The EU is making waves with its Green Deal program, a game-changer in the fight against climate change. One significant aspect that’s grabbing the attention of global business leaders is the impending climate disclosure rules. These rules, set to be finalized soon, will initially impact European companies, but their ripple effect will reach businesses worldwide.

In fact, analysis from the Global Reporting Initiative suggests that over 3,000 US and 1,300 Canadian companies will likely be included under these rules. Ignoring them could leave companies ill-prepared for the changing landscape.

For years, civil society groups and governments have pushed for climate disclosure, urging companies to reveal their climate impact and the risks they face. While some companies have embraced transparency, others have chosen to remain silent, leaving a knowledge gap regarding risks and their role in climate change.

Governments are stepping up to bridge this gap. The US Securities and Exchange Commission (SEC) proposed mandatory emissions and climate-related disclosure for publicly traded companies, though opinions remain divided. However, it’s the EU’s Corporate Reporting Sustainability Directive (CSRD) that might steal the show. Unlike the SEC’s proposal, the CSRD follows a more comprehensive standard called «double materiality.» This means companies must disclose both the risks climate change poses to their bottom line and how their operations impact the environment.

And the impact extends beyond Europe. The EU’s disclosure directive will initially apply to large, listed firms within Europe, then extend to medium-sized firms in the region. By 2028, it will encompass businesses worldwide that derive significant revenue from the EU. It doesn’t stop there – the directive will even influence companies’ evaluation of climate impacts and risks in their supply chains.

Unsurprisingly, European businesses are concerned about compliance costs as the EU introduces new climate-related regulations. But change is inevitable. This wealth of new information will transform the marketplace. Investors will gain deeper insights into companies’ exposure to climate risks and potential regulations. This data will likely trickle down to consumers through new labels and standards that succinctly communicate corporate climate impact.

Regardless of how the standards debate unfolds, one thing is clear: mandatory disclosure is on the horizon, and it’s coming sooner than later. Business leaders must remain aware and prepared for this new era of transparency.