The debate over company reporting is heating up once again. This time over sustainability issues. The EU may have brought into effect a new directive on non-financial reporting but there are many who believe that the state of disclosures on sustainability topics is inadequate. The directive, they say, fails to deliver the necessary detail in company disclosures.
Now a group of 27 NGOs, including bodies as august as Amnesty International, the World Wildlife Fund, Oxfam and Transparency International have demanded improvements. Filip Gregor, head of the responsible companies section at Frank Bold, a campaigning law firm, said: “The state of sustainability reporting is a mess.”
It was Frank Bold that coordinated the 27 to demand that the EU refine the sustainability reporting obligations. Among their demands are precise reporting requirements following the recommendations from the Task Force on Climate-related Financial Disclosures; mandatory requirement for reporting on human rights risks based on the United Nations Guiding Principles; and strict new disclosures on “anti-corruption programmes, implementation and monitoring”. The demands come among a host of others designed to dramatically improve sustainability reporting.
The 27 claim that reporting on sustainability issues is wildly divergent across corporates, “which leads to a significant gap in the quality and usefulness of the information disclosed by companies.” What they want is for the EU to specify baseline mandatory requirements and metrics.
A statement says standardised reporting is the route to a “sustainable and just economy and financial system”, and would give investors the information they need to fulfil their environmental, social and governance (ESG) obligations.
According to Gregor: “There are companies that are reporting really useful data that gives the reader a good understanding and is supported by KPIs, and so on. But the vast majority of companies are not there.” The fact that some can do it is proof that it can be done, adds Gregor.
Reasons for poor reporting
The reasons for current poor reporting comes down to structural issues for many companies, according to campaigners. For a minority, however, better sustainability disclosures could mean publishing information they would rather keep away from the public gaze.
The structural issues include a failure to ingrain sustainability issues into current governance practices and market pressures. But there are others, including regulatory gaps in areas such as climate change legislation and tax, as well as corporate governance regimes that fail to give long-term sustainability issues equal priority with shareholder value.
Gregor believes other areas need addressing too. These include promoting sustainable finance; reform of directors’ duties (which he believes currently veer towards shareholders over sustainability strategies and targets); and reform of corporate reporting because it is the “lifeblood of corporate governance.”
Without addressing these regulatory issues, market forces take over and subordinate sustainability concerns, he says.
The EU has been undertaking a comprehensive review of corporate reporting which examines non-financial reporting along with integrated reporting. The review is expected by many to lead to legislative changes sometime after 2020.
At the end of November the European Commission hosted a conference exploring the future of corporate reporting, with guests discussing whether current reporting regimes remain fit for purpose, and the development of “relevant sustainability disclosure”.