A Reality Check on Global Climate & Sustainability Disclosure Rules
We live in a complex world with the return of Donald Trump to power, no more so than his immediate withdrawal from the Paris Agreement. This move marks a major shift in U.S. climate policy.
While federal deregulation may seem like a win for domestic businesses, global markets tell a different story. Stringent Californian rules, the EU’s Omnibus Directive, and growing international momentum for climate disclosures mean that transparency remains essential. Speculation is mounting that Trump may push back against EU mandates on U.S. companies—creating further regulatory complexity for businesses operating across borders.
The Global Regulatory Landscape
1. The U.S.: Federal vs. State-Level Regulations
The SEC previously sought to enforce climate disclosure requirements, including reporting on greenhouse gas emissions and transition risks. However, with Trump’s return, these regulations are unlikely to progress at the federal level.
But while Washington rolls back regulations, California is moving in the opposite direction. The state’s stringent climate laws require companies to disclose Scope 1, 2, and 3 emissions, forcing firms with a presence in the state to comply. This “California effect” ensures that federal deregulation does not mean an escape from climate accountability.
2. The EU: The Omnibus Directive and Its Implications
Across the Atlantic, the EU’s Corporate Sustainability Reporting Directive (CSRD) is evolving into the ‘Omnibus’ framework, mandating extensive climate risk and supply chain disclosures. U.S. companies with European operations must comply, regardless of domestic policy shifts. Even if Trump challenges these mandates, businesses will likely need dual reporting structures to satisfy both U.S. and international requirements.
3. Global Standards: The ISSB’s IFRS S1 and S2 (UK is going to align with these standards and to be called Sustainability Disclosure Standards)
Meanwhile, the ISSB’s IFRS S1 and S2 standards were developed to provide a harmonised framework for sustainability disclosures worldwide.
IFRS S1 outlines general sustainability reporting requirements.
IFRS S2 focuses specifically on climate-related risks and opportunities.
If U.S. federal policy undercuts domestic disclosure rules, these international standards could serve as a crucial safeguard. However, the divergence between the relaxed U.S. stance and the stringent requirements imposed by California and the EU intensifies the compliance challenge for companies operating globally.
Key Strategic Considerations for Businesses
Navigating these regulatory shifts requires a proactive approach. While Trump’s policies may ease short-term federal burdens, businesses cannot ignore the increasingly stringent international standards. Misaligned reporting structures can lead to risks, regulatory penalties, and loss of investor confidence.
With so much complexity at play, businesses must make strategic decisions now to ensure they remain compliant and competitive. Key steps include:
Developing Dual Compliance Strategies
Companies must balance U.S. deregulation with stringent international and state-level requirements. A dual-reporting approach ensures regulatory readiness.
Maintaining Investor Confidence Through Voluntary Disclosures
Global investors expect robust climate data. Voluntary alignment with international standards enhances credibility and market valuation.
Managing Supply Chain Risks
The EU’s Omnibus Directive extends disclosure requirements to supply chains. Companies should engage suppliers to ensure compliance and mitigate risks.
Preparing for Regulatory Uncertainty
With potential U.S.-EU conflicts over compliance, scenario planning is critical to navigating shifting legal landscapes.
Investing in Reporting Technology
Integrated systems can streamline compliance across multiple frameworks, reducing complexity and ensuring adaptability.
Trump’s rollback of climate disclosure rules offers a temporary reprieve at best. California’s stringent mandates, the EU’s Omnibus Directive, and global investor expectations that align to IFRS S1 & S2, ensure that climate and sustainability reporting remain a non-negotiable reality.
For businesses, the path forward is clear yet perilous: embrace strategic adaptability by integrating dual reporting systems, invest in transparency-enhancing technologies, and prepare for ongoing regulatory uncertainty. In this fragmented landscape, only those companies that can reconcile conflicting mandates with unwavering commitment to transparency will thrive in the inevitable reckoning—a future where unrelenting disclosure is the only constant.