The era of voluntary Environmental, Social, and Governance (ESG) disclosures is ending, with mandatory reporting requirements rapidly taking shape across the world’s largest economies. This shift is redefining corporate accountability, moving sustainability from a peripheral topic to a central element of financial reporting. Businesses globally must now prepare to disclose standardized, verifiable data on their environmental impacts, social practices, and governance structures. Understanding the timing and scope of these new mandates is paramount for companies.
The Global Regulatory Push for ESG Disclosure
The fundamental driver behind mandatory ESG reporting is the demand for consistent and comparable data from the financial sector. Institutional investors managing trillions of dollars require reliable metrics to assess long-term risks and allocate capital effectively. Without standardized disclosure, they find it nearly impossible to distinguish between companies making genuine progress and those engaging in greenwashing. Regulators are also focused on mitigating systemic climate risk, recognizing that the financial stability of the economy depends on companies’ ability to manage environmental and social challenges. Mandatory rules aim to elevate the quality of sustainability data to the same rigorous standard as financial data, complete with third-party assurance.
Mandatory Reporting in the European Union
The European Union has taken a pioneering role in this regulatory shift with the Corporate Sustainability Reporting Directive (CSRD). This legislation significantly broadens the scope of its predecessor, the Non-Financial Reporting Directive (NFRD), covering an estimated 50,000 companies operating in the EU. The CSRD mandates that companies integrate sustainability reports into their annual management reports, formally connecting the information to financial performance. A defining feature is “double materiality,” which requires companies to report on two distinct perspectives: the impact of sustainability issues on the company’s financial value (financial materiality) and the company’s impact on people and the environment (impact materiality).
Corporate Sustainability Reporting Directive Scope
The CSRD’s scope extends beyond EU-based entities to include a wide range of organizations with ties to the European market. It applies to all large EU companies and large parent companies of large groups, regardless of whether they are publicly traded or privately held. Listed small and medium-sized enterprises (SMEs) are also included, benefiting from phased and simplified requirements. A major extension includes non-EU companies that generate a net turnover exceeding €150 million in the EU and have at least one large subsidiary or branch. This extraterritorial reach requires thousands of global companies to comply, and the directive requires third-party assurance over the reported sustainability information.
European Sustainability Reporting Standards
Compliance with the CSRD is channeled through the European Sustainability Reporting Standards (ESRS). Developed by the European Financial Reporting Advisory Group (EFRAG), the ESRS provide the detailed, mandatory disclosure requirements for companies under the CSRD’s scope. The ESRS create a uniform framework for sustainability reporting across the EU, enhancing data comparability for stakeholders. They cover a broad spectrum of topics, including climate change mitigation, biodiversity, value chain workers, and business conduct. The detailed nature of the ESRS underscores the EU’s commitment to making sustainability reporting as rigorous and standardized as financial reporting.
Mandatory Reporting in the United States
The regulatory landscape in the United States features federal uncertainty alongside definitive state action. The Securities and Exchange Commission (SEC) adopted its final Climate Disclosure Rule in March 2024, requiring publicly traded companies to disclose material climate-related financial risks and their impacts on strategy. The SEC rule mandates disclosure of material Scope 1 (direct) and Scope 2 (indirect from purchased energy) greenhouse gas (GHG) emissions for Large Accelerated Filers and Accelerated Filers. The final rule eliminated the requirement for Scope 3 (value chain) emissions reporting. The entire rule is currently subject to a legal stay due to numerous court challenges, creating regulatory ambiguity.
In the absence of a fully implemented federal standard, state-level mandates are highly influential. California enacted two sweeping laws: the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261). SB 253 requires thousands of large public and private companies doing business in the state to disclose their full GHG emissions, including Scope 3. SB 261 requires covered companies to prepare biennial reports detailing their climate-related financial risks and mitigation measures. These state laws impose comprehensive and immediate reporting requirements affecting any major company operating within California.
Other Key International Requirements
Beyond the EU and US, the International Sustainability Standards Board (ISSB) is establishing a global baseline for disclosure. The ISSB, under the IFRS Foundation, issued its first two standards: IFRS S1 (General Requirements) and IFRS S2 (Climate-related Disclosures). These standards focus on providing investors with information to assess how sustainability risks and opportunities affect a company’s prospects and cash flows. The ISSB standards utilize a financial materiality approach, focusing on the impact of sustainability issues on the company’s value, which contrasts with the EU’s double materiality concept. Effective for reporting periods beginning on or after January 1, 2024, the standards have been endorsed by the International Organization of Securities Commissions (IOSCO), leading numerous jurisdictions to align their national requirements with the ISSB framework.
Phased Compliance Timelines
Mandatory reporting is organized around phased-in deadlines based on company size, filing status, and location.
European Union CSRD Timeline
The CSRD rollout is segmented into four waves, with reports due the year following the first fiscal year of application.
Large public interest entities (already under NFRD) began with the 2024 fiscal year, with reports due in 2025.
Other large EU companies (meeting two of three size criteria) comply for the 2025 fiscal year, with reports due in 2026.
Listed Small and Medium-sized Enterprises (SMEs) report on their 2026 fiscal year data in 2027.
Large non-EU companies with significant EU operations report on their 2028 fiscal year data in 2029.
United States Timelines
The SEC rule’s compliance is staggered by filer status, contingent on the outcome of legal challenges. Large Accelerated Filers (LAFs) are scheduled to begin reporting general climate disclosures for their 2025 fiscal year. Scope 1 and Scope 2 GHG emissions disclosures begin a year later, covering 2026 fiscal year data. Accelerated Filers (AFs) begin general disclosures for the 2026 fiscal year, followed by their Scope 1 and Scope 2 emissions reporting for the 2028 fiscal year. Limited assurance over GHG emissions is phased in starting in 2029 for LAFs and 2031 for AFs. California’s SB 253 mandates Scope 1 and 2 reporting for the 2025 calendar year in 2026, with Scope 3 reporting following in 2027.
Preparing for the Mandatory Reporting Era
The transition to mandatory reporting requires companies to establish robust internal infrastructure. A foundational step is conducting a double materiality assessment to pinpoint sustainability topics that are financially relevant and represent the company’s most significant external impacts. This assessment determines the scope of required disclosures under the CSRD and is valuable for all other frameworks. Companies must invest in technology and data governance systems capable of collecting, aggregating, and verifying granular information across the entire value chain, including Scope 3 emissions data. Since accuracy and reliability are now subject to third-party assurance, internal controls over sustainability data must be elevated to a level comparable to financial reporting controls.