NGOs call for heightened standards on corporate sustainability reporting
An alliance of NGOs has called for the European Union's Non-Financial Reporting Directive (NFRD) to be reformed to ensure that more corporates are disclosing relevant climate-related information.
The Alliance for Corporate Transparency issued the calls for improvement to get more corporates providing relevant climate-related disclosure.
The Climate Disclosure Standard Board’s (CDSB) “Falling short?” report, for example, states that 78% Europe’s 50 largest listed companies, which have a combined market capitalisation of $4.3trn, are failing to report climate-related risks, despite both NFRD and the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) calling for such data to be included. The Alliance’s own research found that only 36.2% of European companies report on their climate targets, while just 14% report on aligning targets with the Paris Agreement.
The joint position is supported by the following organisations: Frank Bold, Business and Human Rights Resource Centre, Future-Fit Foundations, WWF EU Office, Transparency International, Sustentia, CDP Europe, Themis Research, Germanwatch, SOMO, CORE Coalition, Oxfam, ShareAction, CDSB, Publish What You Pay, ECCJ and Global Witness.
In April 2014, the EU agreed upon a Directive to harmonise non-financial reporting regulations across the Member States. The Directive required Public Interest entities (PIE) – including all listed companies, credit-issuing and insurance undertakings, and firms with greater than 500 employees – to disclose certain social and environmental information.
The EU NFRD reporting mechanism was created to ensure that the impacts of sustainability are considered more broadly throughout the whole business.
The NFRD is currently undergoing an overhaul in response to the bloc’s Green Deal that will deliver net-zero emissions by 2050. Members of the European Parliament presented a final report on sustainable corporate governance that was approved in December 2020. The changes called for an expansion on corporate reporting obligations – which are currently sluggish. The reform proposal is currently being finalised in the EU Commission and is expected to be published in March.
Green groups hope that corporates will be mandated to disclose information on climate governance, decarbonisation and environmental risks through a unified reporting framework. The EU is deciding which sectors the rules should apply to first – and what size businesses should be included.
While the changes will not apply to the UK, as they will be introduced after the Brexit transition period, national requirements are getting stricter here, as well. From 2023, all publicly listed UK companies with a premium listing will be required to “comply or explain” with the TCFD’s requirements, the Financial Conduct Authority (FCA) announced. The rules will then be tightened and extended further in 2025, subject to consultation.