Conflicting ESG Reporting Rules Create Major Business Challenge, Andrew Ramonas, Senior Reporter
A lack of clarity due to conflicting ESG requirements is the biggest short-term ESG challenge now facing public companies, with 41% citing the issue in survey results the law firm released Tuesday.
July 30, 2024, 4:00 AM CDT
Conflicting ESG Reporting Rules Create Major Business Challenge
Andrew Ramonas
Senior Reporter
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Companies are wrestling with their responses to clashing environmental, social and governance regulations, as the US, EU and California seek different climate disclosures, according to a new Thompson Hine report.
A lack of clarity due to conflicting ESG requirements is the biggest short-term ESG challenge now facing public companies, with 41% citing the issue in survey results the law firm released Tuesday.
Thompson Hine LLP received responses in its May survey from 152 US in-house lawyers and other executives at public and private companies in manufacturing, financial services and other industries. More than a third were from public companies.
The study comes only months after the US Securities and Exchange Commission and California approved reporting mandates for greenhouse gas emissions. The EU also has its own climate disclosure standards starting to take effect this yearand will extend them to large multinational companies in 2028.
The amount of reporting varies among the requirements, with the SEC mandating more limited emissions disclosures than California and the EU. The rules are also at different stages of implementation, with the SEC’s requirements paused in the face of litigation.
Thompson Hine partner Heidi Friedman said her clients are seeking help navigating the requirements, unsure of how to align their disclosures in a way that satisfies different regulators.
“It’s a really big shift and a huge challenge,” said Friedman, who leads the firm’s ESG practice with partner Jurgita Ashley.
Different Interests
California requires companies operating in the state to disclose emissions from their supply chains and other indirect sources under legislation that became law in late 2023. The SEC didn’t mandate supply chain reporting, known as Scope 3, in its March rules. But the EU did in its Corporate Sustainability Reporting Directive, which covers companies with business in Europe.
It’s unclear when, or if, companies must start complying with the SEC and California requirements. The SEC paused its rules in April after facing several lawsuits. California Gov. Gavin Newsom (D) is pushing to delay reporting from 2026 to 2028, as his state fights a legal challenge.
The SEC’s rules have garnered the most attention from public companies, with 85% preparing to comply despite the legal challenges, according to Thompson Hine’s survey. Only 63% are preparing to follow EU’s Corporate Sustainability Reporting Directive, while just 35% are getting ready for California’s climate disclosure requirements.
Nearly half of public companies are requiring emissions data from their suppliers, the survey found. This data would help with compliance under any Scope 3 requirements.
Private companies are less interested in getting ready for any of the rules.
Only 13% of them are preparing to comply with either the EU or California climate disclosure requirements, which cover both private and public companies, Thompson Hine found. And just 9% are gearing up for the SEC’s regulations aimed at public companies, after the law firm reported in its last survey in 2022 that 30% of private companies were making arrangements.
Eleven percent of private companies are requiring emissions data from their suppliers, the survey said
A failure to make emissions reporting preparations is a mistake for private companies, Friedman said.
“It’s going to catch up to the private companies in one way or another,” she said.