Myth-busting Corporate climate disclosures: 10 misconceptions holding teams back

In 2024, the International Sustainability Standards Board (ISSB) standards became mandatory in over 20 jurisdictions, the European Union's Corporate Sustainability Reporting Directive (CSRD) entered force for large companies, and the SEC finalized its climate disclosure rules despite ongoing litigation. Despite—or perhaps because of—this regulatory acceleration, misconceptions about what climate disclosure requires continue to derail sustainability teams. A 2024 PwC survey found that 67% of companies subject to mandatory disclosure reported significant confusion about requirements, with Scope 3 emissions and transition plan disclosures generating the most uncertainty.

For founders and sustainability leads in emerging markets, these misconceptions carry particular weight. Global supply chain pressure increasingly flows disclosure requirements downstream to suppliers regardless of local regulatory obligations. Understanding what's actually required—versus what mythology suggests—determines whether disclosure efforts create value or merely consume resources.

Why It Matters

Climate disclosure has shifted from voluntary reputation management to mandatory financial reporting. The ISSB standards, backed by IOSCO endorsement, establish disclosure requirements that major capital markets are adopting. The European CSRD covers not only EU companies but non-EU companies with significant EU revenue. The SEC rules, while narrower, establish precedent that other regulators may follow.

The materiality of climate disclosure extends beyond compliance. A 2024 analysis by Sustainalytics found that companies in the top quartile for disclosure quality traded at 8-12% valuation premiums compared to peers with weaker disclosure, controlling for other ESG factors. Investors increasingly use disclosure quality as a proxy for management competence on transition risk.

For emerging market companies supplying global value chains, disclosure pressure arrives through customers rather than regulators. The CDP supply chain program now includes over 280 purchasing organizations requesting disclosure from 23,000+ suppliers. Scope 3 accounting requirements under ISSB and CSRD create direct pressure on suppliers to provide auditable emissions data.

Key Concepts

Myth 1: ISSB Standards Are Purely Voluntary

The Myth: The ISSB creates optional guidelines that companies can adopt or ignore based on stakeholder preferences.

The Reality: While the ISSB itself doesn't mandate anything, its standards have been adopted as mandatory requirements by the UK (effective 2025), Australia (effective 2025), Singapore (effective 2025), Hong Kong (effective 2025), and numerous other jurisdictions. By 2026, companies representing approximately 60% of global market capitalization will face mandatory ISSB-aligned disclosure requirements.

The "voluntary" perception stems from the standards' origins and the baseline approach allowing jurisdictional additions. However, for most large companies and their supply chains, ISSB standards are or will be mandatory within planning horizons.

Myth 2: Materiality Means Only Climate-Related Financial Risks

The Myth: Climate disclosure focuses exclusively on how climate affects the company—physical risks, transition risks, and their financial implications.

The Reality: The regulatory landscape now includes both "single materiality" (ISSB approach: climate impacts on the company) and "double materiality" (CSRD approach: company impacts on climate plus climate impacts on the company). Companies subject to CSRD must disclose both dimensions; companies in ISSB jurisdictions may face double materiality through other regulations.

The practical implication: even under single materiality, Scope 3 emissions are increasingly required because they represent material risk exposure (supply chain disruption, customer transition, regulatory change). The distinction between impact materiality and financial materiality matters less than companies hope when emissions across the value chain create risk exposure.

Myth 3: Transition Plans Are Aspirational Documents

The Myth: Climate transition plans describe desired future states without binding commitments or operational consequences.

The Reality: The UK Transition Plan Taskforce (TPT) framework, referenced by the UK FCA and expected to influence ISSB evolution, requires transition plans to include: specific actions with timelines, resource allocation, governance mechanisms, and accountability structures. The EU CSRD requires transition plan disclosure with sufficient specificity for third-party assessment.

More significantly, transition plans increasingly connect to financing. The Glasgow Financial Alliance for Net Zero (GFANZ) and Net-Zero Banking Alliance members have committed to assessing client transition plans in lending decisions. Companies with weak or missing transition plans face higher financing costs as financial institutions price transition risk.

Myth 4: Scope 3 Data Quality Issues Excuse Non-Disclosure

The Myth: Because Scope 3 data is inherently uncertain, regulators will accept limited disclosure or safe harbors that protect companies from liability.

The Reality: Both ISSB and CSRD require Scope 3 disclosure covering material categories, with expectations for data quality improvement over time. The SEC rules initially excluded Scope 3 but face pressure for inclusion in future revisions. Safe harbors typically cover forward-looking statements, not historical emissions reporting.

The 2024 ISSB implementation guidance explicitly states that data quality limitations do not excuse non-disclosure; instead, companies must disclose their estimation methodologies, data sources, and uncertainty ranges. Regulators expect continuous improvement: year-one estimates with wide uncertainty bands, narrowing over time as supplier data improves.

Myth 5: Third-Party Assurance Is Optional and Distant

The Myth: While assurance may become important eventually, companies have years before it's mandatory and can focus on disclosure mechanics first.

The Reality: CSRD requires limited assurance from 2024 and reasonable assurance from 2028 for large companies. The SEC rules require limited assurance for Scope 1 and 2 emissions starting in the second year of compliance. UK requirements anticipate assurance progression aligned with these timelines.

For emerging market suppliers, the timeline is faster. Major customers requiring supplier emissions data increasingly require third-party verification as a condition of the data's use in their own disclosures. The assurance requirement flows through supply chains before it flows through regulators.

Corporate Climate Disclosure KPIs

Metric	Baseline	Developing	Mature	Best Practice
Scope 1 & 2 data coverage	<80%	80-95%	95-99%	>99%
Scope 3 categories reported	<5	5-10	10-13	All material
Data refresh frequency	Annual	Quarterly	Monthly	Continuous
Third-party assurance level	None	Limited	Reasonable	Reasonable +
Transition plan maturity	Aspirational	Directional	Detailed	Verified
TCFD/ISSB alignment	Partial	Substantial	Full	Full + extras
Governance integration	Siloed	Coordinated	Integrated	Board-level

What's Working

Integrated Data Architecture

Unilever's sustainability data infrastructure, developed 2022-2024, integrates emissions accounting with financial ERP systems, enabling real-time carbon intensity calculations alongside traditional financial metrics. The integration achieved 94% automation of Scope 1 and 2 calculations and reduced reporting lag from 6 months to 3 weeks.

The key insight: treating sustainability data as an afterthought requiring manual reconciliation guarantees both poor quality and excessive cost. Companies investing in integrated data architecture from the outset achieve better accuracy at lower marginal cost.

Supplier Engagement Programs

Apple's Supplier Clean Energy Program, expanded through 2024, requires manufacturing partners to commit to 100% renewable energy for Apple production. By end of 2024, 320 suppliers had committed, covering 95% of direct manufacturing spend. Apple provides technical assistance, aggregated renewable procurement, and financing support to accelerate supplier transitions.

This approach works because it combines disclosure requirements with enabling support. Suppliers provide data not just for reporting but as part of a program that helps them improve. The engagement creates value for both parties rather than extracting compliance.

Scenario-Based Risk Quantification

Nestlé's climate risk disclosure, refined through 2024 reporting cycles, quantifies financial exposure under multiple climate scenarios with specific asset-level analysis. The 2024 disclosure identified CHF 3.2 billion in assets exposed to physical risk under 4°C scenarios and CHF 8.7 billion in transition risk under rapid decarbonization scenarios.

The quantification enables investor comparison and management accountability. When risks have numbers attached, they enter capital allocation decisions rather than remaining abstract concerns.

What's Not Working

Disclosure-First Without Operational Integration

Many companies have built disclosure capabilities separate from operational decision-making. Sustainability teams produce annual reports while business units proceed without emissions consideration. The 2024 Harvard Business Review analysis found that 72% of companies meeting disclosure requirements showed no correlation between emissions data and capital allocation decisions. Disclosure becomes theater when disconnected from operations.

Compliance-Oriented Transition Plans

Transition plans designed primarily to satisfy regulatory requirements often lack credibility with investors and stakeholders. The Climate Action 100+ 2024 assessment found that only 15% of focused companies had transition plans rated "adequate" on capital allocation alignment—despite 78% publishing plans. The gap reflects plans written for compliance rather than implementation.

Outsourced Accountability

Companies increasingly rely on consultants and software vendors to manage disclosure, creating distance between disclosure and management understanding. When questions arise from investors or auditors, internal expertise proves insufficient. The 2024 SEC comment letter analysis found that 45% of registrants required multiple rounds of revision, often because internal teams couldn't explain their own disclosures.

Key Players

Established Leaders

• MSCI — Leading ESG data provider with extensive corporate climate disclosure analytics
• Sustainalytics — Morningstar company providing ESG ratings and disclosure quality assessment
• CDP — Global disclosure system with supply chain program reaching 23,000+ suppliers
• S&P Global — Climate risk analytics and disclosure benchmarking services

Emerging Startups

• Persefoni — AI-powered carbon accounting platform for enterprise disclosure
• Watershed — Enterprise climate platform combining measurement with action
• Normative — Automated emissions calculation engine with audit-ready outputs
• Sweep — European-focused carbon and ESG data management platform

Key Investors & Funders

• Generation Investment Management — Sustainability-focused fund actively engaging on disclosure quality
• Impax Asset Management — Environmental investor using disclosure in security selection
• Climate Action 100+ — Investor coalition driving disclosure improvements at major emitters

Examples

1. Mahindra & Mahindra (India): This automotive and industrial conglomerate achieved ISSB-aligned disclosure in 2024, ahead of Indian regulatory requirements, by embedding carbon accounting in operational systems used for production planning. The integration reduced disclosure preparation time by 60% while improving data accuracy. Supply chain visibility extended to tier-2 suppliers covering 75% of embodied emissions. The proactive approach secured preferential terms from European automotive customers with Scope 3 commitments.

2. Safaricom (Kenya): The telecommunications company developed climate disclosure capability in 2023-2024 anticipating both London listing requirements and customer expectations. Despite operating in a jurisdiction without mandatory climate disclosure, Safaricom published TCFD-aligned reports with third-party assurance. The disclosure quality contributed to successful green bond issuance at 50 basis points below comparable conventional debt.

3. Gruma (Mexico): The world's largest tortilla manufacturer faced disclosure pressure through its global customer base requiring Scope 3 data. Rather than treating this as compliance burden, Gruma integrated emissions tracking with agricultural supply chain management, identifying that corn cultivation practices represented 68% of product carbon footprint. The data informed a supplier program that reduced emissions intensity 23% over three years while improving supply chain resilience—benefits that exceeded compliance costs.

Action Checklist

• Map applicable disclosure requirements across all operating jurisdictions
• Assess customer and investor disclosure expectations beyond regulatory minimums
• Integrate emissions data collection with financial and operational systems
• Develop Scope 3 measurement capability covering material categories
• Establish data governance with audit-ready documentation
• Build internal capacity for disclosure explanation and defense
• Create transition plan with specific actions, timelines, and resource allocation
• Plan assurance pathway aligned with regulatory and stakeholder requirements

FAQ

Q: How should emerging market companies prioritize disclosure when local regulations lag global standards? A: Prioritize based on stakeholder exposure rather than local regulation. If you export to EU markets, supply global companies, or access international capital, those stakeholders' requirements define your timeline regardless of local mandates. Many emerging market leaders find that voluntary ISSB alignment ahead of local requirements creates competitive advantage in accessing global markets and capital.

Q: What's the real cost of comprehensive climate disclosure? A: Costs vary dramatically based on approach. Companies treating disclosure as an annual project requiring consultant engagement typically spend 0.05-0.15% of revenue. Companies investing in integrated systems with automated data collection reduce marginal cost by 60-80% after initial implementation, though implementation itself may require 18-24 months and significant capital. The investment case depends on whether disclosure is seen as one-time compliance or ongoing capability.

Q: How do we handle Scope 3 data when suppliers won't share information? A: Start with industry-average emission factors for non-responsive suppliers while building engagement programs. Document your methodology and improvement plans. Prioritize engagement with high-impact suppliers representing disproportionate emissions share. Regulators and auditors expect continuous improvement, not immediate perfection. Consider whether procurement leverage (spending reallocation) or assistance programs (technical support, financing) are more effective for your supplier base.

Q: What constitutes an adequate transition plan? A: Based on TPT guidance and investor expectations: specific emission reduction targets with interim milestones, identified actions to achieve targets, capital allocation aligned with stated strategy, governance mechanisms for accountability, and contingency approaches if initial actions underperform. Plans should be credible (achievable with known technologies and business models), comprehensive (covering material emissions sources), and connected to incentives (management compensation linked to delivery).

Q: How do we prepare for assurance requirements? A: Treat assurance preparation as parallel workstream to disclosure development. Document data sources, estimation methodologies, control procedures, and reconciliation processes. Establish internal review procedures that mirror assurance testing. Engage potential assurance providers early for readiness assessments. Build relationships with assurance firms before mandatory timelines—capacity constraints mean early engagement secures preferred providers.

Sources

• PwC, "Global ISSB Readiness Survey 2024," October 2024
• Sustainalytics, "ESG Disclosure Quality and Valuation Premiums," June 2024
• ISSB, "IFRS S1 and S2 Implementation Guidance," 2024
• CDP, "Supply Chain Report 2024," November 2024
• UK Transition Plan Taskforce, "Disclosure Framework," 2024
• Climate Action 100+, "Net Zero Company Benchmark 2024," March 2024
• SEC, "Final Rule: The Enhancement and Standardization of Climate-Related Disclosures," 2024
• Harvard Business Review, "The Gap Between Climate Disclosure and Climate Action," August 2024