The Alliance project unfolded
Phase 1: The Alliance is formed by leading civil society organisations working in corporate sustainability and transparency that bring in specific expertise on the different areas covered by the EU Non-Financial Reporting Directive.
Phase 2: The design of the research methodology is developed by the project partners, identifying the most essential ESG issues as well as the reporting criteria to analyse the information disclosed by companies in different sectors. The methodology is consulted on with external stakeholders and a trial run is carried out with partner companies to ensure the coherence of the methodology. Specific information concerning the research methodology and criteria is provided below.
Phase 3: Initial analysis of the reports of 105 companies from three sectors (ICT, Healthcare and Energy) is carried out. The project simultaneously develops an online database that stores the results and visualises the aggregated data resulting from the research as well as individual company assessments. A review mechanism is set in place. The results of this initial research are presented in Brussels on February 8, 2019.
Phase 4: The project prepares for the scale up phase by consulting, reviewing and calibrating the research methodology. The analysis in 2019-2020 aims to cover 1000 companies from all the main industrial sectors and European countries and provide all research data to the public in an open database.
Research methodology: key questions
|Scope of the research: sectors, countries and companies||
The countries included in the scope of the analysis in 2018 have been selected in order to accurately represent the diversity of economic regions in Europe.
The sectors covered in 2018 include Health Care, ICT and Energy. They have been selected for their relevance and representativity in the countries and markets assessed in order to ensure the comparability of the project results. Similarly, the project decided to focus on sectors that were widely dissimilar concerning the nature of their activities.
The initial scope of 105 companies includes some of the biggest companies by market capitalisation as well as other companies from the lower tier falling under the scope of the EU NFR Directive. The logic behind this decision is that even if the largest companies have a bigger effect on society and the planet, smaller companies must also fulfil their obligation to report on ESG issues to their stakeholders.
|Structure of the research: three levels of analysis||
The research methodology allows analysts to gather extensive data from corporate reports in order to assess the quality of sustainability disclosures. The analysis is divided into three levels that focus on the following aspects:
1st level: Formal requirements. Based on the EU NFR Directive and related guidance. This level includes an analysis of:
2nd level: Information necessary for understanding the company’s impact on salient ESG issues specific to its sector. These issues were derived from a juxtaposition of international standards and reporting frameworks referred to in the Directive and related guidance.
For each of these issues, the project concretised reporting criteria for the disclosure of policies & procedures, risk management, KPIs and/or qualitative indicators for specific sub-issues. The structure of these criteria vary across issues, reflecting their inherent differences.
Some of these specific issues are applicable to companies in all sectors (e.g. information related to workforce and general human rights and anti-corruption policies), while others are attributed to sectors according to their materiality (e.g. specific environmental impacts and human rights risks). The overview of the allocation of issues to sectors in the form of a materiality matrix is provided here (PDF, 10MB).
3rd level: Information on the company’s engagement with opportunities related to the transition to a sustainable economy.
This level of analysis examines if the company provides information on business strategies, products or services focused on sustainable development, and if it substantiates this information with quantified economic data, targets and investments in R&D. In addition to general information, this section also asks these questions for selected sector specific opportunities. While a strict interpretation of the NFR Directive does not require the disclosure of this type of information, it is important for investors’ assessment of companies’ long-term plans and impacts. Hence, it is important for achieving the goals of the EU Commission’s Action Plan on Financing Sustainable Growth.
|Basis for the assessment criteria: list of standards, frameworks, guidance and resources considered in the development of the research methodology||
European legislation and guidance:
Standards and reporting frameworks:
|Documentation: Which company resources have been analysed?||
The project analysed the information disclosed in the corporate annual or sustainability reports as well as any document or set of information clearly linked in these statements. The rationale behind this decision follows the principles of the EU NFR Directive and accompanying guidance, in which it is stated that the information should be easily accessible (i.e. “Cross referencing and signposting should be smart and user-friendly, for instance, by applying a practical rule of maximum one “click” out of the report”)
|Project review mechanism||
An in-house team of researchers carried out the individual company assessments. The project’s technical partner held capacity building session with the analysts and initially tested the research methodology on a sample of companies. A second workshop was organised to refine the analysis and identify contentious issues. Lastly, the project set up a review mechanism designating team leaders to re-examine individual company assessments. The objective is to ensure an harmonised application of the research methodology and guarantee the consistency of our analyses.
Companies assessed have received their individual assessment and have been invited to provide comments. Their input will be taken into account and addressed in the second round of analysis in 2019. Similarly, all stakeholders are welcome to provide feedback on the project’s research methodology and results. A specific form has been set up for this purpose here.