LONDON (Reuters) - European corporate disclosures on climate change and other sustainability issues are generally poor, a study on Monday showed, as regional policymakers mull toughening up the rules.
The European Union’s Non-Financial Reporting Directive came into force in 2018 and requires companies to disclose how they manage a range of social and environmental challenges, but stops short of specifying what companies should report. It is now assessing the rule’s effectiveness and what may need to change.
Making sure the directive is fit for purpose is a crucial component of the EU’s 1 trillion euro ($1.1 trillion) European Green Deal, which aims to cut carbon emissions to net zero by 2050.
Ahead of that, a study of disclosures from 1,000 firms by the Alliance for Corporate Transparency, a collaborative initiative launched by public interest law firm Frank Bold, showed big gaps between many companies’ words and action.
On climate, for example, the study showed that while 36.2% of firms had set a climate target, only 13.9% of companies had ensured they aligned with the 2015 United Nations-backed Paris climate deal.
The Paris deal aims to cap the average global temperature rise to well below 2 degrees Celsius by 2050, compared with pre-industrial norms, to limit the impact of weather-related disasters that could kill hundreds of millions of people and drastically impact the world’s economy.
Filip Gregor, Head of Responsible Companies at Frank Bold, said it was “alarming” so few companies were in sync with Paris.
“The results of the research show that existing EU legislation is not meeting its objectives and it seems that the only way to address the problem is to specify what companies should be reporting.
“We need to be careful not to provide criteria that are too detailed or to over-regulate companies, but there is a clear space and need for very targeted sector-specific clarifications on mandatory requirements for reporting.”
Of the companies analyzed, just 23.4% provided specific information allowing readers to understand the risks facing them, the report said, even though 53.8% of companies said they recognized the existence of such risks.
Within the financial sector - increasingly the focus of investor and policymaker action - disclosures were even worse.
Just 13.4% of companies were specific about the exposure of their lending, investment and underwriting activities to sectors contributing to climate change, while only 3.1% gave an estimation of the exposure of their assets to climate risks.
Last week Bank of England governor Mark Carney, soon to take up a role as the United Nations climate envoy, said he wanted to see companies publish strategies for cutting carbon emissions and adopting cleaner power sources by November, when world leaders meet in Scotland for U.N.-led climate talks.
Additional reporting by Marine Strauss and Matthew Green; Editing by Mark Potter