Report on corporate disclosure under EU Non-financial Reporting Directive finds co's fail to provide meaningful information about impacts on human rights & environment
UPDATE: Click here for the 2019 Research Report, released in February 2020
The EU Non-financial Reporting Directive which came into effect in 2018 requires large companies and financial corporations to disclose information regarding their impacts on society and environment. Civil society has however criticised that the EU Directive fails to specify in sufficient detail what information is to be disclosed. To address this, the Alliance for Corporate Transparency project aims to assess how European companies are implementing the requirements.
Initial findings of the project, published in February 2019, suggest that of the over 100 companies (including energy and resource extraction, ICT and health care companies) assessed most fail to provide information which is clear enough in terms of concrete issues, targets and principles and thus to understand their impacts and risks, as well as strategies to address them.
Based on the results of their research, the Alliance is suggesting that the legislation should at a minimum clarify requirements for the disclosure of
long-term transition plans to a zero-carbon economy by companies in sectors with biggest impacts and risks
biodiversity risks and impacts
the company’s determination of salient human rights issues and their management.
More information is available below.
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EU financial markets watchdog recommends EU Commission consider amending NFRD to provide for set of specific disclosure requirements
Author: Susanna Rust, Investments & Pensions Europe
"ESMA backs ESG disclosure as short-termism bulwark", 6 Jan 2020
The EU financial markets watchdog has recommended the European Commission take steps to improve the quality of environmental, social and governance (ESG) disclosure...
It said there were shortcomings in existing EU legislation in terms of providing for comparable, relevant and reliable ESG disclosure, which made it “more difficult for the positive relationship between ESG disclosure and long-term investment to materialise”.
It has advised the Commission to amend the Non-Financial Reporting Directive (NFRD), promote a single set of international ESG disclosure standards, and require the inclusion of non-financial statements in annual financial reports.
The Commission has already said it will review the NFRD this year. According to ESMA’s recommendations the EU executive should consider amending the Directive to allow for the development of binding measures, including to provide for a limited set of specific disclosure requirements...
Adopted in 2014, the NFRD requires listed companies to publish reports on the policies they apply in relation to areas such as environmental protection or treatment of employees, but it misses more specific requirements to prepare both narrative and quantitative disclosures.
ESMA also noted that introducing binding measures covering specific disclosure requirements should allow “better coordination” between the availability of data from investee companies and the disclosure obligations imposed on investors under the new sustainable finance disclosure regulation...
- Related stories: Report on corporate disclosure under EU Non-financial Reporting Directive finds co's fail to provide meaningful information about impacts on human rights & environment Study on EU Non-financial reporting directive highlights need for clarification of co's legal duty to report on human rights due diligence
Author: Frank Bold
The EU Non-financial Reporting (NFR) Directive requires large companies and financial corporations operating in Europe to disclose information on environmental, social, human rights and anti-corruption matters. The problem is that the legal framework does not specify in sufficient detail what concrete information on which sustainability topics should be disclosed, therefore failing to render these reporting requirements effective. As a result, early data concerning the implementation of the NFR Directive shows that a vast majority of companies don’t report relevant information...
Governments and enforcement agencies can’t adequately monitor compliance with reporting requirements unless the legal framework is specified, as the European Securities and Markets Authorities has already publicly acknowledged...
The EU Commission must commit to reform the EU NFR Directive in order to develop the reporting framework for corporate disclosure on environmental and social sustainability.
A standardised reporting framework is a prerequisite to creating a sustainable and just economy and financial system.
Author: Alliance for Corporate Transparency
Our initial research in 2018 assessed whether companies provided 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 understanding of the 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, for which it provided a specific set of criteria connecting the requirements of the NFR Directive with the emerging consensus on what constitutes material information for these issues...
The general information that most companies provide does not allow readers to understand their impacts and by extension their development, performance and position, as required by the NFR Directive...
Author: Alliance for Corporate Transparency
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...
Most relevant findings:
- Climate change:
- 90% of companies report on climate change, but merely 47% specify clearly what precisely their policy has been designed to achieve and how...
- Social and employee issues:
- There is a gap between the number of companies providing information on anti-discrimination or equal opportunities policies [...] and the disclosure of the effects of these policies...
- Very few companies include outsourced workers in their perspective...
- Similarly, only 10% of companies report on the living wage and very few disclose country-by-country information on region-sensitive issues such equal opportunities (6%) and freedom of association (10%)...
- Human rights:
- Over 90% of companies express in their reports a commitment to respect human rights and 70% endeavour to ensure the protection of human rights in their supply chains as well.
- However, only 36% describe their human rights due diligence system, 26% provide a clear statement of salient issues and 10% describe examples or indicators of effective management of those issues.
- Companies commonly report information about human rights audits (58%), but the disclosure of results of these audits is far less common (25%) as is disclosure of the actions consequently taken (16%). Similarly, only 8% of companies discuss the limitations of the audits...