Explained byBCG

Deep dive: Understand current and upcoming regulations, policies, and initiatives

How the world is organizing for climate action, and how global action impacts your organization

Many global organizations and local/national governments around the world are mobilizing to address climate action. Some types of actions, such as international and domestic policy targets, serve as broad goals to help align legislation and regulation, while others, such as climate policies, drive regional climate action, and still others, such as reporting standards and frameworks for corporate action, serve as guidance for voluntary action, and/or are often adopted by governments and markets over time as corporate requirements.

Frameworks and Standards

Voluntary frameworks and standards on climate information reporting and Net Zero ambition-setting have provided the basis for climate regulatory and policy action. These frameworks and standards are particularly important because of their global reach and adoption by corporations and financial institutions. For example, over 5,000 companies have set targets aligned with guidelines from the Science Based Targets initiative (SBTi), and over 4,000 companies have supported the Task Force on Climate-Related Financial Disclosures (TCFD) framework for financial reporting affected by climate, which will be absorbed into the International Sustainability Standards Board (ISSB) in 2024 (1).

Many climate disclosure regulations have been developed with reference to these voluntary frameworks (e.g., the US SEC proposal on climate disclosures, which closely follows TCFD recommendations). Voluntary frameworks, including TCFD, have served as the bases for the development of universal reporting standards, such as the ISSB IFRS S2, which are designed by regulatory professionals for adoption by regulating bodies. Voluntary frameworks and standards can thus become part of the regulatory fabric in which your organization may likely operate.

Policy targets, policies, and regulations

More and more countries have committed to achieving Net Zero, with over 89% of the world’s population covered by the 150 countries that have endorsed or proposed a Net Zero target (August 2023) (2). As more countries strategize to meet their pledges, regulatory and policy action will likely intensify around the globe.

A brief overview of selected regulations and initiatives

Below is a summary of the various categories of climate action followed by brief overviews of selected initiatives and regulations of global importance:



Selected key initiatives

International & domestic policy targets

• High-level policy that informs ambition

• Why it matters: typically indicates direction, focus, and rigor of future policies and regulations

• Paris Agreement

• National net-zero ambitions (e.g., European climate law)

Climate policies

• Policy passed by governmental bodies that may comprise a combination of requirements, alternatives, and/or incentives for a green transition via subsidies, etc. (Climate policies are often supported by regulations to operationalize policy intent)

• Why it matters: climate policy often directly impacts costs and profitability of climate action




• EU ETS (not covered in detail)


• Binding requirements (e.g., applying to companies) passed by governmental bodies

• Why it matters: regulations might increase cost of inaction, require certain actions, or ban other actions

• US SEC (proposed)

• EU Corporate Sustainability Reporting Directive (CSRD)

• EU Taxonomy

• Japan Financial Services Agency. Several other large capital markets are implementing new requirements for climate-related financial disclosure such as the UK, Singapore and Hong Kong (not covered in detail).

• Other ISSB-based reporting regulations (Hong Kong, Singapore, United Kingdom)

Reporting standards

• Standards are “official,” often adopted by markets, and can be adopted by regulators

• Why it matters: impose further disclosure requirements on companies when adopted by regulators


• ESRS (for companies subject to the CSRD, ~50,000 companies, including about 10,000 non-EU companies)

• GHG Protocol

Frameworks for corporate action (including financial institutions)

• Reporting frameworks (all voluntary)

• Why it matters: provides guidelines and sometimes best practices, which often influence market perception of corporate actions

• SBTi




Below follows a brief list of selected, important initiatives in each of the above categories:

Title (year finalized)


International & domestic policy targets

International Paris Agreement (2015)

• Overarching global ambition to “limit the increase in the global average temperature to well below 2°C above pre-industrial levels”

• But also, to pursue best efforts “to limit the temperature increase to 1.5°C above pre-industrial levels”

• Signed by 194 jurisdictions and EU

European Climate Law (2021)

• Legally binding commitment for Europe’s economy and society to become climate-neutral by 2050

• Target to cut GHG emissions by at least 55% by 2030 under Fit for 55

Climate policies

United States of America: Infrastructure Investment and Jobs Act (IIJA) and Inflation Reduction Act (IRA) (2021 and 2022)

Combined, these acts designate $479B of public funding for climate and sustainable energy projects, including:

• Clean power generation: Solar, wind, nuclear, and storage

• Power grid: Interconnection, grid resilience, and energy efficiency

• New energies and carbon capture: Hydrogen, CCUS, and Direct Air Capture

• Clean-Technology investment, including electrification and sustainable transportation: Electric vehicles, EV infrastructure, and sustainable aviation fuel

EU Carbon Border Adjustment Mechanism (CBAM) (2023)

CBAM would be the world’s first carbon tax on imports:

• Supplement to EU Emissions Trading System (ETS), which created the world’s largest cap-and-trade carbon market. Cap-and-trade is a system in which companies receive or purchase emissions allowances under a maximum amount of emissions (or cap), and can also trade carbon allowances with other corporations, creating a market for carbon allowances

• Reporting on carbon emissions from foreign importers to the EU started in 2023

• Applies to carbon associated with the production of certain carbon-intensive imported goods

• Functions through purchase of carbon certificates that can be reimbursed if proven that a company has already paid a carbon tax elsewhere

• Carbon tariff on imports beginning in 2026

• Carbon taxes are expected to play a key role in leveling the playing field between onshore producers, who have generally faced stricter climate regulations, and offshore producers

EU: Green Deal Industrial Plan (GDIP) (2023)

The EU GDIP is a broad plan designed to benefit clean tech with many components and five key pillars:

• Regulation: Create and simplify predictable regulations for green tech

• Finance: Loosen state aid rules to allow for competitive subsidies and faster access to funding

• Skills: Increase transparency on green-skills gap and push to recognize qualifications between EU states and enhance skills

• Trade: Create Raw Minerals Club to incentivize non-EU countries to export and employ trade defense mechanisms to create more resilient supply chains

• Incentives: Distribute €357B [$389B] in subsidies for sustainable initiatives


US SEC Disclosures (proposed 2022)

SEC proposal that would require companies to disclose the following information:

• GHG emissions

• Climate-related risks and opportunities faced by companies

• Governance and processes instituted to address risks

• Supporting information for publicly set climate targets

•Phased approach for large, accelerated filers compared to smaller companies

• In line with the TCFD framework

EU Corporate Sustainability Reporting Directive (CSRD) (2023)

• Extends and amends the Non-Financial Reporting Directive (NFRD), a 2014 directive requiring non-financial sustainability disclosures in annual reports

• Requires companies to disclose sustainability-related information as per the European Sustainability Reporting Standards (ESRS), which includes 11 sector-agnostic (not only climate) ESG topics

• Expands scope to include more companies (estimated 50,000 EU companies and 10,000 non-EU companies) than the NFRD and requires corporations to report on a wider range of sustainability-related issues, requires assurance, and requires integration into financial statements

• Double materiality (see Section 2.1: Conduct a materiality assessment), obliging companies to report on how their business is affected by climate-related risks (“outside in”), and how their activities impact society and the environment (“inside out”)

• Broadens scope over time, from only applying to large entities of public interest in 2024, to small and medium-sized enterprises being affected in 2026, and non-EU companies complying from 2028 onward

• In line with the TCFD framework

EU Taxonomy & Sustainable Finance Disclosure Regulation (SFDR) (2020)

The EU Taxonomy and SFDR target financial institutions with the aim of re-orienting capital flows toward sustainable investments and increasing transparency. Specifically, they require financial institutions to:

• Ensure marketing materials do not contradict the disclosures at product and entity level

• Update internal investment due diligence and risk management policies to consider sustainability risks

• Ensure access to the ESG data required to assess sustainability risks and principal adverse impacts

• Disclose and regularly report on sustainability risks and principal adverse impact considerations at entity and product level

Japan Financial Services Agency (2022) (3)

• Requires climate-related disclosures from publicly listed companies

• In line with the TCFD framework

Other ISSB-based Regulations

• Singapore plans to extend ISSB climate-related disclosures already required for publicly listed companies to all companies with annual revenue of at least 1 billion Singapore dollars ($740 million)

• Hong Kong plans to institute ISSB climate-related disclosures for all listed companies on the Hong Kong stock exchange (HKEX)

• The United Kingdom requires ISSB climate-related disclosures for all publicly quoted companies, and all large private companies and LLPs

Reporting standards

IFRS ISSB S1 & S2 Climate-related Disclosures (2023)

• Universal reporting standard on climate-related information

• S1 provides requirements for investor disclosures on climate risks and opportunities, S2 covers disclosures on the same topics to general purpose financial report users

• Integrates and fully aligns with TCFD recommendations

• IFRS to take over TCFD’s monitoring responsibilities beginning in 2024

GHG Protocol (updated regularly)

• Provides the most widely used GHG accounting standards and tools

• Includes Corporate Accounting and Reporting Standard (first published 2004) and Corporate Value Chain (Scope 3) Standard (first published 2011)

Frameworks for corporate action

Science Based Targets initiative (SBTi) (2015-ongoing project)

• Target-setting initiative that verifies and help companies (primarily) set climate and net-zero targets

• Defines “science based” target-setting guidelines in line with limiting emissions to 1.5°C

• Generally, includes Scope 1, 2, and 3 emissions

TCFD (Task Force on Climate-related Financial Disclosures) (2017)

• Climate disclosure framework for corporates and financial institutions to disclose climate-related risks and opportunities

• 11 recommended disclosures based on governance, strategy, risk management, and metrics and targets

• Focuses on financial materiality

• Merging into ISSB beginning in 2024

UN High-Level Expert Group on Sustainable Finance (HLEG) Recommendations (2022)

The HLEG is a UN entity dedicated to creating high-level guidance on sustainability finance that proposed ten main recommendations, including:

• Announce a Net Zero pledge with clear interim targets modeled to 1.5°C

• Account for all GHG emissions across the value chain

• Use carbon credits only for beyond value chain mitigation

• Create and disclose transition plans to support a just transition

SBTN Science Based Targets for Nature (2023-ongoing project)

• SBTN provides a framework for assessing an organization’s impact on their environment (beyond climate) and advocates a five-step process:

• Assess: high-level assessment of company impacts on nature

• Interpret and Prioritize: narrow down impacts to define priorities

• Measure, Set and Disclose: setting targets on priority areas

• Act and Track have yet to be released