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28 March, 2023

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EU sustainability reporting rules face scrutiny

by Gavin Hinks on February 10, 2023

As the new rules wend their way through the EU drafting process, interested parties from all sides clamour to be heard.

sustainability reporting

Image: kamilpetran/Shutterstock.com

Pressure is mounting once again on EU policymakers as investors, companies and NGOs attempt to influence key new rules on sustainability reporting and due diligence.

From one direction comes a call to resist cutting new reporting requirements further than they already have been, during a legislative process that has run for two years. From another direction comes a claim that meeting the aims of the Paris Agreement may be in jeopardy unless lawmakers ensure new mandatory due diligence requirements are made “fit for purpose”.

The moves come as the European Union prepares to introduce far-reaching new non-financial reporting requirements and make it mandatory for companies to undertake climate and human rights due diligence when doing business.

The first call comes from financial institutions and companies coordinated by the Carbon Disclosure Project (CDP), over the reporting standards to be introduced as part of the EU Corporate Sustainability Reporting Directive (CSRD).

The directive has been passed but the EU is still waiting on new reporting standards under development by EFRAG, corporate reporting advisers to Brussels. The CDP worries that the drafting could potentially jettison the requirement to report on sustainability throughout value chains.

The letter says: “The wide ranging and ambitious scope of the standards, including reporting the entire value chain, is necessary: environmental impacts and risks are interrelated and must be addressed holistically.”

The group argues the information is necessary to provide markets with comparable information.

‘Narrow definition’

Elsewhere, in an editorial for Yahoo! News, campaigners from WWF, Global Witness and ClientEarth called on the environment committee of the European Parliament to head off problems in the Corporate Sustainability Due Diligence Directive, which they say contains a glaring flaw: “Its narrow definition of what constitutes an ‘adverse environmental impact’ will allow companies to turn a blind eye to significant issues in their value chains—including their emissions.”

The campaigners say the definition would force companies to report breaches of a dozen international environment agreements, but they do not include the Paris Agreement and would put its aims at risk.

“In order for this law to be fit for purpose, the Environmental Committee of the European Parliament must specify climate as one the environmental impacts covered by the directive and urgently fill the large gaps in the EU’s corporate climate framework.”

The development of new sustainability and due diligence laws have been fraught with numerous groups levelling tough criticism at versions at various stages.

Lawyers have, however, taken steps to warn client companies of the significant impact the new laws will have. At Davos last month, experts warned that the number of climate litigation cases was climbing—and would only rise further.

Interest in new European legislation is huge from companies, rule makers and campaigners alike. What its impact will be is yet to be seen. But one thing is for sure, with concerns growing over the world’s progress in meeting climate targets, the fight over every clause will rage until the last minute.

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For thoughtful journalism, expert insights on corporate governance and an extensive library of reports, guides and tools to help boards and directors navigate the complexities of their roles, subscribe to Board Agenda

Carbon Disclosure Project, ClientEarth, climate change, climate reporting, corporate governance, corporate reporting, due diligence, EFRAG, environmental disclosures, ESG, EU, EU Corporate Sustainability Reporting Directive, European Union, Global Witness, governance, human rights due diligence, news, Paris Agreement, Regulation, reporting requirements, risk management, sustainability, sustainability reporting, value chains, WWF

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