Within the past few years, sustainability reporting became a staple in business. As jurisdictions around the world developed mandatory reporting requirements, some companies rushed to be early adopters. It was a boom for the finance and sustainability industries, but the high costs caused businesses to push back. The trend towards mandatory reporting requirements has reversed, leaving activists and the sustainability industry pushing a new narrative for voluntary reporting. Whether businesses will buy the new line is still uncertain.
The Rise of Sustainability Reporting
The concept of sustainability reporting is not new, although the exact origins are difficult to trace. I have authored multiple legal journal articles on the topic, including a forthcoming one for UCLA Law, and every time I find a new origin story. Regardless of the tale, the premise is the same. A group of investors become concerned about a particular issue or action of a company. The investors decide that the issue they care about is more important than just financial returns. As a result, they invest or divest based on the non-financial consideration. In this case, climate change and environmental concerns.
For an investor to make an informed decision on these other concerns, they need information. Most investors just look at financial statements. For non-financial considerations, investors have limited sources of information. Over the years, some socially conscious companies produced a form of sustainability report to attempt to appease the demand.
However, following the 2015 Paris Agreement, international focus shifted to reducing greenhouse gas emissions to net zero by 2050. To accomplish this goal, countries needed the business sector to reduce GHG emissions. The starting point was gathering information.
The push came from multiple angles, mostly originating from United Nation’s initiatives. Major investors had to be sold on the idea that climate change should be a consideration. That creates a demand. Major fund managers, like BlackRock, became actively engaged in the debate, influencing companies to start disclosing information and actions relating to an array of sustainability issues.
By 2021, sustainability reports were common place in both publicly traded and privately held companies. They were trendy, but little more than marketing materials. No standardization existed. Some focused exclusively on environmental issues and climate change. Environmental, social, and governance reports took a broader approach, incorporating human rights issues and business ethics. In the U.S., ESG included diversity, equity, and inclusion as well as LGBTQ+ policies. There was a need for regulations to standardize the content.
At the 2021 United Nations Climate Change Conference of Parties (COP 29) in Glasgow, Scotland, the International Financial Reporting Standards Foundation announced the formation of the International Sustainability Standards Board “to develop—in the public interest—a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs.” IFRS creates financial reporting standards that are used in over 140 jurisdictions around the world. The U.S. uses their own financial standards known as GAAP.
The IFRS Sustainability Disclosure Standards were released in June 2023. Based on the of Recommendations of the Task Force on Climate-related Financial Disclosure, the ISSB created standards focused primarily on climate change and GHG emissions.
The European Union was an early adopter and leader in the area of sustainability reporting. In November 2022, they adopted the Corporate Sustainability Reporting Directive requiring reporting by nearly all companies doing business in the EU. In July 2023, the EU adopted European Sustainability Reporting Standards to be used by companies reporting under the CSRD. The ESRS incorporated the IFRS Sustainability Disclosure Standards for climate reporting, but also included other ESG reporting requirements.
In the U.S., the Securities and Exchange Commission proposed climate related disclosure requirements for publicly traded companies in March 2022. The SEC adopted the rule in March 2024, relying heavily on the TCFD recommendations.
By the end of 2023, the standardization of sustainability reporting was occurring at an international level. Simultaneously, jurisdictions around the world started establishing timelines for mandatory disclosure by 2026 for fiscal year 2025. Sustainability reporting quickly became a requirement of businesses.
The Fall of Mandatory Sustainability Reporting
The decline of mandatory sustainability reporting was swift. As the early adopter, the EU was also the first to run into issues. When the first round of ESRS were released, businesses struggled to learn and prepare for sustainability reporting. Implementation of an entirely new area of financial reporting was never going to be easy, but the EU was over ambitious in their own ability to enforce such a requirement. The EU quickly delayed broader implementation of the CSRD, choosing to focus on providing better guidance for larger companies. That was the first chink in the armor.
The real blow back came during the 2024 elections. In June, the EU held elections for the European Parliament. The EU economy was faltering and the European People’s Party placed the blame squarely on the European Green Deal and the requirements placed on businesses. It worked. The EPP gained seats, while environmentally focused parties lost seats. The shift wasn’t drastic, but enough to change the balance and embolden the business community.
In December, the President of the European Commission announced that new legislation will be introduced to reduce the regulatory burden imposed on businesses by the CSRD and other climate directives. In February 2025, the final proposal was released in the form of the Omnibus Simplification Package. The proposal removes mandatory sustainability reporting requirements for most companies, limiting it to large companies with companies with over 1,000 employees and €450-plus million in annual net turnover. It also limits what large companies can request from SMEs. That proposal will now work through the legislative process over the next few months.
The U.S. faced similar setbacks. The SEC climate related risk rule was immediately met with legal challenges, resulting in the SEC pausing implementation while the challenges worked through the courts. Similar to the EU, the November 2024 elections brought a shift to the right with the election of President Trump and Republicans gaining control of the House and Senate. Trump took immediate action when he was sworn in on January 20, 2025, issuing an executive order removing the U.S. from the Paris Agreement. In February, the acting chair of the SEC announced the commission will rollback the climate related disclosure rule.
State level action in the U.S. is facing similar struggles. In 2023, California adopted Climate Accountability Package, a pair of bills aimed at creating sustainability reporting requirements. In 2024, the drafting of reporting standards was delayed and the 2026 reporting requirement for fiscal year 2025 was pushed back at least a year. Similar legislation in other states has lost support.
Mandatory sustainability reporting is dying as quickly as it rose. While some high level of reporting may continue for major companies, protections are quickly being put into place to protect SMEs from being required to report, either directly or indirectly through being in a reporting entities value chain – a key aspect of climate reporting.
Pushing for Voluntary Sustainability Reporting
Climate activists and sustainability experts are not giving up the fight. While the debate over mandatory reporting continues, the focus has shifted to voluntary reporting. Sustainability experts say that companies will continue with voluntary reporting, citing surveys and public statements by companies. Advocates are pushing the notion that companies have a moral obligation to continue the reporting. However, the debate has changed in the past few years.
Sustainability reporting, as well as ESG reporting, was easy until 2022. As noted earlier, they were little more than marketing materials, often created by the marketing department. Feel good statements about helping the environment with little data to back it up. Standardization through regulation brings complexity and cost. Most estimates put the cost of creating a sustainability report under the SEC climate disclosure rule around $1 million initially plus high annual costs. Similar estimates exist in other jurisdictions.
That is the source of the push from the big accounting firms and associated providers. Sustainability reports is a financial boom for those industries, and those companies invested heavily gearing up for a demand driven my mandatory reporting. They are not quite ready to walk away from their investment. Therefore, they are pushing for voluntary reporting and creating a matching narrative.
I have read multiple surveys over the past few months that show companies are going to continue with voluntary reporting, even if mandatory reporting requirements go away. I don’t believe them. The surveys primarily ask the opinion of chief sustainability officers, whose entire career is based on sustainability reporting. Of course they say their company will continue to do the reports. In late 2024, similar surveys were circulate about diversity, equity and inclusion. Three months into 2025, DEI officers are finding themselves out of work. This is driven by a number of factors, including that companies engaging in DEI in the U.S. are facing discrimination investigations by Attorney General Pam Bondi and state level AGs. Sustainability reporting is facing another legal issue that may provide the same result.
In addition to the cost of producing sustainability reports, companies are now being challenged with lawsuits from both sides. Target was recently sued by Florida as a shareholder, stating that the company’s ESG and DEI policies reduced shareholder value. The evidence of this action includes Target’s ESG report.
In Canada, Lululemon is facing a civil investigation for greenwashing based on claims made in their sustainability report. Around the world, climate activists are bringing civil claims against companies for GHG emission data and environmental claims made in sustainability reports. Overzealous and impatient climate activists may have jumped the gun in filing these suits, warning companies of the legal dangers of sustainability reports.
The future of sustainability reporting is uncertain. There is a legitimate argument to be made that some companies should continue with voluntary reporting. Mandatory reporting may also face a revival. The EU has not officially stamped out the CSRD yet. State level reporting in the U.S. may get a renewed push. An outstanding opinion by the International Court of Justice on the Obligations of States in respect of Climate Change may find that countries are obligated to require climate related reporting to reduce GHG emissions. Regardless, sustainability reporting will most certainly face another rebrand. For now, expect a passionate debate.