Climate Disclosure Regulations and the Future of Risk Management
The global regulatory landscape for climate-related disclosures is rapidly evolving, creating business opportunities and challenges. As companies navigate shifting mandates across jurisdictions, the need for a comprehensive and integrated approach to risk management has never been more pressing. Integrated Risk Management (IRM) offers a framework to help organizations proactively manage compliance, enhance resilience, and align with long-term sustainability goals.
U.S. Climate Disclosure Developments: Uncertainty at the Federal Level, Action at the State Level
The U.S. Securities and Exchange Commission (SEC) initially adopted a landmark climate disclosure rule in March 2024, aiming to standardize environmental reporting for public companies. However, legal challenges quickly emerged, culminating in a judicial review by the U.S. Court of Appeals for the Eighth Circuit. The SEC subsequently stayed the rule's implementation pending further proceedings.
A pivotal shift occurred on February 11, 2025, when Acting SEC Chair Mark Uyeda signaled a potential rollback of the 2024 rule. Citing concerns over statutory authority, adverse impacts on capital markets, and the broader regulatory freeze implemented under the Trump administration, Uyeda indicated that the SEC may initiate a new rulemaking process to rescind or substantially revise the existing requirements.
California Moves Forward with Ambitious Disclosure Laws
While uncertainty looms at the federal level, California has cemented its leadership in climate disclosure with three key laws:
SB 253: Requires companies operating in California with at least $1 billion in revenue to disclose greenhouse gas emissions.
SB 261: Mandates climate-related risk disclosures for companies with at least $500 million in revenue operating in the state.
AB 1305: Governs substantiation of carbon offset claims and net-zero pledges.
The first round of Scope 1 and Scope 2 emissions reporting is due in 2026, based on FY 2025 data. In a December 2025 Enforcement Notice, the California Air Resources Board (CARB) signaled leniency for businesses demonstrating "good faith" compliance efforts, allowing reliance on existing data for initial reporting.
Legal challenges persist. On February 3, 2025, a U.S. District Court dismissed claims that SB 253 and SB 261 violate federal preemption laws but allowed a First Amendment challenge to proceed. Meanwhile, other states—including New York, Illinois, and Washington—are advancing similar disclosure bills, signaling a growing state-led movement toward climate transparency.
European Union: Evolution of Climate Disclosure Standards - CSRD and ISSB Integration
The European Union's Corporate Sustainability Reporting Directive (CSRD) continues its phased rollout, aligning with the International Sustainability Standards Board (ISSB) frameworks. Transitional provisions have provided relief to companies adapting to the new requirements, but upcoming legislative changes may further alter compliance obligations.
“Regulatory uncertainty should not be an excuse for inaction. Climate risks—whether regulatory, reputational, or operational—are becoming board-level issues. Businesses that fail to integrate climate risk within their broader risk management strategy will be exposed and fall behind their peers. Integrated Risk Management provides the necessary infrastructure to navigate today’s complex risk landscape while driving long-term value.”
Germany is leading discussions to streamline the CSRD's scope, with proposals advocating a shift from the current "double materiality" standard to a sector-wide materiality approach—where predefined sustainability factors are assigned per industry. While this would reduce individual company burden, critics argue that it risks oversimplifying materiality assessments and diminishing transparency.
Additionally, Germany has proposed standardized climate transition plan templates to ensure consistency across disclosures. As EU sustainability laws continue to evolve, businesses operating within the bloc must remain vigilant in adapting to regulatory shifts.
The Role of Integrated Risk Management (IRM) in Climate Compliance
With climate disclosure rules becoming more complex, organizations require a robust risk management framework that transcends traditional compliance models. Integrated Risk Management (IRM) offers a holistic approach by unifying Governance, Risk, and Compliance (GRC), Enterprise Risk Management (ERM), Operational Risk Management (ORM), and Technology Risk Management (TRM).
The Path Forward - Why IRM is Essential for Climate Risk Management
Navigating the evolving climate disclosure landscape requires organizations to think beyond compliance checkboxes. By leveraging the following IRM benefits, businesses can transform regulatory challenges into strategic opportunities, ensuring resilience and long-term success.
IRM Benefits
Strategic Alignment: IRM ensures that climate risk is embedded within corporate governance structures, preventing silos and misaligned sustainability initiatives.
Data Consistency & Accuracy: The framework facilitates centralized risk data collection and reporting, enhancing auditability and reducing compliance risks.
Proactive Risk Mitigation: With predictive analytics and AI-driven insights, IRM enables organizations to anticipate regulatory shifts and emerging climate threats.
Cross-Industry Applications: IRM provides adaptable solutions across sectors, from financial services managing compliance under the European Digital Operational Resilience Act (DORA) to healthcare firms navigating AI-driven risk.
With federal policies shifting, state laws advancing, and global frameworks evolving, one thing remains clear: climate risk is business risk, and companies must act now to integrate it within their broader risk management strategy. Seeking expert guidance from firms like Wheelhouse Advisors and staying informed through The RiskTech Journal will be key to thriving in this dynamic environment.
