The findings from the latest analysis of environmental and climate-related disclosure by Europe’s major companies reveal that current corporate reporting practices could fall short on delivering on the objectives of the European Green Deal and the 2050 climate neutrality target. Launched today, the Climate Disclosure Standard Board’s (CDSB) “Falling short?” report analyses the 2019 environmental and climate-related disclosures of Europe’s top 50 largest listed companies, with a combined market capitalisation of US$4.3 trillion. The review was based on company environmental and climate-related reporting in line with the EU’s Non-Financial Reporting Directive (the Directive) and progress in implementing the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).  

While the findings show some improvement in company disclosure compared to 2018, current reporting practices often still fail to provide investors with a clear understanding of a company’s development, performance, position and impact despite the current requirements laid out by the Directive.   

A key weakness for 78% of the companies reviewed was principal risk disclosure despite this being a core content category within the Directive and a key emphasis for the TCFD. While 90% of companies did disclose at least one principal risk relating to climate or environment, only 54% considered both transition and physical risks as outlined in the TCFD recommendations and just 6% defined the short, medium and long-term time horizons over which the identified risks would impact the organisation.  

Such information is required to ensure that investors can fully assess the sustainability of their investments as outlined in the EU Green Deal and double the pace of low-carbon investment needed to reach net-zero emissions by 2050.  

As little as one third of companies adequately addressed the environmental and climate-related risks and opportunities faced by their business. Over half of business model disclosures were light touch in nature and did not fully articulate the strategic integration or implications of these risks and opportunities into the company’s core business.  

Furthermore, 42% of companies were noted to omit potentially material environmental or climate-related information for their sector such as principal risks which other companies in the industry had reported to be material. The most commonly noted omissions from reporting included information on risks (e.g. lack of long-term risk consideration, or failure to specifically consider climate risk) and industry–specific topics (such as water usage for energy sector companies, or natural resource dependency for materials and pharmaceutical companies). 

“This report was designed to provide a snapshot of how companies are reporting to provide an evidence base for the revision of the EU Non-Financial Reporting Directive. However, what we now have on our hands is a stark warning that many companies are not only falling short of considering the strategic and financial impacts of environmental and climate-related matters on their business, but that investors are not receiving substantially comparable and reliable information to guide their decision-making and capital allocations,” says Mardi McBrien, Managing Director, CDSB. “More effective regulation is needed to ensure that companies are delivering the right information to investors. The current requirements of Directive haven’t produced the desired results, despite best intentions, and we need to move away from the mentality of reporting for the sake of it. Our findings show a revision of the Directive is the right approach and this report lays out clear recommendations to ensure that regulatory changes facilitate the effective flow of truly decision-useful information and resulting capital”.  

Changes to the Directive should not necessarily result in an additional burden for companies and the findings of the report show that a “less is more” approach could feasibly apply.  

The longest environmental and climate-related disclosure, which did not include all of the requirements of the Directive, was 14 pages; the shortest disclosure, which included all five content categories, was just 2 pages. However, there were inconsistencies across approaches, with the vast majority of companies treating the Directive and the TCFD recommendations as two separate disclosures when these matters should be integrated and connected.   

To coincide with the release of the report, CDSB will also launch a new e-learning course on the TCFD Knowledge Hub this May. The course is freely available and will explore the requirements and key themes of the Non-Financial Reporting Directive.  

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