Corporate non-financial reporting does not allow investors to understand companies’ impacts and “by extension their development, performance and position”, according to a group of civil society organisations and experts.
The Alliance for Corporate Transparency analysed reporting by 105 European companies. Although the vast majority of companies acknowledged the importance of environmental and social issues in their reports, “more often than not” the information was not clear in terms of concrete issues, targets and principal risks, the alliance said.
The solution, according to the group, is for EU rules on non-financial reporting to be more specific about what companies should disclose.
“The results of our research suggest the need for the standardisation of disclosure and clarifications on when companies ought to report such information with respect to several key issues,” the report added.
For example, with respect to climate change, legislation ought to clarify the requirement for the disclosure of companies’ long-term transition plans to a zero-carbon economy and their economic implications, in line with the recommendations of the Task Force on Climate-related Financial Disclosures.
Filip Gregor, head of responsible companies at law firm Frank Bold, the project co-ordinator, said: “Our research shows that most companies don’t disclose sustainability information that really matters, but that there is a not insignificant minority that does provide meaningful information.
“To ensure comparable and meaningful disclosure by all companies the legislation needs to be clearer. Standardisation of disclosure balanced with flexibility is absolutely indispensable to enable sustainable finance as well as corporate accountability.”
The research project set out to analyse how European companies implemented requirements of the Non-Financial Reporting Directive (NFRD) and recommend how it could be improved.
European Commission updates
Its report comes as the European Commission is preparing to update the non-binding guidelines that accompany the EU framework.
According to the technical expert group advising the Commission, the Commission planned to adopt the revised guidelines in June and to seek feedback from stakeholders on the update with a one-month online consultation to start by the end of February.
The technical expert group was tasked with providing recommendations to the Commission about how to include guidance for companies on climate-related disclosures as part of the revision of the non-binding guidelines. These were published in a report last month.
The findings of the Alliance for Corporate Transparency chime with those of a project carried out by the Cambridge Institute for Sustainability Leadership in conjunction with the Investment Leaders Group.
Together they developed the “Cambridge Impact Framework”, a set of metrics that investors could use as proxies for their progress towards the UN’s Sustainable Development Goals, in the absence of data that would allow the social and environmental impact of investment funds to be properly assessed.