Laying waste to sustainability

The European Parliament has decided to push ahead with changes to non-financial reporting and sustainability due diligence disclosures that would dramatically reduce the number of companies caught by the new rules.

Sustainability reporting obligations (CSRD) will fall only on companies with at least 1,750 employees and €450m in turnover. The scope of CSRD is dramatically reduced—by about 92%. Meanwhile, human rights and environmental due diligence reporting (CSDDD) rules will fall only on companies with 5,000+ employees.

The vote was pushed through by the European People’s Party with the help of far right groups, some of whom have called for the end of the European Union.

Andreas Rasche, a Danish business school prof, said: “A sad day for sustainability—but, above all, a sad day for Europe.”

Julia Otten of Frank Bold, a campaigning law firm, says: “Counting on the votes of the far right is simply surrendering the EU to those who want to destroy its institutions, its joint defence and energy-security policies and roll back Europe’s competitive advantages on decarbonisation.”

The omnibus passed by the Parliament now goes forward to “trilogue” negotiations between the European Parliament, European Council and European Commission to find a compromise position.

Off the beaten path

Companies received a reminder this week that they are permitted to depart from the UK Corporate Governance Code, rather than blindly comply with it.

The Financial Reporting Council delivered the memo in this year’s annual review on governance reporting and noted that 25 of the 100 companies reviewed had included explanation in their annual report for taking a different path from the code.

“We welcome departures from provisions of the Code where companies provide clear, meaningful and context-specific explanations for their approach.”

Most departures are from the code’s provisions on composition of audit committees, chair independence and the combination of chair and CEO roles and, of course, chair tenure.

That encouragement aside, there were areas where the FRC noted there was room to improve.

While many companies report on direct contact between boards and employees, only a quarter delivered any detail on the content of those discussions. It’s not enough to chat about the game on Saturday.

Also, many companies could provide more specific info on the activities of their senior independent directors (maybe they could go speak to the workers?).

Elsewhere, there is a blunt reminder about reporting on a visit from the FRC’s Audit Quality Review team: “Audit committees should remember that the work of their committee, and the FRC, is to support improvements in audit quality, therefore, effective use of regulator reporting is important.” In other words, auditcos really should be coming clean on what needs to be fixed and how it was fixed.

There is also some reassuring news, though. Disclosure of diversity and inclusion policies and objectives remains “strong”. Though not mentioned by the report, there seems little sign of backtracking on D&I under pressure from the US, despite some news reports. “Encouragingly,” says the FRC, “more companies linked their D&I policies to broader strategy, with 64 out of 100 this year, up slightly from 59 last year.” Could it be that UK plc finds itself in an open act of defiance? Whatever next?

Reassuring news

The FRC was in action elsewhere this week, issuing a new standard on sustainability assurance, or, guidelines on how to ensure the assurance stands up to scrutiny.

It’s not mandatory, but it is an important step. Mark Babbington, director of regulatory standards at the FRC, says: “By underpinning investor confidence in sustainability disclosures, this standard will help UK companies access capital more efficiently and contribute to long-term economic growth.” Hopefully, it’ll also help provide a tool to save the planet.