The rapid evolution of environmental, social, and governance (ESG) regulations is reshaping the corporate disclosure landscape across the globe. With growing pressure from investors, consumers, and regulators, companies are increasingly required to provide transparent, consistent, and comparable ESG information. Central to this transformation are landmark regulatory initiatives in the European Union, the United States, and global standard-setting bodies, each contributing to a more integrated and accountable sustainability reporting environment.
EU's Corporate Sustainability Reporting Directive (CSRD)
The Corporate Sustainability Reporting Directive (CSRD), adopted by the European Union in 2022, marks a significant overhaul of the existing Non-Financial Reporting Directive (NFRD). The CSRD expands the scope of sustainability reporting to include nearly 50,000 companies, mandating detailed disclosures on environmental, social, and governance issues. Crucially, the directive requires companies to report according to the European Sustainability Reporting Standards (ESRS), developed by EFRAG (European Financial Reporting Advisory Group).
The CSRD introduces the concept of double materiality, compelling organizations to disclose not only how sustainability issues affect their financial performance, but also how their activities impact society and the environment. This dual lens ensures a more holistic view of corporate responsibility and risk. Furthermore, the directive mandates third-party assurance, enhancing the credibility and comparability of ESG disclosures across industries and regions.
Sustainable Finance Disclosure Regulation (SFDR)
Complementing the CSRD, the Sustainable Finance Disclosure Regulation (SFDR) targets financial market participants, including asset managers, pension funds, and insurance firms. Enforced since March 2021, the SFDR requires these entities to disclose how sustainability risks are integrated into their investment decision-making processes and the impact of those decisions on sustainability factors.
The SFDR classifies financial products into three categories: Article 6 (non-sustainable), Article 8 (promotes environmental/social characteristics), and Article 9 (sustainable investment as an objective). This framework aims to prevent greenwashing by ensuring clear, standardized sustainability information for investors, thereby promoting transparency and trust in the sustainable finance market.
U.S. SEC Proposed Climate-Related Disclosure Rules
In the United States, the Securities and Exchange Commission (SEC) proposed a landmark rule in 2022 requiring publicly listed companies to disclose climate-related risks, governance structures, and greenhouse gas (GHG) emissions. The proposal aligns with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), advocating for standardized climate reporting.
The rule, once adopted, would mandate the disclosure of Scope 1 and 2 GHG emissions, and Scope 3 emissions if deemed material or included in the company’s climate goals. This approach underscores the increasing regulatory emphasis on climate risk as a core financial consideration, pushing U.S. companies toward enhanced transparency and risk management.
IFRS Foundation's ISSB Standards: IFRS S1 and S2
The International Sustainability Standards Board (ISSB), established by the IFRS Foundation, introduced two pivotal standards: IFRS S1 and IFRS S2. IFRS S1 outlines general requirements for sustainability-related financial disclosures, while IFRS S2 focuses specifically on climate-related information, building upon the TCFD framework.
These standards aim to create a globally consistent and comparable sustainability reporting baseline. Companies adopting ISSB standards are expected to disclose material sustainability risks and opportunities that influence enterprise value, ensuring that investors receive decision-useful information. IFRS S1 and S2 are designed to be interoperable with jurisdiction-specific frameworks such as the EU’s ESRS, facilitating harmonization across markets.
Case Example: Adidas’ First CSRD-Compliant Sustainability Report (2024)
A notable early adopter of the CSRD framework, Adidas published its first CSRD-compliant sustainability report in 2024. The report demonstrates a comprehensive integration of the ESRS, highlighting both the financial materiality and environmental impact of its operations.
Key features of the report include:
- Full disclosure of Scope 1, 2, and 3 emissions across its supply chain
- Quantitative and qualitative analysis of biodiversity impacts from materials sourcing
- Governance structures for sustainability oversight and accountability
- Detailed breakdown of social metrics such as workforce diversity and community engagement
Adidas also underwent external assurance of its disclosures, reinforcing the reliability of its data. The report sets a benchmark for other multinationals transitioning to the CSRD framework, showcasing how rigorous reporting can enhance stakeholder engagement and strategic clarity.
Conclusion
The global shift toward standardized ESG disclosures represents a fundamental change in corporate transparency and accountability. The CSRD and SFDR are reshaping EU regulatory expectations, while the U.S. SEC and ISSB provide complementary frameworks aimed at global alignment. Companies that proactively embrace these standards not only comply with emerging regulations but also position themselves as leaders in sustainable business. As more corporations like Adidas adopt robust ESG reporting practices, the global market moves closer to a unified, transparent, and impact-driven sustainability ecosystem.
