As US and European regulators wrestle with new climate disclosure mandates, large and small US corporations are rushing to get up to speed on greenhouse gas reporting.

Experts who focus on helping companies develop voluntary environmental, social and governance policies said in interviews that they have received a surge of calls in recent weeks from companies wondering what the new regulations will mean for them.

"We had years and years of voluntary commitments and net-zero pronouncements and pledges on paper — and now it seems to be shifting into 'how do we actually measure this stuff?'" said Evan Harvey, a managing director of audit and assurance at Deloitte who specializes in ESG and sustainability services.

The much-anticipated climate risk disclosure rule the SEC is expected to finalize March 6 may be scaled back from the proposed version released in 2022, according to recent media reports. Even so, corporate America has increasingly come to accept that greenhouse gas emissions will become part of their annual reporting regime, said Lauren Scott, vice president of marketing and sustainability for Acuity's Intelligent Spaces Group. The company advises businesses on ESG matters.

"These changes are being mapped out locally and internationally, and there's a high likelihood that a version of the original [SEC rule] will eventually come into effect," Scott said. "Perhaps the rule won't be full-scale, but I think the momentum of the proposal is important."

For the first time, industry consultants said, they are also seeing executives and board members spring into action.

"We now have many more conversations about this work with chief legal and chief financial officers," Harvey said. "This is now finally acquiring some of the rigor and discipline, and the mechanics, of how we run companies — as opposed to being a special project that lives with a special team disconnected from the board. What was traditionally called non-financial information is becoming much more financial."

'A very clear view'

Many business leaders now understand that inaction can become a "matter of serious non-compliance penalties and reputational damage," said Ben Herskowitz, a senior managing director in FTI Consulting's ESG and sustainability advisory and financial communications practice.

Companies that sat on the sidelines in 2023 to see how reporting regulations, the economy and the US political backlash against ESG policies would play out are now moving into analysis mode, Herskowitz said.

Herskowitz said corporate ESG professionals he talked to are relieved to finally have the attention of their management and board and pleased to get the budgets needed to comply with the new reporting directives. At the same time, companies are beginning to work greenhouse gas reporting into their corporate strategies, he said.

"Just because you may not hit the [reporting] threshold today doesn't mean you may not tomorrow, particularly for a company with organic growth plans," Herskowitz said. "You need to have a very clear view as to what you're actually supposed to include in a sensitivity analysis."

Deadlines and litigation looming

Even if the SEC narrows its final disclosure rule, many companies with overseas subsidiaries continue to face requirements under the European Union's sweeping Corporate Sustainability Reporting Directive (CSRD).

Reporting of greenhouse gas emissions for non-EU companies with annual revenues in Europe of at least €150 million is set to begin in mid-2026 and include all three scopes of emissions. The CSRD law is estimated to affect more than 3,200 US companies, according to a recent analysis by the London Stock Exchange Group's data and analytics arm.

Moreover, thousands of US companies with operations in California will be required by 2027 to report both operational Scopes 1 and 2 and indirect Scope 3 greenhouse gas emissions under legislation the state enacted in October 2023.

S.B. 261 requires companies that do business in the state and have at least $500 million in annual revenue to begin disclosing climate-related financial risks by the end of 2024.

Another new state law (S.B. 253) requires companies with California operations and at least $1 billion in annual revenue to estimate and report all Scope 1 and Scope 2 emissions starting in 2026 and indirect Scope 3 emissions a year later.

The courts could ultimately decide the fates of the SEC rule and the California laws. In the US, opponents of climate reporting mandates are already litigating to relieve companies of mandates they say will be costly and onerous.

In February, the US Chamber of Commerce and several other business groups sued the California Air Resources Board, the agency charged with implementing the state's new climate reporting laws. The case is pending in the US District Court for the Central District of California. Republican lawmakers and attorneys general have also challenged the SEC's authority to implement the rule as originally proposed.

If the SEC rule is scaled back, it will still likely face legal challenges from investor and environmental advocacy groups that say companies must be transparent about climate risks that can affect markets.

"We maintain that the SEC has the mandate and authority to require companies to disclose climate-related risks, which includes a full accounting of their greenhouse gas emissions, because investors and markets need that information to make informed decisions," Hana Vizcarra, a senior attorney with Earthjustice, said in an emailed statement. "We will evaluate the rule when it is finalized and consider potential legal responses."

For now, companies continue to plan for a new world of greenhouse gas and climate risk reporting.

At least 80% of the accounting firm Schneider Downs' clients with $500 million or more in annual revenue are moving forward with such programs, said Matt Hartman, the firm's senior ESG and sustainability manager. The company advises mostly middle-market businesses on how to build and strengthen climate reporting data.

"I would say that a majority of our clients have accepted it and are looking at 'what do we need to do in order to proactively comply,'" Hartman said. "Especially our multinationals are definitely looking at it as a challenge."