- Investor Watch -
Published March 27, 2020
Despite policy commitments to deal with climate change, many companies across Europe are failing to include climate change targets in their non-financial reporting, a major study has found.
The Alliance for Corporate Transparency’s study of non-financial reporting from 1,000 firms found a “marked gap between what companies say about climate change and their actual reporting practice.”
In addition, the report said, “the vast majority of companies fail to have specific risk mitigation strategies. Overall, less than 32% of all companies report on such a strategy, while only 23% address specific climate risks.”
The study also found only 13.9% of sampled European companies subject to the NFRD are using science-based targets aligned with the Paris Agreement goals.
The European Union’s Non-Financial Reporting Directive came into force in 2018. The Directive requires companies to disclose how they manage environmental, social, and governance issues. The EU is now assessing how it should revise the Directive.
In his foreword to the study, Richard Howitt, ex-MEP and now CEO of the International Integrated Reporting Council, suggested companies should be required to define targets and report annually on progress against them.
He added: “Our analysis shows a correlation between companies where targets are set and where audits take place, which suggests the introduction of both can be mutually reinforcing. Where targets are set, these must also be more specifically aligned to international conventions.”
Alfa Energy’s Sustainability Analyst, Nick Fedson, said: “Having set a target, a company should focus on audits to identify the best areas to invest in to reach the target most effectively. Doing this as soon as possible after setting the target helps an organisation understand whether their target is realistic. Essentially, target setting should be linked with action to meet targets, and auditing is one of the first steps to take.”
The study also calls for the Reporting Directive to be revised to include a commitment to science-based targets. Fedson pointed out that only 800 companies globally have SBTs, of which 139 are in Europe. “The sample size is small, and citing a percentage is misleading. They have a very specific sample of 1,000 companies subject to the NFRD – this 13.9% represents a significant chunk of the global SBT basket. We would greatly encourage more companies in the NFRD to use SBTs.”