Most companies failing to comply with EU Non-Financial Reporting Directive.
An analysis of reporting by 300 central, eastern and southern European companies has found only 30% provide sufficient information on their climate policies in line with the EU Non-Financial Reporting Directive (NFRD).
The report, by the Alliance for Corporate Transparency (ACT), shows low levels of compliance with the NFRD, and calls for policy-makers to specify relevant qualitative requirements to help firms provide more specific, forward-looking and decision-useful information on their policies, outcomes and risks.
The directive requires large companies, banks and insurers to disclose information on their development and performance as well as impact on the environment and society, including climate risks, employee issues, human rights and anti-corruption.
A significant number of companies do not disclose any relevant information for the categories required by the Directive: 23.1% do not report on any relevant policies; 46.2% fail to describe the outcomes of their policies; 42.2% don’t explain principal risks. “The remaining companies provide this type of information in a generic manner that does not provide users of reports with decision-useful information,” the report said.
The ACT report ranked company reports based on accessibility, quality and materiality of data, strategic perspective, main reporting criteria and sustainability. The largest country samples were Italy, Poland and Spain. Financials had the largest sectoral representation followed by energy and resource extraction.
In terms of accessibility and presentation, approximately half of firms provided non-financial information separate from their annual reports. Although the NFRD requires firms to disclose relevant KPIs, but 20% failed to do so, with only 25% publishing KPIs in a summarised statement.
Around 45% of firms disclosed environmental challenges to their business models with just under 40% reporting risks relating to climate change. Business opportunities related to sustainability challenges were explained by 16.8% of companies.
Less than a third (31%) of firms publish policy related to climate change with reference to specified key issues and objectives, while 23% provide no information, however there are wide variations across markets. Approximately one third of firms report a climate change mitigation target, with alignment to the Paris Climate Agreement and / or science-based targets disclosed by less than 16%. Slightly less than 32% of firms provide descriptions of specific climate-related risks, while 42% share no information on risks arising.
The NFRD is scheduled to be revised early next year.