Under the Alliance for Corporate Transparency project Frank Bold and its partners have analysed how European companies disclose information necessary for understanding their impact on society and the environment, as required by the EU Non-financial Reporting Directive*.
The initial findings of the project point to one overarching conclusion: most companies acknowledge in their reports the importance of environmental and social issues, but more often than not this information is not clear enough in terms of concrete issues, targets and principal risks. This year, the project has assessed over 100 companies from the sectors of Energy & Resource Extraction, Information and Communication Technologies, and Health Care.
Ensuring high quality disclosure on sustainability has a vital role in efforts to reorient capital flows towards sustainable investments and manage risks stemming from climate change, environmental degradation and social issues. These are the objectives of the EU Action Plan on Sustainable Finance.
Companies’ disclosure is also a key element in ensuring corporate accountability for identifying and addressing risks of adverse human rights impacts in line with the UN Guiding Principles on Business and Human Rights. In addition, mismanaged human rights and environmental risks may result in significant short-term as well as long-term economic impacts on companies in the form of accidents, litigation, supply chain disruptions, damaged reputations and failed or delayed investments.
However, as the research demonstrates, the current status of corporate sustainability reporting does not allow investors and other stakeholders to understand companies’ impacts and risks, and their strategies to address them.
The results of the research suggest that the legislation should at a minimum clarify requirements for the disclosure of
The Alliance for Corporate Transparency is a three-year research project bringing together leading civil society organisations and experts with the aim of analysing the corporate disclosure on sustainability issues by the 1000 largest companies operating in the EU.
The objective of this initiative is to serve as guidance to companies and regulators, provide data to substantiate the discussion on the standardisation of sustainability disclosure and put forward evidence-based recommendations for legislative changes.
*The EU Non-financial Reporting Directive introduced into EU law the requirement for large public companies and financial corporations operating in Europe to disclose information on environmental, social, human rights and anti-corruption matters, necessary for understanding the company’s development, performance, position and impact. Companies were supposed to include this “non-financial” information in their reports for the previous financial year for the first time in 2018.
The Directive is a first step in the right direction but failed to specify what concrete information must be disclosed. This severely undermines the legislation’s objective to increase the relevance, consistency and comparability of corporate sustainability data, which is crucial for investors to help inform their decisions as well as for civil society and public authorities to assess and monitor corporate responsibility. To fill this gap, the project draws from EU law, international standards and leading reporting frameworks in order to determine what information is commonly understood to be essential and material for each industrial sector.
The research assessed whether a selection of 105 European companies are providing the type of information explicitly required by the NFR Directive; i.e. the description of policies and due diligence processes, outcomes, principal risks (including with respect to business relationships), and KPIs. It also examined if the disclosed information was specific enough to allow an understanding of companies’ impact and strategy. In addition, the research analysed companies’ disclosure on particular important environmental and human rights issues and on their anti-corruption programmes.
The initial sample of companies included: 20 from Spain; 22 from France; 25 from the UK; 13 from Germany; 13 from Central and Eastern Europe (Czech Republic, Poland, Slovenia); 12 from the Nordic region (Denmark, Finland, Sweden)
Members of the Alliance for Corporate Transparency include: Frank Bold, Sustentia, Business & Human Rights Resource Centre, CORE Coalition, Future-Fit Foundation, Transparency International EU, WWF, CDP Europe, Client Earth, Germanwatch, Oxfam, Stockholm Environment Institute, Shift and Themis Research.
The project plans to extend the scope of the research in the next two years to cover 1000 companies from all sectors and regions in order to provide a comprehensive analysis and well-substantiated recommendations to companies and policy makers alike.
The European Parliament has adopted the Corporate Sustainability Reporting Directive (CSRD), which clarifies transparency obligations for large companies operating in the EU on their sustainability impacts, risks, and opportunities. Pursuant to the CSRD, companies across all sectors will report against the European Sustainability Reporting Standards, which were developed by the European Financial Reporting Advisory Group (EFRAG), submitted to the European Commission and published on 22 November.
NGOs and civil society groups will only support an ambitious first set of sector-agnostic ESRS that closely builds on the EFRAG drafts adopted last November. They urge the Commission to follow EFRAG’s technical advice alongside 60+ companies and investors worth 651bn USD, and caution against making significant changes at this stage, as this would risk discrediting the process so far and undoing a good compromise.
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