Over the next year, mandatory sustainability reporting requirements are set to affect tens of thousands of businesses globally. These developments follow years of voluntary compliance and debate, introducing risks of non-compliance that are significant not only for corporates but also for their insurers.
Michelle Radcliffe, director of climate and sustainability at WTW’s Insurance Consulting and Technology division, emphasises the importance of reliable sustainability data and a holistic approach to reporting to prepare for the changing regulatory landscape.
In September, California enacted legislation imposing climate reporting obligations on in-scope entities. The Climate Accountability Package, comprising Bill SB 291, the Climate Corporate Data Accountability Act (SB 253), and the Climate-Related Financial Risk Act (SB 261), requires disclosure of Scope 1, 2, and 3 greenhouse gas emissions and the submission of biannual climate-related financial risk reports.
This legislation applies to private and public companies meeting specific revenue thresholds and is expected to have a significant impact due to California’s position as the world’s fifth-largest economy by GDP.
Radcliffe said that similar measures are taking shape internationally. The European Union’s Corporate Sustainability Reporting Directive (CSRD) introduces mandatory sustainability reporting for entities determined by criteria such as employee count, turnover, and balance sheet size.
Reporting under CSRD begins in 2026 for 2025 activities, with limited assurance required initially and reasonable assurance standards to follow in 2028. However, several EU member states have yet to finalise their transpositions of the directive into national law, creating uncertainties for affected organisations.
Non-compliance with sustainability reporting regulations carries significant risks. According to Radcliffe, these include reputational damage, investor scrutiny, auditor liability, and potential civil or criminal action.
While the CSRD mandates that member states impose penalties that are “effective, proportionate and dissuasive,” specific fines and enforcement mechanisms vary by jurisdiction. For instance, in Ireland, questions about subsidiary exemptions and definitions of “Applicable Company” highlight challenges businesses face in interpreting compliance requirements.
California’s requirements also include financial penalties for non-compliance, alongside legal risks stemming from greenwashing allegations. Radcliffe notes that misstatements or omissions in disclosures could lead to lawsuits, particularly as greenwashing scrutiny grows in the United States.
These penalties raise additional considerations for insurers, particularly regarding the insurability of fines, which varies across jurisdictions.
Radcliffe advised organisations within the scope of these regulations to begin preparing for compliance immediately. This includes understanding jurisdictional requirements, monitoring legislative updates, and participating in consultations to address areas of uncertainty.
Re/insurers should also assess the potential exposure of their policyholders to these regulations and take steps to manage associated risks.
Radcliffe emphasised the importance of communication between underwriters and exposure management teams. Identifying clients subject to these disclosures can support scenario planning and create a feedback loop with claims teams, enabling insurers to monitor notifications related to sustainability reporting requirements.
This approach not only aids exposure management but also facilitates conversations with policyholders about how they are preparing for these regulatory changes.
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