scopes

The Greenhouse Gas Protocol is a widely recognised standard for accounting and reporting greenhouse gas (GHG) emissions. It provides guidelines for measuring, quantifying, and reporting your company’s GHG emissions. It offers a consistent framework that enables you to assess your environmental impact, set reduction targets, and report your emissions to stakeholders.

Compliance with GHG Protocol standards enhances transparency, helps manage climate risks, and demonstrates a commitment to sustainability.

It’s worth familiarising yourself with the various scopes of emissions within the protocol including Scope 1 (direct emissions), Scope 2 (indirect emissions from purchased energy), and Scope 3 (indirect emissions throughout the value chain).

SBTi: Disclosing Science-Based Targets

The Science Based Targets initiative (SBTi) defines and promotes best practice in science-based target setting. Their primary goal is to help you set and achieve science-based reduction targets in line with the latest climate science.

SBTi helps you set ambitious and verifiable targets that align with the Paris Agreement - that is, limiting global warming to well below 2°C above pre-industrial levels. If your targets satisfy SBTi’s standards, they’re considered to be “approved” by SBTi.

Publicly disclosing your targets is an important step. Your transparency allows stakeholders, including investors, customers, and the public, to monitor and assess your commitment to climate action.