Stick to TCFD for EU corporate sustainability disclosure requirements, say German academics

EU regulators should ensure that new mandatory corporate sustainability disclosure rules have a “strong alignment” with the recommendations of the Taskforce on Climate-related Disclosures (TCFD), a prominent group of German academics have argued. 

According to a policy brief which is to be published today, the academics noted that early proposals for the upcoming Corporate Sustainability Reporting Directive (CSRD) included climate elements exceeding the scope proposed by the TCFD. Regulators should instead stick to the TCFD to “enable global data comparability and reduce the workload for companies”, they said. 

However, the paper’s authors – who are members of the independent Sustainable Finance Research Platform, a joint research project between five German universities – say that they are not calling for a loosening of disclosure requirements, but are instead backing a standardised approach to climate reporting globally. 

Lisa Krombholz, a co-author from the University of Hamburg, said to RI: “We are not asking for a reduction of climate disclosure items under the CSRD, but the goal should be that climate reporting is aligned across jurisdictions, and not for the EU to have a separate climate standard.”

Only mandatory TCFD-aligned disclosure rules, the Platform members say, can create a level playing field for reporting companies and allay management concerns over reporting potentially sensitive information.  

“Based on the interviews we conducted, the majority of stakeholders would prefer mandatory and standardised reporting because it creates a level playing field. If all companies are forced to disclose, the perceived strategic disadvantages on the individual company levels is smaller,” Krombholz said. 

“At the moment, companies are in a wait-and-see stage where they are unwilling to commit resources for voluntary disclosure especially when competitors haven’t done so.”  

While climate reporting requirements are expected to feature in corporate disclosure regimes across multiple jurisdictions in the short term – aside from the EU, the US, UK, Canada, Australasia and numerous EM countries are in varying stages of introducing climate disclosure rules – current voluntary disclosure rates have remained underwhelming. 

According to the most recent stocktake by the TCFD, an average of only one in three companies globally disclosed climate-related information aligned with its recommendations.  

The Platform’s intervention comes at a difficult time for the EU, which is already facing pressure from finance sector lobbyists to ensure that the CSRD is aligned with the green taxonomy’s extensive range of environmental and social performance metrics. Financial institutions, who will be required to disclose the extent of their taxonomy alignment from this year onwards, have said that much of the underlying corporate-level information captured by the taxonomy is not yet readily available. 

The concept of double materiality, introduced by the European Commission and expected to underpin the CSRD, expands the consensus that climate and sustainability factors are financially material for a company by acknowledging that the impacts that companies have on society and the environment are also material. 

The EU’s approach contrasts with that of global accounting body the IFRS, which is developing risk-based disclosure standards focused solely on the impact of sustainability factors on enterprise value.