NGOs call for stricter reporting requirements for European companies

Back in November 2020, the law firm Frank Bold from the Czech Republic published a study suggesting that European companies are not disclosing enough relevant, meaningful and comparable sustainability information. [Guitarfoto studio | Shutterstock]

By the end of March, the European Commission wants to present a revised version of the so-called non-financial reporting directive (NFRD). A coalition of European NGOs is calling for greater transparency and stricter reporting requirements for companies in sustainability matters. EURACTIV Germany reports.

Based on several studies, the Alliance for Corporate Transparency (ACT) is calling on the EU to increase and more precisely define the reporting requirements for companies.

Under the the NFRD, European companies with more than 500 employees are currently required not only to give an account of their financial situation, but also to provide public information on certain non-financial matters.

This includes environmental protection, social responsibility and human rights, anti-corruption and bribery, as well as measures to promote diversity on company boards.

With the European Green Deal, the NFRD is now being revised to help investors, consumers, policymakers and other stakeholders evaluate the non-financial performance of large companies, and encourage a more responsible approach to business.

A group of investors last year criticised the directive for not going far enough on reporting obligations of large companies, in particular when it comes to their impact on climate and the environment.

Among its requests were for the scope of the law to be expanded beyond large listed groups, for companies to disclose the data in their annual management report and for sectors to be given tailored minimum reporting requirements.

This was now followed by the ACT initiative, which is made up of a large number of NGOs from all over Europe and has presented a similar list of demands. According to them, companies should measure their own corporate strategy and risk assessment against the climate targets of the Paris Agreement and take into account various scenarios regarding future climate development.

The alliance, which includes Germanwatch, WWF, and Transparency International, is also calling for stricter reporting requirements when it comes to companies’ impact on natural resources, biodiversity, and the ecosystem.

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Studies confirm little transparency

ACT bases its claims on several studies. Back in November 2020, the law firm Frank Bold from the Czech Republic published a study asserting that European companies do not disclose enough relevant, meaningful and comparable sustainability information. It surveyed 300 companies in Central, Eastern and Southern Europe.

The report on the study, which was financed with the help of the German Environment Ministry, states that around 42% of the companies surveyed do not provide any information on corporate risks in connection with climate change. At least six out of ten companies provide information on their own water consumption, but only one in ten takes local water shortages into account. More than half say they have a corporate emissions policy to reduce environmental damage, but only 7% state quantitative reduction targets.

Another ACT study from 2019, which surveyed 1,000 European companies (including 108 German firms), suggests a similar problem in Western European companies. Only just under 14% of companies reported that their own climate targets were in line with those of the Paris Agreement. The proportion is higher in the energy sector, at 23.5%, but still more than three-quarters of Europe’s large companies do not report on their climate targets, according to the study.

The EU Commission plans to present the revised version of the NFRD by the end of March. Then it will become clear whether European companies will have to report in more detail on their own environmental impact and climate targets.

During the consultation phase for the amendment, some companies expressed concern that the requirements of the NFRD could be expanded. Instead, they are calling for harmonisation of the requirements in the member states to standardise the different national frameworks in the future.

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[Edited by Frédéric Simon]

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