Deep Dive: Regulation Watch (EU/US/Global) — Metrics That Matter and How to Measure Them

As climate disclosure transitions from voluntary to mandatory, the metrics companies report are increasingly prescribed by regulation rather than selected by management. This shift creates both challenges—new measurement burdens, verification requirements, and liability exposure—and opportunities, as standardized metrics enable meaningful comparison and drive genuine performance improvement. This analysis identifies the metrics that matter most across major regulatory frameworks, provides practical measurement guidance, and draws lessons from leading company implementations.

Why This Matters

The era of bespoke sustainability metrics is ending. Regulators in the EU, UK, and US have converged on increasingly specific requirements for what companies must measure and disclose. The EU's Corporate Sustainability Reporting Directive (CSRD) alone specifies over 1,100 data points across environmental, social, and governance topics. The SEC's climate disclosure rules, despite court challenges, signal regulatory intent toward mandatory Scope 1, 2, and 3 emissions disclosure. The UK's Transition Plan Taskforce framework requires specific transition plan elements including metrics and targets.

For investors, understanding which metrics regulations require enables more informed engagement with portfolio companies. Research by the Transition Pathway Initiative shows that companies with robust climate metrics—particularly those aligned with regulatory requirements—demonstrate 1.5x faster emissions reduction rates than peers with weaker measurement.

For corporate sustainability leaders, the metrics burden is substantial but manageable. Leading companies have developed scalable measurement approaches that satisfy multiple regulatory frameworks simultaneously. Their lessons provide practical guidance for others beginning the compliance journey.

The financial implications are material. Companies that cannot provide required metrics face regulatory penalties, but more significantly, they risk exclusion from capital markets where climate disclosure is mandatory and from supply chains where customers require supplier climate data.

The Core Metrics: What Regulators Require

Greenhouse Gas Emissions (Scopes 1, 2, and 3)

The foundational metric across all climate regulations is greenhouse gas emissions quantified according to the GHG Protocol. Requirements include:

Scope 1 (Direct emissions): Emissions from owned or controlled sources, including stationary combustion, mobile combustion, process emissions, and fugitive emissions. Measurement methodologies are well-established; the primary challenge is comprehensive boundary definition and data collection.

Scope 2 (Indirect emissions from purchased energy): Emissions from purchased electricity, steam, heating, and cooling. Dual reporting (location-based and market-based) is increasingly required. The market-based method enables companies to demonstrate impact of renewable energy procurement; location-based provides grid average baseline.

Scope 3 (Value chain emissions): Emissions across 15 categories covering upstream (purchased goods, capital goods, transportation, waste) and downstream (product use, end-of-life, investments) activities. This is where measurement complexity escalates dramatically.

Regulatory specifics:

• EU CSRD: Requires Scope 1, 2, and 3 with specific category-level disclosure
• SEC Rules: Scope 1 and 2 mandatory; Scope 3 if material or if company has set Scope 3 target
• ISSB S2: Scope 1, 2, and 3 required, with transition relief for Scope 3

Emissions Intensity Metrics

Absolute emissions tell only part of the story. Regulators increasingly require intensity metrics—emissions per unit of output or revenue—to enable comparison across companies of different sizes and to track decoupling of emissions from growth.

Common intensity denominators include:

• Revenue: Tonnes CO2e per million dollars/euros of revenue
• Production: Tonnes CO2e per unit of product (cement per tonne, steel per tonne, electricity per MWh)
• Headcount: Tonnes CO2e per employee (primarily for service businesses)

The EU CBAM requires product-level carbon intensity data for covered goods—a significantly more granular requirement than corporate-level metrics. Exporters must provide embedded emissions per unit of product, verified according to EU-specified methodologies.

Climate-Related Financial Metrics

Beyond emissions, regulations increasingly require disclosure of climate-related financial impacts:

Transition risk exposure: The EU CSRD requires disclosure of revenue, capex, and opex associated with Taxonomy-eligible and Taxonomy-aligned activities. This forces companies to quantify the portion of their business compatible with EU climate objectives.

Physical risk exposure: Both CSRD and ISSB require disclosure of assets and business activities exposed to physical climate risks (acute risks like extreme weather; chronic risks like sea level rise, water stress).

Climate-related capex: Disclosure of capital expenditure directed toward climate mitigation or adaptation, often expressed as a percentage of total capex.

Internal carbon price: If the company uses an internal carbon price for investment decisions, disclosure of the price level and scope of application is required.

Transition Plan Metrics

The UK Transition Plan Taskforce framework, CSRD, and ISSB converge on requiring specific transition plan elements with associated metrics:

Short, medium, and long-term targets: Absolute and intensity targets with clear timelines (typically 2025, 2030, 2050 milestones)

Capital allocation: Capex and R&D investment aligned with transition plan pathways

Action milestones: Specific operational changes, technology deployments, or supply chain engagement activities with timelines and progress indicators

Governance metrics: Board oversight of climate issues, executive remuneration linked to climate performance

How to Measure: Practical Guidance

Scope 1 and 2: The Manageable Challenge

Scope 1 and 2 measurement is well-established with mature methodologies. Key practical considerations:

Data sources: Utility bills, fuel purchase records, and meter readings provide the foundation. For large organizations, automated data collection from building management systems and ERP integration reduces manual effort.

Emission factors: Apply appropriate emission factors from recognized sources (IPCC, national inventories, utility-specific factors for Scope 2 market-based). Keep emission factor databases updated annually.

Boundary definition: Apply consistent organizational boundaries (operational control, financial control, or equity share approach) and document boundary clearly. Changes in boundary (acquisitions, divestitures) must be treated transparently.

Verification: External verification of Scope 1 and 2 is increasingly required. Design measurement systems with verification in mind—maintain audit trails, document calculation methodologies, and retain source data.

Lessons from Unilever's implementation: Unilever developed a centralized emissions data platform integrating data from over 300 manufacturing sites and 1,500 distribution centers. The platform automates data collection from utility providers and includes built-in quality controls flagging anomalous readings. Development cost was approximately $2 million with annual operating costs of $500,000, but enabled consistent, verifiable data across the global organization.

Scope 3: The Measurement Frontier

Scope 3 measurement remains the primary challenge for most organizations. Practical approaches include:

Materiality screening: Not all 15 Scope 3 categories are material for every company. Conduct screening using spend-based estimates to identify the 3-5 categories representing the majority of Scope 3 emissions. Focus measurement improvement efforts on material categories.

Hybrid methodologies: Pure spend-based methods (emissions per dollar spent) are widely available but imprecise. Activity-based methods (emissions per unit of product or service) are more accurate but data-intensive. Most companies use hybrid approaches—activity data for major suppliers and spend-based estimates for the long tail.

Supplier data collection: For material categories, primary data from suppliers significantly improves accuracy. Use standardized data request frameworks (CDP Supply Chain) to reduce supplier burden and improve response rates. Expect 60-80% response rates from major suppliers with sustained engagement.

Product lifecycle assessment (LCA): For product-intensive businesses, LCA provides the most rigorous Scope 3 accounting. Develop LCA models for representative products and scale across the portfolio. Software tools (GaBi, SimaPro, OpenLCA) enable efficient LCA at scale.

Lessons from Nestlé's approach: Nestlé's Scope 3 program covers over 500,000 suppliers and applies a tiered approach:

• Tier 1 (top 200 suppliers, ~40% of emissions): Full primary data collection and verification
• Tier 2 (next 2,000 suppliers, ~35% of emissions): Standardized surveys with selective verification
• Tier 3 (remaining suppliers, ~25% of emissions): Spend-based estimates with periodic validation

The approach achieved 75% primary data coverage for material categories within three years.

Financed Emissions: The Financial Sector Challenge

For financial institutions, financed emissions—the emissions associated with lending and investment portfolios—represent the dominant Scope 3 category. The Partnership for Carbon Accounting Financials (PCAF) provides the standard methodology.

Key measurement considerations:

Attribution approach: PCAF specifies attribution factors based on relationship type (loans use outstanding amount / enterprise value; equity uses ownership share)

Data hierarchy: PCAF establishes data quality scores from 1 (verified company-reported emissions) to 5 (sector averages). Most financial institutions begin with predominantly Score 4-5 data and progressively improve.

Asset class coverage: Different methodologies apply to different asset classes (corporate bonds/loans, mortgages, commercial real estate, motor vehicle loans). Prioritize asset classes by exposure and emissions intensity.

Lessons from Barclays implementation: Barclays developed its financed emissions methodology covering £250 billion in lending exposure. Key lessons:

• Start with the energy sector (highest emissions, best data availability) before expanding coverage
• Build relationships with data providers specializing in private company emissions estimates
• Engage portfolio companies to improve primary data availability over time
• Report data quality scores alongside financed emissions to provide context for uncertainty

Integration and Efficiency: One System, Multiple Outputs

Leading companies have developed integrated data architectures that serve multiple regulatory requirements from common data sources. Key design principles:

Common data layer: Build a single source of truth for emissions and climate-related data, independent of specific reporting framework requirements. Map data elements to multiple framework requirements rather than building separate systems for each.

Modular reporting: Develop reporting templates that pull from the common data layer and apply framework-specific formatting, aggregation, and disclosure requirements. This enables efficient multi-framework reporting without data duplication.

Workflow automation: Automate data collection, calculation, and quality control workflows to reduce manual effort and error rates. Manual processes appropriate for early-stage programs become bottlenecks at scale.

Audit-ready architecture: Design with external assurance in mind from the start. Maintain clear audit trails, document calculation methodologies, and implement internal controls over sustainability data.

Real-World Examples

1. Schneider Electric's Double Materiality Assessment

Schneider Electric developed a comprehensive approach to the EU CSRD's double materiality requirement—assessing both the impact of climate on the business and the business's impact on climate. The assessment:

• Engaged 200+ internal stakeholders across business units and functions
• Mapped climate-related impacts, risks, and opportunities against CSRD's specific topic requirements
• Quantified financial exposures where possible, linking materiality findings to transition plan development
• Established ongoing monitoring of materiality indicators with annual reassessment

The resulting disclosure provides investors with clear visibility into which climate topics are material and why—a model for CSRD compliance.

2. Ørsted's Transition Metrics Dashboard

Danish energy company Ørsted developed a public transition metrics dashboard tracking progress against its transformation from fossil fuels to renewable energy. Metrics include:

• Green share of generation: Percentage of electricity generation from renewable sources (95% in 2024)
• Emissions intensity: g CO2e per kWh generated (declining from 400+ to under 30 over 15 years)
• Capex allocation: Percentage of capital expenditure directed to renewable energy (100% from 2025)
• Science-based target progress: Annual progress against verified SBTi targets

The dashboard demonstrates that transition plans can be tracked with quantitative metrics and provides a model for TPT-aligned disclosure.

3. Tesco's Scope 3 Supplier Measurement

UK retailer Tesco faced the challenge of measuring Scope 3 emissions across a supply chain of over 10,000 suppliers. The approach:

• Developed a supplier data platform integrating with CDP Supply Chain
• Tiered suppliers by emissions contribution and engagement priority
• Provided measurement training and tools for suppliers lacking capability
• Linked supplier sustainability performance to commercial terms

Results after three years: 85% response rate from priority suppliers, 40% improvement in data quality scores, and verified emissions reductions of 15% among engaged suppliers.

Action Checklist

• Map current metrics against requirements of applicable regulations (CSRD, SEC, ISSB, TPT)
• Conduct Scope 3 materiality screening to identify priority categories for measurement improvement
• Develop integrated data architecture serving multiple regulatory frameworks
• Implement standardized supplier data collection for material Scope 3 categories
• Establish internal controls and audit trails for climate-related data
• Develop transition plan metrics aligned with TPT or CSRD requirements
• Build verification readiness into measurement systems from the start

Frequently Asked Questions

Q: How precise does Scope 3 measurement need to be for regulatory compliance?

A: Regulations acknowledge Scope 3 measurement challenges and generally require "reasonable" estimates rather than perfect precision. However, disclosure must include methodology, assumptions, and data quality indicators. Companies should improve data quality over time, and regulators will increasingly scrutinize companies showing no improvement. Aim for primary data coverage of 50%+ for material categories within 3 years.

Q: Do we need different metrics for different regulatory frameworks?

A: While frameworks use somewhat different terminology and formatting, the underlying data requirements substantially overlap. Build common data infrastructure and mapping to multiple frameworks. The core GHG Protocol emissions data, for example, serves CSRD, SEC, ISSB, and most other frameworks with relatively minor adjustments.

Q: How should we handle uncertainty and data gaps in disclosures?

A: Transparency about uncertainty is better than false precision. Disclose data quality levels (PCAF scores or similar), methodologies used, and known limitations. Where gaps exist, explain plans for improvement. Regulators and investors expect imperfect data in early years; they will scrutinize companies that claim perfect data or show no improvement over time.

Q: What level of assurance is required, and when?

A: CSRD requires limited assurance initially, moving to reasonable assurance over time. SEC rules require attestation by 2033. ISSB leaves assurance to jurisdiction. Begin with limited assurance (less costly, narrower scope) and build toward reasonable assurance readiness. Design systems and controls to support assurance from the start—retrofitting is expensive.

Sources

• European Financial Reporting Advisory Group. (2023). ESRS Implementation Guidance. Available at: https://www.efrag.org/
• U.S. Securities and Exchange Commission. (2024). The Enhancement and Standardization of Climate-Related Disclosures. SEC Final Rule.
• ISSB. (2023). IFRS S2 Climate-related Disclosures. IFRS Foundation.
• UK Transition Plan Taskforce. (2023). Disclosure Framework and Implementation Guidance. Available at: https://transitiontaskforce.net/
• GHG Protocol. (2023). Corporate Value Chain (Scope 3) Standard. World Resources Institute.
• Partnership for Carbon Accounting Financials. (2024). PCAF Standard: Financed Emissions, 3rd Edition. Available at: https://carbonaccountingfinancials.com/
• CDP. (2024). Technical Guidance for CDP Disclosure. Available at: https://www.cdp.net/
• Deloitte. (2024). CSRD Implementation Survey. Deloitte Europe.