New European reporting guidelines would make it mandatory for large companies to disclose the climate impact of their activities as well as how they plan to mitigate it. This would bring more clarity for consumers, taxpayers and investors alike on how their money is spent and therefore lead to more sustainable investments.
The European Commission is pondering changes to its guidelines for reporting by large companies (more than 500 employees) on non-financial issues. This includes environmental and social impacts of the company’s activities.
The goal of the revision is to bring the current non-financial reporting guidelines in line with the European Green Deal – potentially forcing companies to disclose how they impact society, the environment and related legislation. This would give not only customers but also investors more clarity when interacting with large companies – making investments more sustainable.
The new guidelines need to be ambitious and really help stakeholders understand the climate impacts of companies, and how they plan on addressing those impacts. There are already guidelines on reporting climate change impacts, but these are non-binding – meaning companies can choose to follow them.
There is a need for legally binding climate change reporting from large companies – forcing them to disclose general climate change-related information, such as:
- Climate change risks. This includes potential stranded assets (for example oil deposits that cannot be exploited any longer), risks of climate change impacting company assets (for example power stations that might be at increased risk of flooding) and the weight of fossil fuels in the balance sheets of banks.
- Company level climate change targets and decarbonization pathway, and how they ensure that their investments are in line with climate neutrality and the European Green Deal.
- Subsidies and state aid the company has received for investing in energy efficiency, renewable energy and climate pollution reductions
- Efforts by the company to push ‘Just transition’ and helping employees and communities transition away from pollution-intensive activities while minimizing social impacts such as job losses.
- Amount of money spent on climate and energy-related lobbying efforts in Brussels, and the positions that the company is taking or supporting
Additionally, there is also a need for more transparency related to carbon markets and especially the EU emission trading scheme (EU ETS) – enabling policymakers and civil society to review how companies comply with the EU ETS, and how they use carbon trading globally. This could be used during the review of EU climate policy and includes:
- Internal CO2 prices used by the company when making investment and production decisions.
- How companies have complied with the EU carbon trading scheme. It is particularly important to understand how many permits the whole company has received for free, and how many they have had to purchase. At the moment this information is available at the installation level, but very difficult to compile at the company level.
- Whether or not companies use carbon offsetting, and if so how – which types of projects they use.
While this seems like a long shopping list, it’s important to remember that we’re talking about companies with more than 500 employees, including big banks and industrial giants. Forcing them to disclose this information would not significantly burden them.
On the other hand, each of these elements would help us – as customers, but also as taxpayers and investors through for example pension funds – to be informed about what companies are actually doing to help in the struggle against climatic breakdown. Making large companies disclose information as described above would give us a clear picture of whether or not these companies are taking the climate issue seriously. If they’re not, having to be transparent about it, could make them reconsider their position and take due action.
Public consultation on this issue closed recently. As the way forward, we urge the European Commission to propose changes to the non-financial reporting directive as soon as possible. In the spirit of the EU Green Deal, the directive should include stringent climate requirements and force companies to provide more transparency on whether they are addressing climate change, and if so: how?