15 December 2020
Changing the rules of the game: leading NGOs and the European Parliament call for mandatory reporting obligations and standards for companies on sustainability issues
EU Commissioner for Financial Services Mairead McGuinness clearly stated this December that “the rules of the game must be transformed to fully integrate sustainability at every step of the financial value chain” and identified the reform of the EU Non-Financial Reporting Directive as “one of the priorities to strengthen the foundations for sustainable investment”. In her speech, she also pinpointed the need to improve the quality of corporate reporting as central to the achievement of EU goals set out in the EU Green Deal and Sustainable Finance Action Plan.
As shown by the research of the Alliance for Corporate Transparency, most companies fail to disclose relevant, material and comparable sustainability information, calling for the need to clarify and further specify reporting requirements for companies in Europe. For example, while most companies report general policy commitments to climate change and human rights (88% and 82% respectively), a much smaller fraction report relevant and meaningful information; only 36.2% of companies report on their climate targets, and an even lower percentage report on the alignment of such target with the Paris Agreement/Science Based Target (13.9%). Similarly, only 23% of companies report on the determination of salient human rights issues, and less than 4% report examples illustrating effective management of salient issues (3.6%).
Focusing on the right data is critical to allow financial actors to redirect capital flows towards sustainable investments, and ensure better management of risks and opportunities stemming from climate change, environmental degradation and social issues by companies and investors alike. Moreover, it can positively contribute to increased corporate accountability for serious adverse impacts on the environment and society. The European Parliament is likely to approve this week a report calling to expand and define the corporate reporting obligations and connected this agenda to the upcoming proposals on sustainable corporate governance.
The complexity of the issue and multiple and varied interests in these developments could severely undermine the successful outcome of the reform and lead to the focus on information that does not provide useful insights to companies, investors and other stakeholders.
To address these obstacles and contribute to a meaningful EU process for the standardisation of reporting requirements in favour of comparable, concise and relevant disclosure, the members of the Alliance for Corporate Transparency have combined their expertise and aligned on key priorities for reform of the EU NFR Directive and development of possible future standards.
Outline of recommendations developed in further detail in the joint position include:
- Expansion of the scope of the EU Non-Financial Reporting Directive
- Alignment with the annual report
- Clarification of the double-materiality definition and principles
- Reporting requirements on governance and sustainability integration
- Better definition and connectivity of general reporting requirements in the Directive
- Specification of thematic and sector-specific reporting requirements for climate, natural resources and biodiversity, workforce information, human rights and environmental due diligence, and anti-corruption
- Requirement for mandatory assurance
These proposals have been discussed and developed as part of the Alliance for Corporate Transparency, including the input and support from the following organisations:
Management and content partners: Frank Bold, Business and Human Rights Resource Centre, Future-Fit Foundations, WWF EU Office, Transparency International, Sustentia
Advisory group: CDP Europe, Themis Research, Germanwatch, SOMO, CORE Coalition, Oxfam, ShareAction, CDSB, Publish What You Pay, ECCJ, Global Witness
The Alliance for Corporate Transparency is an initiative bringing over 20 civil society organisations providing evidence-based recommendations to the European Commission in the reform of the legal framework and development of future mandatory EU non-financial reporting standards. Follow the initiative on Twitter or register to the newsletter to get the latest news on the topic.