New analysis of corporate sustainability reporting in Europe exposes major gaps, with 82.8% of companies reporting a human rights policy but only 22.2% disclosing their human rights due diligence process.
Similarly, just 23.4% of the more than 1,000 companies analysed provide specific information that allows readers to understand the climate-related risks they are facing – out of 53.8% reporting that they recognise the existence of such risks.
Some 88.1% report on anti-corruption polices, but only 33.7% describe how these are implemented. And 54.8% report on tax policies, but only 19.3% express specific commitments about paying taxes where profits are generated.
"there is a clear space and need for very targeted sector-specific clarifications on mandatory requirements for reporting"
On emerging ESG risks such as biodiversity, only 7.2% of companies provide investors with any disclosure.
The research, from the Alliance for Corporate Transparency, warns that the poor quality and lack of comparability of corporate disclosures hinder efforts to scale up sustainable finance.
It comes as the European Commission prepares to review the EU Non-Financial Reporting Directive to strengthen ESG disclosures by firms with more than 500 employees, as reported by RI last week.
Filip Gregor, Head of Responsible Companies at law firm Frank Bold, which coordinates the Alliance for Corporate Transparency, said: “The results of the research show that existing EU legislation is not meeting its objectives and it seems the only way to address the problem is to specify what companies should be reporting.
“We need to be careful not to provide criteria that are too detailed or to over-regulate companies, but there is a clear space and need for very targeted sector-specific clarifications on mandatory requirements for reporting.”
In a forward to the Alliance research, Richard Howitt, the former MEP with responsibility for parliamentary negotiation of the non-financial reporting directive in 2014, said the first attempt at the legislation was deliberately “light touch” but now “it is right to strengthen the legislation”.
Howitt, also former Chief Executive of the International Integrated Reporting Council, said it would be helpful to require companies to define targets and to report annually on progress against them, noting that the research found “a correlation between companies where targets are set and where audits take place”.
He added that addressing the SDGs must be a key theme in the revision for the NFRD and that there must be science-based targets aligned to Paris goals.
RI understands that the European Commission has gathered evidence showing that companies prefer now a stricter approach to non-financial reporting and that the Commission will be seeking views on whether new reporting standards are needed and whether non-financial information should be audited.