Notes:

• The Shift to Non-Financial Disclosure: Investors now demand data on Environmental, Social, and Governance (ESG) factors to assess long-term risks and value creation.
• EU Corporate Sustainability Reporting Directive (CSRD):
  • Scope: Applies to all large EU companies and non-EU companies with significant EU operations (net turnover > €150M).
  • Double Materiality: Companies must report on:
    1. Impact Materiality: How the company impacts the world (e.g., carbon emissions, labor rights).
    2. Financial Materiality: How sustainability issues impact the company’s financial performance (e.g., climate risk to assets).
  • ESRS Standards: Reporting must follow the European Sustainability Reporting Standards (ESRS), which are highly detailed and prescriptive.
  • Assurance: Requires limited assurance by an independent third party (moving to reasonable assurance in the future).
  • Phasing:
    • 2025: Reporting for FY2024 (companies already under NFRD).
    • 2026: Reporting for FY2025 (large companies not previously covered).
    • 2027: Listed SMEs.
• US Landscape (2026 Context):
  • Federal Level: The SEC’s 2024 climate rule was stayed/rescinded in 2025. Federal disclosure is currently limited to material risks under existing securities laws.
  • State Level: California has enacted SB 253 (Climate Corporate Data Accountability Act) and SB 261 (Climate-Related Financial Risk Act).
    • SB 253: Requires disclosure of Scope 1, 2, and 3 emissions for companies with >$1B revenue doing business in CA.
    • SB 261: Requires biennial climate financial risk reports aligned with TCFD.
  • Litigation Risk: Companies face “greenwashing” lawsuits if their public ESG claims do not match their actual performance or data.
• IFRS Sustainability Disclosure Standards (IFRS S1 & S2):
  • Developed by the ISSB (International Sustainability Standards Board).
  • Becoming the global baseline for sustainability reporting, aiming to harmonize disparate standards (like CSRD and SEC rules) into a single global language.