Bloomberg Law
April 26, 2022, 8:45 AM

Bigger ESG Changes Loom After Climate Reporting Rules: Explained

Amanda Iacone
Amanda Iacone
Michael Kapoor
Michael Kapoor
Freelance Correspondent

Corporate reporting proposals released by both the U.S. securities regulator and the International Sustainability Standards Board in March would give investors more reliable details about the air pollution that companies emit and what steps they are taking to avoid risks that a warming planet poses to their operations.

But efforts to shed more light on greenhouse gas emissions are likely the beginning of a sweeping shift in corporate reporting requirements globally. On the international front, the ISSB and the European Commission are considering a wide range of disclosures—from clean water to biodiversity to human rights.

Those measures would go far beyond climate disclosures. Here’s a look at international efforts to force companies to report in detail about their impact on the world.

What has the ISSB proposed?

The ISSB was launched in November to develop formal reporting standards spanning the full range of environmental, social and governance issues. In March it issued drafts for the first two of these standards covering climate and general sustainability reporting.

Over the next year the board plans to consult over which areas to tackle next, aiming to create a baseline set of ESG reporting requirements similar to international financial accounting standards used by most large countries. The standards will be aimed specifically at investors, many of whom have said sustainability issues are central to gauging a company’s long-term viability.

The standards would mean investors not only get more information, but also could compare companies’ disclosures about such issues as gender, diversity, and corporate governance. Sustainability would be reported in the management commentary section of companies’ annual report.

Who would have to follow ISSB reporting standards?

A wide range of countries look likely to adhere to the international sustainability rules. But none have formally adopted the standards, which haven’t been written yet. Most big markets—including the U.S., China, and the E.U.—supported the ISSB’s launch, and a global group of stock market regulators has said it will probably recommend that its members follow the ISSB rules.

But individual countries still would have to adopt the standards as part of their national requirements, much like the financial accounting rules set by the board’s sister body: the International Accounting Standards Board, whose accounting rules are required by 140 countries worldwide.

Most large companies globally already publish a sustainability report, but they use a plethora of voluntary frameworks. Companies and investors have been calling for a single set of international standards to cut through an alphabet soup of competing standards and provide more consistent and comparable figures.

How does this fit in with the EU proposal?

The European Union wants to go much further than the ISSB. Legislation likely to be adopted this year would require companies to report on the damage they are doing to society, as well the various ESG-relatedthreats they face from an investor’s viewpoint.

Nearly 50,000 companies that employ more than 250 people—both private and public—would have to follow its rules. Under the draft legislation, companies would have to meet the EU’s broad reporting requirements as soon as fiscal year 2023.

What has the U.S. proposed, and is it separate from the ISSB?

Yes, the U.S. proposal is separate from the ISSB plans. The U.S.—among several countries to propose specific climate requirements—would compel publicly traded companies to give investors more details about the sources of their greenhouse gas pollution and describe what risks a warming planet could pose to their business and financial results, under draft rules the Securities and Exchange Commission released in March. If adopted, the largest U.S. filers could begin applying the rules in their 2023 annual reports.

Although mandatory climate reporting is a top policy goal for the Biden administration’s environmental agenda, legal and political challenges could derail the requirements, which are coming from a regulator, not lawmakers.

The U.S. proposal holds the door open to using global standards, asking if the SEC should accept climate reporting based on international sustainability standards. The SEC is also working on separate rules that would expand what companies should say about their employees and the diversity of their boards.

So what happens now?

The big question is over what individual countries will require, and when. The EU has said that it wants its broader reporting mandate to serve as a template for other markets in setting ESG requirements.

Because the ISSB is run by the same entity that has set international accounting rules for many years, its ESG reporting standards could be required by many of the countries that already follow global accounting standards. Some countries may opt to mirror the EU’s wider approach, forcing companies to admit to the damage they do to the world as well as the threats they face from it.

The ISSB and EU approaches are designed to be complementary, and their specific climate requirements would pair with the SEC’s draft rules. Still U.S. companies should pay attention to both the new standard-setter and the EU policy agenda as subsidiaries operating in Europe and beyond could have to comply with both sets of reporting frameworks.

To contact the reporter on this story: Amanda Iacone in Washington at and Michael Kapoor in London at
To contact the editors responsible for this story: Jeff Harrington at; Kathy Larsen at