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78% of Europe’s largest companies falling short of adequately reporting environmental and climate-related risks despite EU guidelines

Current corporate reporting practices could fall short on delivering on the objectives of the European Green Deal and the 2050 climate neutrality target.

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  • Only 15 companies reviewed fully disclose the environmental and climate-related aspects of their business model 
  • 1 in 5 disclosed no operational, strategic or financial impacts related to environmental and climate-related principal risks 
  • While companies in the financial and energy sectors showed modest progress in aligning to the TCFD, overall implementation continues to lag behind the five-year implementation path set out by the Task Force 
  • 42% of companies omitted potentially material environmental or climate-related information for their sector 

BERLIN, 19 May 2020: 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 companieswith 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 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 TCFDWhile 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 materialThe 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 itOur 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 Directivewas 14 pages; the shortest disclosurewhich included all five content categorieswas 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 

About the report 

Supported by the LIFE Programme of the European Union, the full review consisted of a question set developed by CDSB to assess the strengths and weaknesses of companies’ disclosures. This was based on consideration of the core ‘content categories’ of the NFRD and reviewing progress in implementing the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). To ensure results reflected an investor lens, mainstream reports (i.e. annual report and accounts) were reviewed, alongside information disclosed elsewhere where it was clearly referenced from the mainstream disclosure.  

The review was conducted by considering the disclosures of 50 listed European companies for the 2018 financial year (reports released in 2019). The companies were selected using the following criteria:  

  • Publicly listed and headquartered in an EU Member State; 
  • Over 500 employees; 
  • The largest 50 companies by market capitalisation selected based on 2019 average market capitalisation; and 
  • Company reporting in English. 

The full methodology approach can be found in Appendix 1 of the report. 

A full list of the companies reviewed can be found in Appendix 2 of the report. The ten industry sectors reviewed include communication services, consumer discretionary, consumer staples, energy, financials, health care, industrials, information technology, materials and utilities. 

About CDSB  

The Climate Disclosure Standards Board (CDSB) was founded in 2007 and is an international consortium of business and environmental NGOs committed to advancing and aligning the global mainstream corporate reporting model to equate natural capital with financial capital. It does so by offering companies a framework for reporting environmental and climate information with the same rigour as financial information. In turn, this helps them to provide investors with decision-useful environmental and climate information via the mainstream corporate report, enhancing the efficient allocation of capital.  Regulators also benefit from compliance-ready materials. Collectively, CDSB aim to contribute to more sustainable economic, social, and environmental system.  

CDSB hosts the TCFD Knowledge Hub on behalf of the Task Force on Climate-related Financial Disclosures.