There’s a lot of sustainability reporting going on in companies across Europe, but the quality is not very good.
That’s the message from a campaign group, The Alliance for Corporate Transparency (ACT), after looking at the disclosures of 1,000 companies.
The research, which looked at reporting against the EU’s Non-Financial Reporting Directive, found that less than a quarter—22%—of the companies presented sustainability indicators in summary form, in stark contrast to the way financial metrics are displayed.
The research also found that only 14% of companies report on how they align their climate-change targets with the Paris Agreement goals which aim to keep global warming below 2 deg C.
The conclusions form one of many recent studies that reveal companies are still coming to terms with reporting on sustainability topics such as climate change, human rights and corruption.
Last month a study from Oxford Brookes University concluded that FTSE 100 companies were choosing sustainability reporting measures in such a narrow way it could amount to “greenwashing”.
The ACT report could be viewed as capturing the corporate world at a moment of transition. However, examples of good practice suggest many companies may be delivering the minimum required under existing regulation, and some not even that.
Experts at Frank Bold, a campaigning law firm and a partner in the Alliance project, believe the results reveal that the Non-Financial Reporting Directive is urgently in need of updating to add details to the demands it makes on corporate reporting.
Filip Gregory, head of responsible companies at Frank Bold, said: “There needs to be some further intervention. There doesn’t seem to be any evidence that a voluntary approach [on providing more detail] would lead to any significant improvement in the quality or specificity of the reporting.”
He added: “There might be some improvement in 20 to 30 years but there are two problems with that.
“One is that for some issues, such as climate, we don’t have 20 or 30 years to wait for incremental improvement.
“The second is that there is already some 20 to 30 years of sustainability reporting behind us, pretty much entirely based on voluntary approaches… and there’s no indication that the voluntary approach brings the desired change.”
Reforming the demands of corporate reporting is one of the key tools leveraged by politicians and regulators to change the approach of companies to using natural resources and climate change. Scores of systems have sprung up to mainly to cater for those companies wishing to score well on sustainability indexes, but they have all been adopted on a voluntary basis, except for the EU’s Non-Financial Reporting Directive, which became mandatory for corporates based in the union on 1 January 2017.
However, there have long been complaints that the regulations failed to ask for information to be disclosed at a sufficient level of detail. That concern has hit home in Brussels. Two weeks ago the European Commission’s executive vice-president, Valdis Dombrovskis, announced that as part of a “renewed” sustainable finance strategy, the Non-Financial Reporting Directive would undergo a revision. The EU will also begin development of a non-financial reporting “standard” to complement the directive and could form the basis of an international standard to sit alongside International Financial Reporting Standards (IFRS).
A revised directive will “increase disclosure” of “sustainable activities, and give adequate reliable information on sustainability risks and opportunities,” Dombrovskis said.
This week news emerged that the UK government has taken the first step in making it mandatory for companies to use the reporting guidelines developed by the G20’s Task Force on Climate-related Financial Disclosures (TCFD). Comments from a government minister suggested that pension schemes would be the first corporates in the UK to be forced to use them. The government said last year in its Green Finance Strategy that it wanted all companies using TCFD reporting guidelines by 2022.
However, TCFD reporting is considered narrowly focused on climate issues compared with the EU’s Non-Financial Reporting Directive, which focuses on a host of other sustainability topics.
The ACT research also looked at human rights reporting, finding that only 22.2% of companies provide information on their human rights due diligence processes—this despite 82% of companies disclosing that they have a human rights policy. Human rights due diligence is recommended by the UN and the EU, though it is not mandatory except in a small number of EU states under national laws.