Global Climate Guidance Emphasizes Metrics and Interoperability

With the Securities and Exchange Commission’s stayed climate rule in legal limbo, sustainability reporting professionals are turning their attention abroad.

The International Sustainability Standards Board and European Financial Reporting Advisory Group published detailed analysis in May of how their respective climate-related reporting requirements overlap. Preparers now have what is effectively joint interoperability guidance.

This is an encouraging step in broad-scale efforts to achieve interoperability among the major sustainability standards. Here are some first impressions on what the new guidance means for multinational preparers and practitioners.

We now have a list of areas to monitor for dual adoption. The ISSB and EFRAG created a comprehensive list of climate-related disclosures to look out for when dual adopting. These disclosures include greenhouse gas emissions (both current and targeted reductions), use of carbon credits, transition plans, scenario analyses, industry-based metrics, and many more.

We’re closing in on a singular definition of financial materiality. The definition of materiality in sustainability reporting has been a subject of conversation since the first frameworks were rolled out. With their new joint guidance, the ISSB and EFRAG have confirmed their definitions of financial materiality are expected to provide an aligned outcome.

Companies can feel confident that the information they gather through one materiality assessment can be leveraged for another, creating valuable synergies for dual adopters.

Identifying sustainability risks and opportunities is still a standard-by-standard process. While an aligned definition for financial materiality yields time savings in the sense that companies can use similar material factors for both sets of standards, this doesn’t mean the work is finished.

A company that identified its sustainability-related risks and opportunities by following the process set out in the European Sustainability Reporting Standards may still need to perform additional analysis to verify it meets all material factors for the ISSB standards. The reverse is also true, and this can be a lengthy process.

We can’t forget about California and the SEC. While the focus in the US has largely been on the stayed SEC climate rule, California’s climate laws caught many by surprise because they were finalized into law first.

Luckily for multinational preparers, California’s laws were clearly written with interoperability in mind, allowing companies to use existing reporting methods under recognized reporting standards. That said, the reach of California’s new laws is wider than the SEC’s purview or that of other governing bodies, since they require reporting from private companies as well.

So while US public registrants reporting in California, Europe, and internationally may enjoy some efficiencies from interoperability, private companies will still have their work cut out for them.

Maximizing Interoperability

While the work of the ISSB and EFRAG is promising, it’s too soon to know whether and how we’ll see true interoperability in practice; we don’t yet have a full picture of sustainability reporting or implementation. California’s climate laws await rollout, the SEC climate rule is on pause, and countries are still deciding how they will adopt the ISSB standards.

Despite this uncertainty, multinational preparers can take a few steps to maximize interoperability in practice and ease the reporting burden.

Prioritize data management. The success of a company’s reporting program hinges on the quality of its data and the speed to collect and calculate quantitative metrics. A 2024 KPMG survey found 83% of companies believe they’re ahead on reporting, but 47% still use spreadsheets to manage their sustainability data.

Companies must prioritize enhancing processes and controls over sustainability data now to achieve interoperability in the future. We’re finding that multinationals preparing for compliance in the EU should be well-positioned for SEC reporting, as the former has more extensive data requirements. But those multinationals will only realize these synergies if their data programs are robust.

Break down internal silos. Sustainability information often is dispersed across many departments and data platforms within an organization. This also may be true for financial information, but standard processes have arisen over the years.

When starting from scratch, it’s critical to set up a cross-functional task force that includes finance, compliance, legal, and operations to identify and collect the information needed to report across multiple jurisdictions.

Build with the end in mind—assurance. Both the Corporate Sustainability Reporting Directive and individual jurisdictions are mandating assurance over sustainability reporting. Conducting an assurance readiness assessment can be a worthwhile exercise to maximize interoperability.

It’s essentially a dry run to test whether disclosures, processes, and data are at the maturity level needed for compliance. Closing the gaps from that assessment is integral to building confidence to report on any standard.

Realize it’s not all on the standard setters. The new joint guidance on interoperability is valuable for multinational preparers and practitioners. It’s now our responsibility to apply it.

Is it one report that rules them all, addressing all voluntary and regulatory reporting needs? Probably not. When preparing and assuring sustainability data for multiple jurisdictions, establish a reporting strategy that takes advantage of overlapping requirements and builds incremental processes for where measurement definitions diverge, or additional disclosures are required.

As long as there are multiple reporting systems, there will be interoperability questions. But we can do our part to ease the reporting burden and stay focused on the true value sustainability initiatives can bring to the business.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Maura Hodge is KPMG US sustainability reporting leader and audit partner in the firm’s Boston office.

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