3 Emerging Sustainability (ESG) Regulatory Trends for 2024

Whether you are a publicly traded company, privately held, or even a small company that’s part of a multinational company’s supply chain, you are now feeling pressure from regulators, investors, retailers, customers, and employees to demonstrate your commitment to sustainability. Sustainability, also now commonly referred to as Environmental, Social & Governance (ESG) by investors, is another way of saying that in addition to your financial accounting, you are now also responsible for accounting for your company’s impact on the environment, as well as your company’s impact on its employees and community. And guess what? That pressure is going to continue to build in 2024 and beyond, but here’s my take on some emerging (pun intended) sustainability regulatory trends for 2024.

Regulatory Trends: Inflation Reduction Act, California emissions disclsosures vs. SEC, and FTC Green Guides

Inflation Reduction Act

There are a few changes to the Inflation Reduction Act taking place in 2024 related to the transition from Investment Tax Credit (ITC) and Production Tax Credit (PTC) transition to tech neutral. According to this Greenbiz.com article, “Through 2024, the structure for the ITC and PTC will remain the same. Businesses can use technologies such as solar arrays, wind turbines, energy storage and microgrid controllers, and they will continue to qualify for either the ITC or PTC credit. But beginning in 2025, “tech neutral” means that it will no longer matter which technology companies use to generate renewable energy — only the energy generation emits no greenhouse gases.” In short, this is a small change, but I think it’s good to recognize the need to transition to any energy generation that emits no GHG emissions. There article goes on to discuss changes related to Sustainable Aviation Fuel and Hydrogen.

California emissions disclosures vs. SEC

There are also some notable changes related to climate disclosures in California’s Climate Corporate Data Accountability Act (SB 253) and Climate-Related Financial Risk Act (SB 261) will require a structural shift, according to Greenbiz.com. The changes?

SB 253: Applies to companies with $1B or more in annual revenues, and they will have to report Scope 1 & 2 GHG emissions beginning in 2026 (for 2025 emissions), and Scope 1, 2 & 3 emission in 2027 (for 2026 emissions).

SB 261: Applies to companies with $500M or more in annual revenues, “to disclose financial risks associated with climate change, and how they plan to address them, biannually.”

The Securities and Exchange Commission (SEC) will be making its official ruling on its own emissions disclosure requirements in April 2024. Also according to Greenbiz.com, “the SEC proposal, similar to its California counterpart, would require companies to report Scope 1 and Scope 2 emissions. But where SB 253 will require Scope 3 disclosure by 2027, the SEC’s proposal only requires disclosure by companies with stated Scope 3 emissions reductions goals.”

The major difference between California emissions disclosures vs. SEC is that SB 253 and 261 applies to both public and private companies and the SEC is publicly traded companies only.

FTC Green Guides Update

The Federal Trade Commission’s (FTC) Green Guides, which provide recommendations and standards for businesses regarding the use of environmental marketing claims, often referred to as “green” or “eco-friendly” claims. The purpose of the Green Guides is to prevent deceptive or misleading advertising practices in the context of environmental claims.

The FTC Green Guides outline general principles that businesses should follow when making environmental claims in their marketing materials, including labels, advertisements, and promotional statements. The guides offer specific guidance on the following topics: general environmental benefit claims; carbon offsets; certifications and seals of approval; compostable; degradable; free-of; non-toxic; ozone-safe and ozone-friendly; recyclable; recycled content; refillable; made with renewable energy; made with renewable materials; and source reduction. Here’s a Summary of the 2012 FTC Green Guides.

In December 2022, the FTC announced a public comment period for updating the Green Guides, which were last updated in 2012. Since the public comment period opened, over 1,400 comments have been collected and according to The Change Climate Project, the top concerns from commentors are:

1. Deceptive Green Marketing Claims Hurt Everyone – Companies that make unsubstantiated or exaggerated claims in their marketing mislead consumers, making it difficult to make informed decisions about products and services. Over time, this erodes trust not only in the brand making the false claims but also the actions of companies making genuine progress on climate, as consumers become skeptical of all environmental assertions. Comments submitted by the nonprofit Truth in Advertising, Inc. suggest that greenwashing is pervasive across multiple industries and sectors. 
2. Consumer-Facing Labels Can Help, But Don’t Always – Ecolabels are a commonly used tool to market environmental practices. They can be effective at standardizing claims, and making them more reliable and transparent. But companies sometimes get overly “creative” with their use of generic and unregulated terms, and use them in a way that imitates more rigorous and independently verified consumer-facing labels. This makes it difficult for consumers to differentiate genuine claims and efforts from less rigorous ones. 
3. Carbon Credits Can Help, But Don’t Always – The rise in corporate demand for carbon offsets has led to a plethora of carbon credit project types, such as manufacturing efficiency, regenerative agriculture, planting trees, and directly capturing emissions from the air using purpose-built machines. Some carbon credits work, while others don’t result in real and permanent emissions reductions that wouldn’t have happened otherwise. 

Stay tuned as we will provide an update sometime in 2024 for when the new rules for the FTC Green Guides will take effect.

Conclusion

The bottom line is that our climate is changing, and everyone is taking notice, so a logical step is to start asking businesses to measure their carbon footprint because we can’t manage what we don’t measure, and companies should be taking full advantage of the opportunities within the Inflation Reduction Act, because there are some excellent tax incentives that can also help your company reduce costs in the long-term while simultaneously reducing your company’s carbon footprint.

In my opinion, measuring a company’s Scope 1, 2 and 3 GHG emissions will be common accounting practice by 2030 no matter the size of your business, so it makes sense for businesses to begin measuring their Scope 1, 2 and 3 emissions as soon as possible, and it just so happens that going through this process will also illuminate inefficiencies and lead to cost savings.

Next, you will likely see an increasing number of shady “green” marketing claims as pressures from regulators and customers grows, so my recommendation is to watch for updates to the FTC Green Guides, and in the meantime, ensure your company is covering itself by obtaining third-party certifications like Climate Neutral Certified.

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