The Challenge of Sustainability Disclosures for American Multinationals: How to Prepare?

3:26 am
September 16, 2023

Summary:

A wave of sustainability regulations and standards is putting pressure on American multinationals to address environmental, social, and governance (ESG) issues and disclose their efforts in these areas. The European Sustainability Reporting Standards (ESRS) and the Corporate Sustainability Reporting Directive (CSRD) will impact large US companies operating in the EU. The US Securities and Exchange Commission (SEC) is in the process of finalizing climate-related disclosure requirements, and the International Sustainability Standards Board (ISSB) has released two global sustainability disclosure standards. These regulations and standards will require companies to increase the quality and transparency of their ESG data and reporting processes. Meeting these requirements will require companies to improve their data management, governance controls, and automation, as well as integrate ESG data systems.

Key challenges in meeting Sustainability disclosure requirements:

1. Transparency: The regulations require companies to report on how their business is affected by sustainability issues and how their activities impact society and the environment. This includes disclosing total emissions, climate-related goals, progress, and plans.

2. Analytical and Process Rigor: Companies must automate and streamline their workflows and systems integration to ensure accurate and traceable reporting.

How to address the reporting challenges:

Companies need to establish systems and processes that enable high-quality ESG data and continuous data hygiene, with embedded quality controls and governance. Conducting a gap assessment and creating a roadmap for data and process automation and integration can help companies meet regulatory requirements. IBM offers services to help companies automate processes, integrate ESG data systems, and minimize costs in meeting sustainability goals.

FAQs:

1. What is the CSRD?

The Corporate Sustainability Reporting Directive (CSRD) is a set of disclosure requirements adopted by the European Union (EU) for large companies operating in the EU. It covers 12 environmental, social, and governance (ESG) standards and will require companies to publish sustainability reports starting from fiscal year 2024.

2. What are the SEC’s climate-related disclosure requirements?

The US Securities and Exchange Commission (SEC) is finalizing climate-related disclosure requirements for publicly traded companies. These requirements will mandate the disclosure of greenhouse gas (GHG) emissions, climate-related goals, progress, and climate-risk related financial impact and expenditures. These disclosures will need to be included in the company’s annual 10-K statements.

3. What are the ISSB standards?

The International Sustainability Standards Board (ISSB) has released two global sustainability disclosure standards for financial reporting. These standards have wide support and are expected to be adopted by countries and jurisdictions that follow International Financial Reporting Standards (IFRS) worldwide.

4. How can IBM help companies meet sustainability goals and reporting requirements?

IBM offers services to help companies automate processes, integrate ESG data systems, and establish systems and processes for high-quality ESG data. IBM assists with data inventory, gap assessments, and creating roadmaps for data and process automation and integration, enabling investor-grade, accessible, and usable ESG reporting.

5. What are the benefits of meeting sustainability disclosure requirements?

Meeting sustainability disclosure requirements enables companies to join their peers and competitors in addressing the real risks posed by climate change, social issues, and other sustainability initiatives. It also future-proofs businesses by ensuring compliance with increasing regulatory demands and meeting investor and customer-driven ESG disclosures.


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