“The time of voluntary standards is over. They work only for good guys. That's why we need EU standardization through a new NFRD framework", said Dutch Labor MP, Lara Wolters, during the meeting’s opening in Brussels. The publication was released on February 17th and included an analysis on the reporting of 1000 European companies across ten sectors.
Produced by the Alliance for Corporate Transparency, which includes organizations such as the WWF and Transparency International, the report arrives at an undeniable conclusion: European companies are not meeting expectations when it comes to ESG (environmental, social and governance) reporting. Companies publish much data and 96% of them have environmental and social commitment statements. However, less than 40% of companies provide a clear ESG agenda. While almost a quarter of European companies identify environmental and social risks, they do not associate these risks with appropriate policies or relevant indicators.
Worse than imagined
Two examples are especially pressing: biodiversity and human rights. In the first instance, 75% of companies do not even mention it, despite the disappearance of biodiversity being classified by the World Economic Forum's Global Risks Report as a primary threat. In the second instance, only 4% of companies claim to manage the most delicate aspects concerning human rights.
"The situation is worse than I imagined", confessed Sébastien Godinot, economist for the WWF European Policy Office. He added, "the climate emergency is everywhere in European discourse, but corporate reporting is completely out of touch with this emergency. Nevertheless, it should no longer be a subject of reporting but rather a part of strategic corporate governance”. We are not there yet, but all Alliance stakeholders are calling for an overhaul of the Non-Financial Reporting Directive (NFRD).
Vice-President Valdis Dombrovskis has already heard these calls since he announced the launch of the Directive’s revision at the end of January. Alain Deckers, who heads the corporate reporting and audit unit agencies at the European Commission’s Director-General for Financial Stability, Financial Services and Capital Markets Union, confirmed that his department was under pressure to schedule this review from 2020. At the close of the Alliance event in Brussels, Deckers stated, "I recognize that the Alliance is right and that we are not where we should be!” Consultation on the matter has just begun, and the European Commission is expecting the experts’ response by May 14th, 2020.
A need for standards
"We certainly have to go fast but still take the time to think about the framework that we have to put in place. It must be articulated within the regulations already adopted on taxonomy and reporting obligations. These components will have to meet three requirements: comparability of ESG data, their reliability, and lastly, their relevance”, explained Deckers.
While there is no consensus on the key indicators for environmental and social reporting, there is general agreement that the sheer volume and heterogeneity of ESG data creates many problems for everyone, including companies that are collapsing under vast and varied stakeholder questionnaires. These companies also complain about having to meet rating standards, which is of great cost to them. With a touch of humor, the head of the European Commission stressed to the business organizations highlighting these difficulties that the best way to lighten their load was to do away with voluntary procedures and impose a single directive-driven European standard with clear expectations.
Anne-Catherine Husson-Traore, @AC_HT, CEO of Novethic