By Steven Cohen, Ph.D., Director of the M.S. in Sustainability Management program, School of Professional Studies
There is little question that the Security and Exchange Commission’s (SEC’s) carbon disclosure rules, now delayed, will be killed by the incoming Trump Administration. That does not mean that corporate sustainability reporting will die, quite the contrary. California and the European Union will move ahead with their reporting requirements, and while practical considerations are delaying these rules, they are coming, and for good reason. Sustainability metrics are required in order to understand how corporations are addressing the environmental risks present in a warmer and more resource-strained world. Information on these risks is being demanded by investors, and companies are struggling to develop and implement measures of sustainability performance. This is not “woke” management but a response to the financial impact of environmental risk.
By withdrawing the SEC carbon disclosure rules, the U.S. federal government is ceding the definition of sustainability metrics to foreign and state-level players. Having the European Union and the state of California define sustainability leaves American corporations with little influence on the definition of these measures or on the specifics of reporting requirements. The good news is that regulators in California and Europe live in the real world and are adjusting their expectations to the demands of practicality. Recently, in the Wall Street Journal, H. Claire Brown reported that:
“The California regulator responsible for overseeing a landmark carbon-emissions disclosure law said it won’t enforce its regulations in the first reporting year, provided companies can prove they’re trying to comply. In a release dated Dec. 5, the California Air Resources Board said it will not punish companies that submit incomplete reports for 2026 as long as they make a “good faith effort” to comply with the law. It said companies might need more time to put data-collection processes in place, and therefore could report emissions data based on what a company already has in hand or is collecting… The California climate-disclosure rules are expected to cover at least 75% of Fortune 1000 companies, according to an analysis of the watchdog group Public Citizen. If the rules take effect as planned, they could become the de facto standard for U.S. companies… The California fight over when the rules should come into force echoes similar debates in the European Union, which recently proposed a one-year delay of a rule that would require companies to ensure their supply chains don’t contribute to deforestation. The rule was first scheduled to take effect Dec. 30. Corporations subject to emissions-disclosure rules in Europe will have to report their emissions starting next year, and some U.S. companies doing business there will soon be required to comply.”
One of the reasons that governments have been working on environmental disclosure rules and metrics is that the vacuum in sustainability metrics and reporting is being filled by a variety of nongovernmental organizations that have designed sustainability metrics and reports and then charge corporations for judging their sustainability. There has been a sustained effort to create a single global sustainability measure, as evidenced by the evolution of the Sustainability Accounting Standards Board (SASB) measures into the more global measures under development by the International Sustainability Standards Board. According to the SASB website:
“The IFRS Sustainability Disclosure Standards issued by the International Sustainability Standards Board (ISSB) (also referred to as the ISSB Standards) form the global baseline for sustainability-related disclosures and build upon the SASB Standards…. Through IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, the ISSB requires companies to consider the SASB Standards, in the absence of specific IFRS Sustainability Disclosure Standards, to identify sustainability-related risks, opportunities and related information to disclose. The SASB Standards are used in over 3,200 companies in more than 80 jurisdictions around the world, including 75% of the S&P Global 1200 Index, because industry-based sustainability disclosures are cost-efficient for companies and decision-useful for investors. Businesses worldwide use SASB Standards to better identify, manage and communicate the material information about sustainability-related risks and opportunities they face.”
The effort to create a single global system of sustainability metrics and reporting, while laudable, fails to acknowledge the critical importance of national sovereignty in establishing a reporting system with sanctions for deceptive or incomplete information. The problem with these NGO-developed sustainability measures is that, unlike generally accepted financial accounting principles, they are not defined and enforced by a government agency with the ability to impose sanctions. The SEC defines financial terms and regulates corporate financial reporting and the firms that audit publicly traded corporations. Publicly traded companies pay attention to the SEC because the Commission controls and influences access to capital markets. In contrast, these NGOs generate revenues from corporations and idealistic donors and have no way of ensuring that corporate sustainability reports are based in fact.
Despite these issues, the need for generally accepted sustainability metrics remains. Since the United States is allowing anti-regulatory ideology to dominate decision-making, the result will be a multiplicity of distinct reporting requirements defined and enforced by foreign and state-level regulators. That will increase the cost of compliance due to the varied definitions of sustainability required by different jurisdictions. Many American corporations are familiar with this type of regulatory diversity since they already face different rules, building standards, and tax systems in every place they do business. Businesses may not like needing to deal with multiple local rules, but they hire local lawyers to help them navigate these issues, and it is an accepted cost of doing business.
The conservative position on SEC-mandated sustainability reporting is that such reports are outside the scope of the SEC’s authority. They see no connection between environmental risk and financial risk. These critics seem to be ignoring the fact that the SEC also regulates corporate board conflicts of interest, which one could argue are also not directly related to corporate financial risk. Corruption or self-dealing in a large company might well be too isolated and small to impact overall financial results. Nevertheless, corruption is an indication of unsound management, as is unmanaged environmental risk. There are many small and large examples of corporate environmental damage and inadequate management of environmental risk impacting the bottom line. Volkswagen’s deceptive air monitoring software, GE’s dumping of PCBs in the Hudson River, BP’s massive oil spill in the Gulf of Mexico, and Norfolk Sothern’s toxic derailment in East Palestine, Ohio, are all examples of high-profile, multi-billion-dollar sustainability mismanagement.
These risks are growing because, despite the efforts to curb globalization, cross-national supply chains persist because they improve the quality and price of goods and services. Well-managed companies will find a way around efforts to disrupt global supply chains. The growing number of economic interactions and shipping transport coupled with extreme weather events increases the probability of damage and costs incurred due to environmental conditions. These risks must be understood and managed in a well-run organization. That means we need measures of corporate sustainability. In the long run, these must be designed, managed, and enforced by government.
Globalization has certainly had negative impacts on some communities and workers, and public policy is needed to address those impacts. But the modern high-tech economy has had a positive impact on quality of life globally. As George Will recently observed in a brilliant piece on the value of automation and global free trade:
“Containerization (and bar codes…) facilitated the globalization of commerce that reduced, from about 50 percent in 1975 to less than 10 percent today, the portion of humanity living in what the World Bank calls extreme poverty (on $2.15 per day, adjusted for inflation).”
While I’m not certain that Will would agree, the complexity of this global economy and the sheer volume of interactions requires increasingly sophisticated management, additional measures of transactions and impacts, and, in my view, government-mandated sustainability metrics. Investors agree, and it is their demands that ensure that environmental risks will be integrated into management practice and reporting.
Views and opinions expressed here are those of the authors, and do not necessarily reflect the official position of Columbia School of Professional Studies or Columbia University.
About the Program
The Columbia University M.S. in Sustainability Management program offered by the School of Professional Studies in partnership with the Climate School provides students cutting-edge policy and management tools they can use to help public and private organizations and governments address environmental impacts and risks, pollution control, and remediation to achieve sustainability. The program is customized for working professionals and is offered as both a full- and part-time course of study.
