EU firms fail to take sustainability reporting seriously - new research

New research on 1,000 European firms has found the way they report on sustainability issues is of worryingly “poor quality”.

The EU Non-Financial Reporting Directive, introduced in 2018, requires large listed companies, banks and insurers in the EU to report the information necessary to understand their policies, risks and impacts on sustainability matters. But the law is not specific enough to ensure that company disclosures are relevant and useful, according to the Alliance for Corporate Transparency.

An initiative of the Czech Republic-based public interest law firm Frank Bold, the Alliance analysed the information that companies disclosed on their environmental and societal risks and impacts.

It concludes that “the poor quality and comparability” of their reports are blocking efforts to scale up sustainable finance, since investors don’t have reliable information to inform decisions. 

'This hinders efforts to scale up sustainable finance as investors do not have reliable information to inform their decisions' - Alliance for Corporate Transparency

This leaves “major financial risks stemming from sustainability challenges, especially climate change, unaccounted for in investor and corporate strategies, as well as important social and environmental impacts unaddressed”, according to a press release accompanying the data, published earlier today.

While all companies regularly publish their key performance indicators on finance in table form, many companies provide only qualitative descriptions in text form when it comes to sustainability information, as Al Jazeera reports.

Company reports focus on general policies and commitments, but not concrete targets or specific information on risks and impacts, according to the Alliance. For instance, although 36.2% of firms analysed had set a climate target, just under 14% report on alignment of targets with the Paris agreement goals. Less than a quarter provide some information on their human rights due diligence process despite 83% saying they have a human rights policy. 

Few regional differences were identified, although companies from former Eastern Europe lag behind and Nordic firms tend to report slightly more specific information than others.

The European Commission is expected to present a renewed sustainable finance strategy later this year. 

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