Our CEO, Michele Demers, also a Forbes Council member, writes about changing environmental regulations around the world and what businesses can do to stay ahead. Read the full Article on Forbes.

Managing a business with the environment in mind is tough, not least because it’s tempting to follow the easier path of adopting existing standards rather than charting a course to meet the stricter standards that have been enacted in many large markets around the world.

My company's work as an environmental impact data and analytics provider has given me insight into how regulations are shaping up globally. I've seen how many clean tech firms today operate across regions that follow different rules. There are international laws, such as the Stockholm Convention on Persistent Organic Pollutants treaty and the Paris Agreement on climate change. The European Union has various rules with enforcement by member states, as do Canada, Japan and Australia. There are also some tough state rules in California, New York and others.

Given these realities, businesses must juggle managing various existing regional standards and preparing for expectations of tougher rules ahead.

A Look At Regulations Around The World

European Union

The EU is requiring environmental, social and governance (ESG) rating providers to disclose the methodologies used to calculate ESG ratings. Failure to comply can result in fines of up to 10% of their annual net turnover.

The EU's Corporate Sustainability Reporting Directive (CSRD) also has a "double materiality assessment" requirement, which means firms must evaluate impact materiality (i.e., how a firm's value chain impacts the environment/communities where it operates) and a financial impact assessment (i.e., how sustainability challenges would lead to financial risks for the firm).

By setting transparent environmental rating methodologies and fining rule breakers, investors should now have better data to more accurately gauge a company’s risk. The CSRD will affect qualifying non-EU-based firms by 2028. Coupled with the corporate sustainability due diligence directive, which requires that firms in the EU manage human rights and environmental risks within their supply chains both inside and outside of Europe, this is a significant advance for corporate sustainability standards. I believe these regulations create an incentive for companies to use more rigorous reporting assessments as well.

United States

In March, the U.S. Securities and Exchange Commission voted to end its defense of the rules that required disclosure of climate risks and greenhouse gas emissions. Meanwhile, California's SB 253 mandates that by 2026, firms doing business in the state with revenues exceeding $1 billion disclose their Scope 1 and 2 emissions (and Scope 3 emissions by 2027).

California has some of the highest standards in the U.S. for environmental reporting. The California rule aims to improve transparency in reporting emissions and life cycle impacts. I believe this could push larger companies to invest in double materiality assessments or carbon footprint reporting.

Asia

In 2023, Japan began requiring firms to disclose sustainability information, but there were no specific standards or third-party review requirements, according to Ernst & Young. Earlier this year, the Sustainability Standards Board of Japan issued its inaugural sustainability disclosure standards, which are in line with the International Sustainability Standards Board (ISSB) guidelines for climate disclosure.

Last year, China released its Corporate Sustainability Disclosure Standards. The requirements are "influenced by" ISSB standards as well, and they're initially voluntary but will eventually be mandatory, according to law firm Latham & Watkins. Large public companies in China also must disclose sustainability information in line with the EU's double materiality approach. China is expected to have a mandatory sustainability reporting system aligned with the ISSB by 2030.

Lessons For Leaders Moving Forward

It’s high time executives managed commerce to serve both profit and planet. In my view, too many existing "E" measures used to gauge ESG ratings today facilitate greenwashing, where companies purposely distort their sustainability footprint for marketing purposes.

Companies can replace self-assessed metrics with a more rigorous, scientific methodology. With regional rules at various standards and on differing timelines, companies with global aspirations can also consider adhering to the highest standards demanded today, such as those in the EU.

For leaders who don't know where to begin, start with an honest baseline. Conduct an initial life-cycle analysis (LCA) of your core products to understand where emissions occur across your value chain. If you're thinking of working with an LCA practitioner to help with this, ensure they're experienced and understand your technology's nuances. (Full disclosure: A number of companies, my own included, conduct LCA analyses.)

Moreover, keep in mind that while AI-based carbon accounting tools can help, they are no replacement for rigorous environmental accounting that uses human expertise to navigate allocation decisions, system boundaries and the technical complexities that software can't handle alone.

Next, familiarize yourself with the EU's CSRD and European Sustainability Reporting Standards (ESRS), even if you're not immediately subject to them. These frameworks show where global standards are headed.

By establishing your baseline now, you're not just checking boxes—you're building credibility with investors and customers who can spot greenwashing from a mile away.

The information provided here is not legal advice and does not purport to be a substitute for advice of counsel on any specific matter. For legal advice, you should consult with an attorney concerning your specific situation.