How do climate disclosure requirements around the world compare?
A wave of new climate disclosure and reporting regulations has put pressure on large corporations worldwide. Many are faced with reporting to multiple mandatory and voluntary disclosure frameworks, and for small sustainability teams, it can be difficult to get a clear picture of where these standards overlap and where they differ.
Here, we lay out the differences between the requirements of key climate regulations, much like Manifest Climate does.
CSRD vs. ISSB Comparison + Interoperability
Introduction
Here, we investigate the key similarities, differences, and interoperability between the EU’s Corporate Sustainability Reporting Directive (CSRD) — specifically, ESRS E1 (Climate Change), and the International Sustainability Standards Board (ISSB) — specifically, IFRS S2 (Climate-related Disclosures).
| Summary: CSRD vs. ISSB | ||
|---|---|---|
| Standards | CSRD | ISSB |
| Full name | Corporate Sustainability Reporting Directive | International Sustainability Standards Board |
| Developed by | EFRAG (formerly known as the European Financial Reporting Advisory Group) | IFRS (International Financial Reporting Standards Foundation) |
| List of standards |
|
|
| Status | Mandatory | Voluntary, although likely to be adopted by regulators over time and become mandatory for some |
| Region | EU-based but applies to non-EU companies trading in the EU above a certain threshold | Global |
| Applies to | ~50,000 businesses
|
Companies that wish to disclose voluntarily or are required to by investors or, over time, regulators |
| Timeline | Effective: January 5, 2023
Start year: First year for general CSRD reporting begins in 2025 for FY24 data, beginning with companies already subject to NFRD (Non-Financial Reporting Directive — see more below). Sector-specific requirements have been delayed. |
Effective: January 1, 2024 |
| Background | Developed by EFRAG for the European Union; represents an update to the NFRD, requiring more comprehensive sustainability disclosures from a wider range of companies. | Developed by IFRS, which represents the consolidation of several different voluntary reporting initiatives and builds on foundational frameworks, notably the TCFD. |
| Materiality | CSRD expressly addresses double materiality (the union of impact materiality and financial materiality).
Impact materiality: How a company’s operations, products, or services impact the environment. Financial materiality: A sustainability matter is financially material if it triggers or may trigger significant financial effects on the organization. Double materiality: combines both impact and financial materiality. |
In contrast, ISSB focuses on financial materiality (i.e. single materiality).
The ISSB defines materiality as follows: “In the context of sustainability-related financial disclosures, information is material if omitting, misstating or obscuring that information could reasonably be expected to influence decisions that primary users of general purpose financial reports make based on those reports, which include financial statements and sustainability-related financial disclosures and which provide information about a specific reporting entity.” |
CSRD vs. ISSB
Background
CSRD
The CSRD represents an evolution of The Non-Financial Reporting Directive (NFRD) requiring certain US companies to report on sustainability alongside their financial reports. The NFRD was a first step in the EU’s push for more comprehensive sustainability disclosures. The CSRD takes the NFRD further, both in scope/detail and the number of companies it applies to.
The Corporate Sustainability Reporting Directive (CSRD) was proposed by the EU Commission as an amendment to the NFRD. The EU Commission tasked EFRAG (formerly known as the European Financial Reporting Advisory Group) to draft the ESRSs (standards for the CSRD).
What makes the CSRD particularly significant in the climate disclosure landscape is not just its alignment with the Paris Agreement goals of a 1.5°C world and the fact that it is mandatory — the level of detail it requires companies to report against makes the CSRD particularly groundbreaking. For example, the CSRD expressly states what short, medium, and long-term mean, while other standards do not. The CSRD also established auditing requirements to prevent greenwashing, promote transparency, and avoid accountability gaps.
ISSB
The International Sustainability Standards Board (ISSB) is a step forward in climate disclosure standards, evolving differently from the CSRD. Operating under the International Financial Reporting Standards (IFRS), ISSB consolidates various voluntary climate reporting initiatives like the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF). Other standards are looking into aligning with ISSB or adopting some of the disclosure requirements of the ISSB.
The ISSB draws heavily on the recommendations of the TCFD, although it is more comprehensive in its scope and detail. It also works in tandem with another popular ESG reporting framework, the GRI (Global Reporting Initiative).
Similarities between the CSRD and ISSB
Same fundamental principles and objectives
Both the CSRD and ISSB are designed to enhance transparency around corporate sustainability performance and impact. Both attempt to standardize sustainability reporting. Where the CSRD can create this standardization by requiring a large number of EU companies to comply, the ISSB intends to develop a global baseline for sustainability reporting that is relevant to all types of organizations and can be used by investors and other stakeholders around the world to compare and assess sustainability performance.
Focus on risk
Both standards require companies to complete materiality assessments and disclose material climate- and sustainability-related business risk. The ISSB asks companies to disclose information about their governance, strategy, risk management, metrics, and targets related to climate-related risks and opportunities. It also asks for the short, medium, and long-term impacts of climate-related risks and opportunities on the entity's business model, strategy, cash flows, access to finance, and cost of capital. Likewise, the CSRD requires disclosures about a company’s due diligence processes, adverse effects, and actions to prevent/mitigate them.
Qualitative and quantitative data
Both standards ask for a combination of qualitative and quantitative data. The CSRD asks companies to disclose qualitative and quantitative information, both forward-looking and retrospective, covering short, medium, and long periods of time. Alongside quantitative data, the ISSB asks for qualitative disclosures supported by performance and outcome measures, and targets related to significant climate-related risks and opportunities.
Reference to Paris-alignment
The CSRD requires that science-based targets and transition plans align with the Paris Agreement goals and achieve climate neutrality by 2050. In a similar vein, the ISSB requires companies to disclose information about how their climate-related targets compare with those created in the latest international agreement on climate change. Currently, this refers to the Paris agreement, but this language is left open in case new agreements are put in place.
Use of scenario analysis
Both standards require companies to include climate-related scenario analyses in their disclosures. The ISSB requires companies to use climate-related scenario analysis to inform resilience analysis, and provides guidance on which climate scenarios an entity should use, including whether a Paris-aligned scenario is relevant. Likewise, the CSRD requires companies to conduct analyses for different climate-related scenarios, describing the potential impacts on the company and its operations.
Impact on value chain
Both the CSRD and the ISSB require companies to report on Scope 3 (value chain) emissions. This is a step forward in the world of sustainability disclosures, which have often mandated just Scope 1 and 2 reporting.
Differences between the CSRD and ISSB
Single vs. double materiality
The ISSB defines materiality only in the financial sense (‘single materiality’), where a sustainability issue matters if it may have financial consequences for the company or its operations. In contrast, the CSRD goes a step further by invoking ‘double materiality,’ requiring companies to report not just on how sustainability concerns affect the company’s bottom line, but also on how the company’s activities affect the environment.
Prescriptiveness
The CSRD outlines in considerable detail exactly what information companies must disclose across various material sustainability categories. Meanwhile, the ISSB offers broader categories that gives companies greater flexibility around what and how they disclose. For example, the CSRD expressly states what short, medium, and long-term mean, while the ISSB leaves this up to interpretation.
Auditing
The CSRD requires reporting companies to seek external auditing before submission. The ISSB does not require third-party assurance.
Applies to
The CSRD will apply to approximately 50,000 businesses in total, which is far larger than the number of companies reporting under the NFRD (which the CSRD has now replaced).
Meanwhile, the ISSB will not directly require any company to report under its standards. Yet despite being a voluntary framework, much like the TCFD, it is likely to become widely adopted by investors and even some governments, meaning that, although the ISSB itself is designed as a voluntary framework, some companies in particular jurisdictions or with certain investors may be required to report against its recommendations. The ISSB can be used by a wide range of companies, including listed and unlisted companies, regardless of their size, industry, or geographical location.
Timelines
The CSRD came into effect on January 5, 2023. Companies will need to submit reports according to the following timeline:
| Reporting in 2025 for FY24 | Any company already required to comply under NFRD |
| Reporting in 2026 for FY25 | Large listed companies not currently under NFRD |
| Reporting in 2027 for FY26 | Small and medium-sized entities that meet at least two of the following:
|
| Reporting in 2029 for FY28 | Non-EU businesses that meet turnover threshold (€150M in EU) |
Meanwhile, the ISSB standards are effective for voluntary annual reporting periods as of January 1, 2024.
Materiality
The ISSB explains that information is material if excluding or mischaracterizing it could influence stakeholder decisions. The standard-setter encourages companies to include both quantitative and qualitative factors when determining material information, such as considering the magnitude and nature of the effect of a sustainability-related risk or opportunity.
Meanwhile, the CSRD invokes several materiality-based concepts and was the first climate disclosure regulation to include double materiality in its reporting requirements. The CSRD defines materiality in three ways: impact materiality (a company’s impact on people and the environment), financial materiality (sustainability concerns that generate financial risks or opportunities for a company’s future cash flows and enterprise value), and double materiality (how a company affects people and the environment, as well as how sustainability considerations impact a company’s businesses and operations).
Disclosing under the CSRD and ISSB
If you’re required to disclose under the CSRD, you may find it useful to initiate a voluntary disclosure exercise — such as the ISSB — to gain insights into your sustainability performance. However, since the CSRD and the ISSB differ, reporting under one will only satisfy some disclosure requirements of the other.
Reporting under either standard can help an organization become familiar with reporting, as seen in the example of a materiality assessment. Using a double materiality exercise approach under the CSRD can make disclosing the process under ISSB (single-materiality aspect) more manageable.
We encourage companies to understand either of these disclosure standards to stay ahead of the sustainability reporting landscape. This way, when CSRD or any other mandatory reporting begins, they will already be familiar with its requirements. ISSB aligns with most climate disclosure regulations and standards, incorporating the recommendations of the TCFD, and can provide a helpful starting point.
Need help with CSRD or ISSB? Manifest Climate can help.
Manifest Climate is a leading AI-powered platform that provides management teams with climate-related insights, analytics and recommendations to accelerate climate strategies and disclosures. Manifest Climate’s software leverages our deep climate expertise with best-in-class technology to provide rapid gap analysis against leading reporting frameworks and benchmarks market intelligence from peers and sector leaders. We leverage the power of data to provide customized guidance and action plans, supporting climate-related workflows across organizations. Request a demo today.
CSRD vs. TCFD Comparison + Interoperability
Introduction
In this article, we investigate the key similarities, differences, and interoperability between the EU’s Corporate Sustainability Reporting Directive (CSRD) — specifically, ESRS E1 (Climate Change), and the Task Force on Climate-related Financial Disclosures (TCFD).
| Summary: CSRD vs. TCFD | ||
|---|---|---|
| Standards | CSRD | TCFD |
| Full name | Corporate Sustainability Reporting Directive | Task Force on Climate-related Financial Disclosures |
| Developed by | EFRAG (formerly known as the European Financial Reporting Advisory Group) | FSB (Financial Stability Board), now to be monitored by the IFRS Foundation |
| List of standards or recommendations |
|
|
| Status | Mandatory | Voluntary, although it has served as inspiration or the foundation of governments and regulatory disclosure requirements |
| Region | EU-based but applies to non-EU companies trading in the EU above a certain threshold | Global |
| Applies to | ~50,000 businesses
|
Companies that wish to disclose voluntarily or are required to by investors or, over time, regulators |
| Timeline | Effective: January 5, 2023
Start year: The first year for general CSRD reporting begins in 2025 for FY24 data, beginning with companies already subject to NFRD (Non-Financial Reporting Directive — see more below). Sector-specific sustainability disclosures and reporting standards for non-EU companies have been delayed by two years. |
Recommendations released: June 2017 |
| Background | Developed by EFRAG for the European Union; represents an update to the NFRD, requiring more comprehensive sustainability disclosures from a wider range of companies. | Taskforce developed by the FSB to draft recommendations for climate-related financial disclosures |
| Materiality | CSRD expressly mandates reporting on double materiality (the union of impact materiality and financial materiality).
Impact materiality: How a company’s operations, products, or services impact the environment. Financial materiality: A sustainability matter is financially material if it triggers or may trigger significant financial effects on the organization. Double materiality: combines both impact and financial materiality. |
In contrast, the TCFD solely focuses on single materiality — that is, how climate risks and opportunities affect an organization’s operations and financial bottom lines. |
CSRD vs. TCFD
What is the CSRD?
The Corporate Sustainability Reporting Directive (CSRD) requirements went into effect in the European Union (EU) on January 5, 2023. It mandates about 50,000 companies — both large corporations and all listed organizations — to disclose their sustainability risks, opportunities, and governance related to environmental and social issues.
The directive requires companies to report according to the European Sustainability Reporting Standards, which were developed by EFRAG, previously called the European Financial Reporting Advisory Group.
Companies that fall under the new rule will need to start applying it by fiscal year 2024 to publish in 2025.
What is the TCFD?
The Taskforce on Climate-related Financial Disclosures (TCFD) is an industry-led body that was established to develop recommendations for organizations on how to report climate-related risks and opportunities in clear, comparable, and high-quality ways.
In 2017, the TCFD released its recommendations for reporting climate-related financial information and guidelines for organizations on how to implement them. In 2021, the group updated the implementation guidance to address evolving disclosure practices, new climate data methodologies, and user needs.
In October 2023, the TCFD disbanded and asked the IFRS Foundation to take over the monitoring of the progress of companies’ climate-related disclosures. The recommendations of the TCFD still form the foundation of many climate disclosure requirements and standards around the world, including the ISSB, to which many companies are now moving.
Similarities between the CSRD and TCFD
A core similarity between the CSRD requirements and TCFD is that they both call for the robust reporting of companies’ climate-related financial risks and opportunities. The EU CSRD’s text on climate disclosures broadly aligns with the four pillars of the TCFD — governance, strategy, risk management, and metrics and targets.
Both are intended to standardize climate- and sustainability-related disclosures, as well as to promote transparency and accountability in capital markets.
Governance
Both the CSRD directive and TCFD tell organizations to report information on their governance processes, controls, and procedures used to monitor, manage and oversee climate-related impacts, risks, and opportunities. The TCFD asks companies to describe their boards’ oversight of climate risks and opportunities, though board oversight is not explicitly mentioned in the EU CSRD’s text.
The TCFD also tells businesses to describe management’s role in assessing and managing their climate risks and opportunities. Similarly, the CSRD requirement says organizations should describe the role of administrative, management, and supervisory bodies when it comes to sustainability-related issues.
Strategy
With respect to strategy, the TCFD provides three recommendations that broadly align with the CSRD. For example, both frameworks ask organizations to consider climate and sustainability risks and opportunities over the short, medium, and long term.
While the TCFD asks organizations to disclose how climate issues affect their businesses, strategy, and financial planning, the CSRD tells companies to report how resilient their business models and strategies are to sustainability-related issues. It mandates reporting on how companies address climate-related impacts, risks, and opportunities, and requires that companies disclose a transition plan for climate change mitigation, and quantitative and qualitative information on how the company will fund this transition. Further, both frameworks require that companies use scenario analysis to determine their resilience against certain global warming scenarios.
Risk Management
The TCFD’s three risk management recommendations underpin how the CSRD frames sustainability-related risk management. For instance, the TCFD says organizations should disclose their processes for identifying, assessing, and managing their climate-related risks.
Meanwhile, the EU CSRD tells companies to describe their principal sustainability risks across their value chain, dependencies, and how they’re managing them. It also tells organizations to report their sustainability policies. Companies must also describe the resilience of their strategy to climate change, explain how they conducted the resilience analysis, and provide the results of the analysis, which may include the results of a climate scenario analysis.
Metrics and Targets
Both the TCFD and CSRD requirements tell companies to disclose information on their metrics and targets as they pertain to climate and sustainability risks and opportunities. For example, both frameworks ask companies to report their direct (Scope 1 and 2) and indirect (Scope 3) emissions.
The TCFD and CSRD also ask companies to describe their climate and sustainability targets, as well as their progress toward achieving them.
Differences between the CSRD and TCFD
While the TCFD and CSRD are similar, the CSRD goes beyond the TCFD in a number of ways.
For instance, the CSRD directive encompasses all environmental, social, and governance (ESG) issues, while the TCFD solely focuses on climate concerns. The CSRD also requires companies to disclose additional information on their sustainability-related risks and opportunities, compared to the TCFD framework.
Double materiality
The CSRD regulation adopts a double materiality approach, meaning companies must disclose how sustainability-related risks and opportunities affect their operations and businesses, as well as how their businesses affect various ESG concerns.
A double materiality approach is significant because it recognizes the impacts companies have on the environment and society, as well as the effects that sustainability issues can have on companies’ financial performance. In contrast, the TCFD solely focuses on how climate risks and opportunities affect organizations’ operations and financial bottom lines — an approach known as single materiality.
1.5°C transition compatible
A key difference between the CSRD and TCFD frameworks is that the CSRD includes a requirement for companies to disclose how they align with a 1.5°C global warming scenario. This is based on the EU’s goal of limiting warming to 1.5°C, an ambition set out in the 2015 Paris Climate Agreement.
While the CSRD regulation requires organizations to report their compatibility with a 1.5°C temperature rise, the TCFD only requires companies to test their resilience against a 2°C warming scenario.
Actions to mitigate impact
CSRD reporting requires companies to disclose the actions they’re taking to mitigate their negative impacts on the environment and society. These actions could include how they are planning to reduce their greenhouse gas emissions, as well as potential human rights policies.
On the other hand, the TCFD framework does not ask companies to disclose the actions they are taking to mitigate their impacts on the climate. The TCFD solely focuses on how climate-related risks and opportunities affect organizations’ financial performance and operations.
Strategy implementation
The CSRD asks companies to report on how they plan to implement their sustainability strategies and achieve their related targets. This includes disclosure on how companies are allocating their resources toward sustainability initiatives, as well as their associated investments, research and development, and employee training.
However, the TCFD only asks companies to disclose how they’re identifying, assessing, and managing their climate risks, as well as how their climate risk management strategy is integrated into overall risk management processes.
Preparing companies for effective disclosure
While the CSRD requirement broadly aligns with the TCFD’s recommendations, it goes further in scope and requires organizations to report additional information.
However, if companies already report their climate-related risks and opportunities in line with the TCFD, they will be well-positioned to disclose in line with the EU’s new sustainability directive. Both frameworks aim to promote transparency in capital markets and to help investors and other stakeholders make better decisions.
Need help with CSRD or TCFD? Manifest Climate can help.
Manifest Climate is a leading AI-powered platform that provides management teams with climate-related insights, analytics and recommendations to accelerate climate strategies and disclosures. Manifest Climate’s software leverages our deep climate expertise with best-in-class technology to provide rapid gap analysis against leading reporting frameworks and benchmarks market intelligence from peers and sector leaders. We leverage the power of data to provide customized guidance and action plans, supporting climate-related workflows across organizations. Request a demo today.
CSRD vs. SB-261 Comparison + Interoperability
Introduction
In this article, we investigate the key similarities, differences, and interoperability between the EU’s Corporate Sustainability Reporting Directive (CSRD) — specifically, ESRS E1 (Climate Change), and California Senate Bill 261 Greenhouse Gases: the Climate-Related Financial Risk Act (CRFRA).
How SB-261 was designed
SB-261 is a Californian bill that requires companies to disclose climate-related financial information in line with TCFD recommendations or ISSB standards. For more detailed information on interoperability, we recommend our comparison pages on CSRD vs. TCFD and CSRD vs. ISSB
| Summary: CSRD vs. SB-261 | ||
|---|---|---|
| Standards | CSRD | SB-261 |
| Full name | Corporate Sustainability Reporting Directive | California Senate Bill 261 Greenhouse Gases: the Climate-Related Financial Risk Act (CRFRA) |
| Developed by | EFRAG (formerly known as the European Financial Reporting Advisory Group) | State of California |
| List of standards or recommendations |
|
|
| Status | Mandatory | Mandatory |
| Region | EU-based but applies to non-EU companies trading in the EU above a certain threshold | California |
| Applies to | ~50,000 businesses
|
→ All covered entities doing business in California:
Corporations, partnerships, limited liability companies, or other business entities with total annual revenues exceeding $500 million that do business in California. |
| Timeline | Effective: January 5, 2023
Start year: First year for general CSRD reporting begins in 2025 for FY24 data, beginning with companies already subject to NFRD (Non-Financial Reporting Directive — see more below). Sector-specific requirements have been delayed. |
Approved by Governor: October 7, 2023
Effective: 2026 onwards |
| Background | Developed by EFRAG for the European Union; represents an update to the NFRD, requiring more comprehensive sustainability disclosures from a wider range of companies. | Developed by the State Government of California, building on the California Global Warming Solutions Act of 2006. SB-261 and SB-253 (which mandates greenhouse gas emissions reporting) make up the Climate Accountability Package, the first requirements in the US for large companies to publicly disclose greenhouse gas emissions, supply chain emissions, and climate risks. |
| Materiality | CSRD expressly addresses double materiality (the union of impact materiality and financial materiality).
Impact materiality: How a company’s operations, products, or services impact the environment. Financial materiality: A sustainability matter is financially material if it triggers or may trigger significant financial effects on the organization. Double materiality: combines both impact and financial materiality. |
SB-261, meanwhile, focuses only on single materiality, defining it as follows:
“Climate-related financial risk” means material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.” |
CSRD vs. California SB-261
What is SB-261?
Both the California State Assembly and Senate recently passed two new bills as part of a ‘Climate Accountability Package.’ The first has been dubbed SB 253, the Climate Corporate Data Accountability Act, while the second is called SB-261, Greenhouse Gases: Climate-Related Financial Risk.
SB 253 will require large businesses operating in California to disclose their greenhouse gas emissions. On the other hand, SB-261 asks companies to disclose their material climate-related financial risks. The two bills are the first in the country to require companies to disclose their climate-related information in a standardized and consistent manner.
Which companies are affected?
Under SB-261, companies with total annual revenue of more than US$500mn that do business in California will be required to comply, totalling approximately 10,000 companies. Both public and private companies will be impacted.
What will it require?
SB 253 will require large businesses to report their greenhouse gas emissions annually and in line with the Greenhouse Gas Protocol. This includes the mandatory disclosure of both their Scope 1 and Scope 2 (direct) emissions by 2026. By 2027, companies will be required to report on their Scope 3 (indirect) emissions from the previous financial year.
All emissions disclosures will need to be audited by independent, third-party providers.
SB-261 requires companies to prepare a report biennially (every two years) disclosing their climate-related financial risks and the actions they are taking to reduce and adapt to them. The disclosures must be aligned with the TCFD’s recommendations or the ISSB standards and made available on the company’s website.
What are the implications for California businesses?
California’s new climate rules represent a major milestone in corporate climate reporting and accountability. Both the SEC’s proposed climate disclosure rule and the federal contractor disclosure and target requirement have made headlines due to their national importance. However, both are still waiting to be finalized. This means SB 253 and SB-261 are the first corporate climate disclosure requirements to actually take effect in the country.
Unlike other popular disclosure rules (including the SEC’s), California’s legislation would apply to both private and public companies. With the rules covering nearly all companies doing business within the state, SB-261 would cover over 10,000 companies. The penalties for non-compliance with SB-261 are significant; the bill authorizes CARB to adopt regulations for imposing administrative penalties up to $50,000 per reporting year for violations.
What are the similarities between the CSRD and SB-261?
Both California and the European Union are often cited as leaders in environmental policy. After the CSRD went into effect in January 2023, California moved quickly to pass SB-261, among other climate bills in October 2023.
Public and private
Both the CSRD and SB-261 apply to private companies as well as public companies. Previously proposed climate disclosures (such as the SEC’s climate disclosure rule) have tended to target just public companies, so the CSRD and SB-261 are progressive in extending disclosure requirements to large public companies.
Beyond state borders
Both the CSRD and SB-261 apply not just to companies headquartered in their regions (the EU/State of California), but also to companies doing business in these regions. In the case of the CSRD, non-EU companies with a turnover of above €150 million in the EU will have to comply. For SB-261, all companies with total annual revenues exceeding $500 million doing business in California will be required to comply. In both cases, extending disclosure requirements to companies that are not necessarily headquartered in the region makes these two climate disclosure bills far-reaching in their impact on the global corporate climate landscape.
Climate risk disclosures
Both regulations require companies to report on climate-related financial risk. The EU CSRD’s text on climate disclosures broadly aligns with the four pillars of the TCFD — governance, strategy, risk management, and metrics and targets. Both are intended to standardize climate- and sustainability-related disclosures, as well as to promote transparency and accountability in capital markets. For an overall analysis, refer to the section on TCFD vs. CSRD (SB-261 requires companies to report on climate risk disclosures following the TCFD recommendations).
Actions to mitigate impact
CSRD standards require companies to disclose the actions they’re taking to mitigate their negative impacts on the environment and society. These actions could include how they are planning to reduce their greenhouse gas emissions, as well as potential human rights policies. SB-261 also asks companies to report on the measures they have adopted to reduce and adapt to climate-related financial risk.
International influence
Although the CSRD and SB-261 apply to different regions (the EU and California, respectively), both will have major implications for the private sector well beyond their own borders. For example, the CSRD applies to companies of a certain size based in or trading in the EU, which means many companies not headquartered in the continent will still be subjected to reporting requirements. Meanwhile, SB-261 targets companies of a certain size based in or trading in the state of California. Many international and US-based businesses trade in California, thereby exposing them to a new set of reporting requirements.
What are the differences between the CSRD and SB-261?
Sustainability metrics
While SB-261 is limited specifically to climate risk disclosures, such as climate-related risks to supply chains and operations, the CSRD requires vastly more comprehensive sustainability reporting, covering more than 100+ metrics around environmental, social, and governance-related concerns.
1.5°C transition compatible
Another key difference between the CSRD and SB-261 is that the CSRD includes a requirement for companies to disclose how they align with a 1.5°C global warming scenario. This is based on the EU’s goal of limiting warming to 1.5°C, an ambition set out in the 2015 Paris Climate Agreement.
While the CSRD regulation requires organizations to report their compatibility with a 1.5°C temperature rise, SB-261 does not require organizations to report compatibility with any particular temperature rise or global goal. SB-261 requires disclosures aligned with TCFD recommendations or ISSB standards — and the TCFD only requires companies to test their resilience against a 2°C warming scenario.
Double materiality
The CSRD regulation adopts a double materiality approach, meaning companies must disclose how sustainability-related risks and opportunities affect their operations and businesses, as well as how their businesses affect various ESG concerns.
A double materiality approach is significant because it recognizes the impacts companies have on the environment and society, as well as the effects that sustainability issues can have on companies’ financial performance. In contrast, SB-261 solely focuses on how climate risks and opportunities affect organizations’ operations and financial bottom lines — an approach known as single materiality.
Need help with CSRD or SB-261? Manifest Climate can help.
Manifest Climate is a climate framework and disclosure management solution that helps companies supercharge their climate strategies and accurately assess their climate disclosure alignment. Our platform is the world’s best at assessing climate disclosures and helping companies manage complex cross-jurisdictional reporting requirements. We help to highlight your climate disclosure and management gaps across multiple standards and frameworks and provide data-driven recommendations for improvement. Our technology also helps your team reduce time spent on manual research by 75%.
TCFD vs. SB-261 Comparison + Interoperability
Introduction
In this article, we investigate the key similarities, differences, and interoperability between the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and California Senate Bill 261 Greenhouse Gases: the Climate-Related Financial Risk Act (CRFRA).
Reporting in line with TCFD and SB-261 — are they complementary?
Many climate and sustainability professionals want to understand the difference between the TCFD and SB-261 — and they’ll be relieved to hear that there are no differences. SB-261 is a California bill that requires companies to report on climate-related financial risk in line with TCFD recommendations or ISSB standards.
If your disclosures are already aligned with the TCFD or ISSB, you’re already compliant with SB-261.
| Summary: CSRD vs. SB-261 | ||
|---|---|---|
| Standards | TCFD | SB-261 |
| Full name | Task Force on Climate-related Financial Disclosures | California Senate Bill 261 Greenhouse Gases: the Climate-Related Financial Risk Act (CRFRA) |
| Developed by | FSB (Financial Stability Board), now to be monitored by the IFRS Foundation | State of California |
| List of standards or recommendations |
|
|
| Status | Voluntary, although it has served as inspiration or the foundation of governments and regulatory disclosure requirements | Mandatory |
| Region | Global | California |
| Applies to |
|
→ All companies doing business in California:
Corporations, partnerships, limited liability companies, or other business entities with total annual revenues exceeding $500 million |
| Timeline | Recommendations released: June 2017 | Approved by Governor: October 7, 2023
Effective: 2026 onwards |
| Background | Taskforce developed by the FSB to draft recommendations for climate-related financial disclosures | Developed by the State Government of California, building on the California Global Warming Solutions Act of 2006. SB-261 and SB-253 (which mandates greenhouse gas emissions reporting) make up the Climate Accountability Package, the first requirements in the US for large companies to publicly disclose greenhouse gas emissions, supply chain emissions, and climate risks. |
| Materiality | In contrast, the TCFD solely focuses on single materiality — that is, how climate risks and opportunities affect organizations’ operations and financial bottom lines. | SB-261 also focuses on single materiality, defining it as follows:
“Climate-related financial risk” means material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.” |
What are the similarities between SB-261 and the TCFD?
SB-261 is based on the recommendations of the TCFD
SB-261 is a climate disclosure regulation that requires companies to disclose their climate-related risks in line with the recommendations of the TCFD or the ISSB. There are a few nuances, but for the most part, any company reporting in alignment with TCFD or ISSB will be compliant with SB-261, and vice versa.
What are the differences between the TCFD and SB-261?
Applicability
The TCFD is a voluntary framework designed to help companies report on climate risk. Though many companies are increasingly required to produce TCFD-aligned climate-related disclosures at the request of their investors or stakeholders — and many governments and regulators are designing their climate disclosure requirements around the TCFD — the TCFD framework itself is not a mandatory regulation.
Meanwhile, California Senate Bill 261 Greenhouse Gases: the Climate-Related Financial Risk Act (CRFRA) is a bill passed by the state of California that mandates climate risk reporting for corporations, partnerships, limited liability companies, or other business entities with total annual revenues exceeding $500 million doing business in the state.
Actions to mitigate impact
In addition to disclosing climate risks in line with the TCFD, SB-261 also asks companies to report on “its measures adopted to reduce and adapt to climate-related financial risk.”
On the other hand, the TCFD framework does not ask companies to disclose the actions they are taking to mitigate their impacts on the climate. The TCFD solely focuses on how climate-related risks and opportunities affect organizations’ financial performance and operations.
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Manifest Climate is a leading AI-powered platform that provides management teams with climate-related insights, analytics and recommendations to accelerate climate strategies and disclosures. Manifest Climate’s software leverages our deep climate expertise with best-in-class technology to provide rapid gap analysis against leading reporting frameworks and benchmarks market intelligence from peers and sector leaders. We leverage the power of data to provide customized guidance and action plans, supporting climate-related workflows across organizations. Request a demo today.
TCFD vs. ISSB Comparison + Interoperability
Introduction
Increasingly, large public organizations are shifting their climate disclosure focus from the Task Force on Climate-related Financial Disclosure (TCFD). Since its release in 2017, the TCFD has been a mainstay of climate risk reporting. However, the formation of the International Sustainability Standards Board (ISSB) and the release of its reporting standards, IFRS S1 and IFRS S2, has led many companies to shift focus from the TCFD to the ISSB standards for climate risk disclosure.
But rather than representing ‘yet another’ change in the climate disclosure landscape, the shift from the TCFD represents an evolution — and its widespread adoption should be positive for companies, consumers, and shareholders alike.
In this article, we investigate the key similarities, differences, and interoperability between the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the International Sustainability Standards Board (ISSB).
| Summary: TCFD vs. ISSB | ||
| Standards | TCFD | ISSB |
| Full name | Task Force on Climate-related Financial Disclosures | International Sustainability Standards Board |
| Developed by | FSB (Financial Stability Board), now to be monitored by the IFRS Foundation | IFRS (International Financial Reporting Standards Foundation) |
| List of standards or recommendations |
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| Status | Voluntary, although it has served as inspiration or the foundation of governments and regulatory disclosure requirements | Voluntary, although likely to be adopted by regulators over time and become mandatory for some |
| Region | Global | Global |
| Applies to |
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Companies that wish to disclose voluntarily or are required to by investors or, over time, regulators |
| Timeline | Recommendations released: June 2017 | Effective: January 1, 2024 |
| Background | Taskforce developed by the FSB to draft recommendations for climate-related financial disclosures | Developed by IFRS, which represents the consolidation of a number of different voluntary reporting initiatives and builds on foundational frameworks, notably the TCFD. |
| Materiality | The TCFD solely focuses on single materiality — that is, how climate risks and opportunities affect organizations’ operations and financial bottom lines. | ISSB also focuses solely on single materiality. |
What are the similarities between the ISSB and the TCFD?
The TCFD acts as a helpful starting point
The ISSB standards incorporate the existing recommendations of the TCFD, which means that companies already aligning to the TCFD recommendations are starting from a strong place when they turn their attention to the ISSB.
The ISSB consists of two key standards: IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures). IFRS S2 is closely modeled on the TCFD.
Timing requirements
Under the ISSB, IFRS S1 requires that companies disclose sustainability data at the same time as their financial statements, although this requirement is waived in a company’s first year of reporting. Likewise, TCFD recommends that companies include their climate-related disclosures in their mainstream financial filings. It also pushes the importance of incorporating climate-related financial information into annual financial reports, where relevant, to help investors and stakeholders make well-informed decisions.
What are the differences between the ISSB and the TCFD?
IFRS S1 and S2
IFRS S1 covers general sustainability disclosures not included in the TCFD recommendations. And, although IFRS S2 is closely modeled on the TCFD, important differences do exist. Helpfully, the IFRS offers a comparison table between IFRS S2 and the TCFD to allow companies to quickly identify gaps at a high level.
Authority in the global climate disclosure landscape
Part of the reason many companies are moving toward the ISSB standards is because of the popular recognition of the IFRS and, by extension, the ISSB as a central figure in public company reporting.
The release of its first standards positions the ISSB as a primary authority on climate-related disclosures, and signals a transition away from the TCFD. This shift was further highlighted when the Financial Stability Board (FSB) — which created the TCFD — recently requested that the IFRS Foundation, the parent organization of the ISSB, assume responsibility for monitoring corporate progress on climate disclosures.
ISSB is more comprehensive and industry-specific
IFRS S1 requires disclosure of more comprehensive and industry-specific information than is recommended by the TCFD, such as how climate risks and opportunities are reflected in governance bodies’ terms of reference. It calls for more detailed information around where in the company’s business model and value chain the risks and opportunities are concentrated, as well as more comprehensive information on transition plans and resiliency.
The ISSB also requires more detailed information on risk management, such as input parameters for identifying risks. Its requirements for metrics and target disclosure are also more thorough than the TCFD, requiring industry-based metrics, more detailed Scope 1, 2, and 3 emissions data, and adds additional requirements for setting and reviewing climate targets.
Need help with TCFD or ISSB? Manifest Climate can help.
Manifest Climate is a leading AI-powered platform that provides management teams with climate-related insights, analytics and recommendations to accelerate climate strategies and disclosures. Manifest Climate’s software leverages our deep climate expertise with best-in-class technology to provide rapid gap analysis against leading reporting frameworks and benchmarks market intelligence from peers and sector leaders. We leverage the power of data to provide customized guidance and action plans, supporting climate-related workflows across organizations. Request a demo today.
ISSB vs. SB-261 Comparison + Interoperability
Introduction
In this article, we investigate the key similarities, differences, and interoperability between the International Sustainability Standards Board (ISSB) and California Senate Bill 261 Greenhouse gases: climate-related financial risk.
Reporting to ISSB and SB-261 — are they complementary?
Many climate and sustainability professionals want to understand the difference between ISSB and SB-261 — and they’ll be relieved to hear that there are no differences. SB-261 is a California bill that requires companies to report on climate-related financial risk in line with TCFD recommendations or ISSB standards.
If your disclosures are already aligned with the TCFD or ISSB, you’re already compliant with SB-261.
| Summary: ISSB vs. SB-261 | ||
|---|---|---|
| Standards | ISSB | SB-261 |
| Full name | International Sustainability Standards Board | California Senate Bill 261 Greenhouse Gases: the Climate-Related Financial Risk Act (CRFRA) |
| Developed by | IFRS (International Financial Reporting Standards Foundation) | State of California |
| List of standards or recommendations |
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| Status | Voluntary, although likely to be adopted by regulators over time and become mandatory for some | Mandatory |
| Region | Global | California |
| Applies to |
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→ All companies doing business in California:
Corporations, partnerships, limited liability companies, or other business entities with total annual revenues exceeding $500 million |
| Timeline | Effective: January 1, 2024 | Approved by Governor: October 7, 2023
Effective: 2026 onwards |
| Background | Developed by IFRS, which represents the consolidation of a number of different voluntary reporting initiatives and builds on foundational frameworks, notably the TCFD. | Developed by the State Government of California, building on the California Global Warming Solutions Act of 2006. SB-261 and SB-253 (which mandates greenhouse gas emissions reporting) make up the Climate Accountability Package, the first requirements in the US for large companies to publicly disclose greenhouse gas emissions, supply chain emissions, and climate risks. |
| Materiality | ISSB focuses only on single materiality, defining it as follows:
“In the context of sustainability-related financial disclosures, information is material if omitting, misstating or obscuring that information could reasonably be expected to influence decisions that primary users of general purpose financial reports make on the basis of those reports, which include financial statements and sustainability-related financial disclosures and which provide information about a specific reporting entity.” |
SB-261 also focuses only on single materiality, defining it as follows:
“Climate-related financial risk” means material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.” |
Need help with ISSB or SB-261? Manifest Climate can help.
Manifest Climate is a leading AI-powered platform that provides management teams with climate-related insights, analytics and recommendations to accelerate climate strategies and disclosures. Manifest Climate’s software leverages our deep climate expertise with best-in-class technology to provide rapid gap analysis against leading reporting frameworks and benchmarks market intelligence from peers and sector leaders. We leverage the power of data to provide customized guidance and action plans, supporting climate-related workflows across organizations. Request a demo today.
SEC vs. CSRD Comparison + Interoperability
Introduction
Here, we investigate the key similarities, differences, and interoperability between the Climate Disclosure Rule from the U.S. Securities and Exchange Commission (SEC) and the EU’s Corporate Sustainability Reporting Directive (CSRD) — specifically, ESRS E1 (Climate Change).
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Summary: SEC vs. CSRD |
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| Standards | SEC | CSRD |
| Full name | The Enhancement and Standardization of Climate-Related Disclosures for Investors | Corporate Sustainability Reporting Directive |
| Developed by | U.S. Securities and Exchange Commission (SEC) | EFRAG (formerly known as the European Financial Reporting Advisory Group) |
| List of standards |
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| Status | Mandatory | Mandatory |
| Region | United States | EU-based but applies to non-EU companies trading in the EU above a certain threshold |
| Applies to | <10,000 companies
Issuers registered with the SEC. Key categories:
Other reporting entities, which have materially lower disclosure obligations, are:
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~50,000 businesses
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| Timeline | Compliance dates for LAFs:
General: reporting begins in 2026 for FY25 data Expenditures: FY2026 Emissions: FY 2026 Compliance dates for AFs and others to come later. |
Effective: January 5, 2023
Start year: The first year for general CSRD reporting begins in 2025 for FY24 data, beginning with companies already subject to NFRD (Non-Financial Reporting Directive — see more below). Sector-specific requirements have been delayed. |
| Background | Developed by the U.S. Securities and Exchange Commission to improve transparency around climate disclosures for publicly listed U.S. companies. First new climate disclosure requirements since 2010. Inspired by the TCFD. | Developed by EFRAG for the European Union; represents an update to the NFRD, requiring more comprehensive sustainability disclosures from a wider range of companies. |
| Materiality | Single materiality:
The SEC focuses solely on single materiality — that is, how climate risks and opportunities affect an organization’s operations and financial bottom lines. |
Double materiality:
CSRD expressly addresses double materiality (the union of impact materiality and financial materiality). Impact materiality: How a company’s operations, products, or services impact the environment. Financial materiality: A sustainability matter is financially material if it triggers or may trigger significant financial effects on the organization. |
SEC vs. CSRD climate regulations
What is the SEC’s Climate Disclosure Rule?
On March 6, 2024, the US Securities and Exchange Commission (SEC) finalized its vote on the final version of its climate disclosure rule, requiring publicly traded companies to disclose extensive climate-related information. This new regulation represents not just a replacement of the SEC’s outdated 2010 guidance on climate-related risks, but rather a pivotal moment for corporate climate disclosure, aiming to enhance transparency in capital markets and establish a foundation for future climate-related disclosure norms.
The SEC’s rule, which was first proposed in March 2022, is partly based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), a globally recognized framework that outlines how companies should report on their climate Governance, Strategies, Risk Management processes, and Metrics and Targets.
In short, the rule tells companies to disclose their:
- Material climate-related risks and the potential impacts on their businesses, strategies, and future expectations;
- Governance and risk management processes for material climate concerns;
- Material greenhouse gas (GHG) emissions (precise Scope 1 and 2 only);
- Material climate metrics and related information in their audited financial statements; and
- Information on their material climate-related targets, goals, and any transitions plans.
What is the CSRD?
The Corporate Sustainability Reporting Directive (CSRD) requirements were enacted in the European Union (EU) on January 5, 2023. It mandates about 50,000 companies — both large corporations and all listed organizations — to disclose their sustainability risks, opportunities, and governance related to environmental and social issues.
The directive requires companies to report according to the European Sustainability Reporting Standards developed by EFRAG, previously called the European Financial Reporting Advisory Group.
Companies that fall under the new rule will need to start applying it by fiscal year 2024 to publish in 2025.
In short, the CSRD will require companies to disclose:
- "Mandatory for all" information, covering ESG and climate-related aspects;
- Report on double materiality, business model, strategy, resilience, and opportunities;
- Science-based targets and transition plans aligned with the Paris Agreement goals, and achieving climate neutrality by 2050;
- Due diligence processes, adverse effects, and actions to prevent/mitigate them;
- Key intangible resources contributing to value creation and sustainability;
- Qualitative and quantitative information, both forward-looking and retrospective, covering short, medium, and long periods of time; and
- Provide third-party assurance and external auditing.
Similarities between the SEC and CSRD
Climate risk reporting
A core similarity between the CSRD requirements and the SEC’s Climate Disclosure Rule is that they both call for the robust reporting of companies’ climate-related financial risks and opportunities. Both regulations broadly align with the four pillars of the TCFD — governance, strategy, risk management, and metrics and targets. Both are intended to standardize climate- and sustainability-related disclosures, as well as to promote transparency and accountability in capital markets. The key difference between the requirements is that the CSRD is far stricter in its disclosure requirements; meanwhile, the SEC only requires companies to disclose climate-related information if it is deemed “material” to the business.
Governance
Both the CSRD and the SEC require companies to disclose governance-related climate information, such as board and management oversight. However, the CSRD requirements are more detailed, whereas the SEC requirements are lighter and in some cases only required when considered ‘material’. For example, the SEC does not require information about climate-linked pay, where the CSRD does.
Differences between the SEC and CSRD
While the SEC’s Climate Disclosure Rule and CSRD are similar, the CSRD goes beyond the SEC in a number of ways.
For instance, the CSRD directive encompasses all environmental, social, and governance (ESG) issues, while the SEC solely focuses on climate concerns. Additionally, while the SEC rule only applies to publicly listed companies, the CSRD also applies to large unlisted companies that meet certain criteria.
Double materiality
The CSRD regulation adopts a double materiality approach, meaning companies must disclose how sustainability-related risks and opportunities affect their operations and businesses, as well as how their businesses affect various ESG concerns.
A double materiality approach is significant because it recognizes the impacts companies have on the environment and society, as well as the effects that sustainability issues can have on companies’ financial performance. In contrast, the SEC solely focuses on how climate risks and opportunities affect organizations’ operations and financial bottom lines — an approach known as single materiality.
Scope 3 emissions
A major difference between the SEC and the CSRD relates to GHG emissions disclosures. The CSRD requires all companies to report on Scope 1, 2, and 3 GHG emissions. Meanwhile, the SEC does not require companies to report on Scope 3, and requires Scope 1 and 2 disclosures only if material. For GHG reporting, CSRD requires limited assurance, and reasonable assurance to follow. Meanwhile, the SEC requires emissions scopes to be disclosed only if material, and provides timing for when these disclosures come into effect. For example, Scope 1 and 2 emissions, if disclosed:
- Limited assurance: LAF/AF — FY 3 (FY 2029)
- Reasonable assurance: LAF — FY 7 (2033)
Transition plans
The CSRD requires detailed transition plans compatible with limiting global warming to 1.5°C. This is based on the EU’s goal of limiting warming to 1.5°C, an ambition set out in the 2015 Paris Climate Agreement. Meanwhile, the SEC’s transition plan requirements are very limited in the detail they require.
Scenario analysis
The CSRD also requires companies to provide detailed results of their scenario analyses (in line with a 1.5°C warming scenario). The SEC only requires disclosure if a scenario analysis is used and the impacts are deemed material.
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Manifest Climate is a climate framework and disclosure management solution that helps companies supercharge their climate strategies and accurately assess their climate disclosure alignment. Our platform is the world’s best at assessing climate disclosures and helping companies manage complex cross-jurisdictional reporting requirements. We help to highlight your climate disclosure and management gaps across multiple standards and frameworks and provide data-driven recommendations for improvement. Our technology also helps your team reduce time spent on manual research by 75%.