The has announced that the European Union has agreed to new corporate sustainability reporting requirements from 2024. With regulators expressing concern around ‘greenwashing’ actions by companies, the EPC has taken steps to try to end this. Whilst a formal vote is still required by EU states, the hope is that the measures will place the EU as a world leader when it comes to setting sustainability reporting standards and could lead to other nations following suit. "This aims to end greenwashing and lay the groundwork for sustainability reporting standards at the (the) global level."- European Parliament Committee. [i]
Bruno le Maire, Minister for economic affairs, finance and industrial and digital sovereignty, said: “This agreement is excellent news for all European consumers. They will now be better informed about the impact of business on human rights and the environment. This means more transparency for citizens, consumers, and investors. It also means more readability and simplicity in the information provided by companies, which must play their full part in society. Greenwashing is over. With this text, Europe is at the forefront of the international race to standards, setting high standards in line with our environmental and social ambitions.”[ii]
The new reporting rules mainly apply to large companies, with listed or unlisted companies that employ more than 250 staff and have a turnover in excess of 40 million euros ($42.13 million) having to disclose both their ESG risks and opportunities, as well as the impact of their activities on the environment and people.
However, the committee said that the measures will see some smaller listed companies subjected to a lighter set of reporting standards, which they can opt-out of until 2028. The rules are part of a wider set of measures, which also includes a "taxonomy" of what constitutes a green investment, as well ESG disclosures for asset managers to help with the transition to a climate-neutral economy. Reuters noted in June this year that over $3 trillion has flowed into investments specifically touting their ESG credentials reported under scores of voluntary disclosures.[iii]
Pascal Durand, who led negotiations for the European Parliament, told Reuters: "From now on, having a clean human rights record will be just as important as having a clean balance sheet,". Disclosures must be externally audited, Durand added, saying that the rules make room for new players to offer this service and "not just leave it in the hands of... the Big Four," a reference to EY, KPMG, Deloitte and PwC, which dominate financial auditing.[iv]
In the United States, the SEC (Securities & Exchange Commission) has also drafted proposals for companies to provide climate-related disclosures. This includes proposals where “a registrant would be required to provide disclosures about GHG emissions (with attestation for Scope 1 and Scope 2 disclosures), certain financial statement disclosures, and qualitative and governance disclosures within its registration statements and annual reports (e.g., Form 10-K)[v]. However, many companies are unprepared. A recent survey by Deloitte (which sampled 300 finance, accounting, sustainability, and legal executives at public companies with over $500 million in revenue) discovered that well over half of respondents (57%) said that data availability (access) and data quality (accuracy or completeness) remain their greatest challenges with respect to ESG data for disclosure. Further, just 21% currently have an ESG council or working group focused on ESG topics, yet there was some positivity, with 57% saying they are actively working to establish one. A strong majority (82%) also believe they will need additional resources to generate ESG disclosures that meet the information needs of critical stakeholders.[vi]
A further issue exists in the potential for competing standards, where the G20 are also backing measures from the International Sustainability Standards Board (ISSB), the fear being that companies could become bogged down financially and bureaucratically trying to remain compliant across several different sets of standards. Whilst the EU rules appear the most comprehensive, the ISSB aims to be a global "baseline", focusing on risks to companies from climate, whereas the SEC rules also look at climate risks to firms.:
"It's uncertainty over what will be the outcome of it, and we can see that especially if companies are dual-listed in the United States and EU, they will have an issue," said Jane Thostrup Jagd, deputy director for net zero finance at We Mean Business. "We will end up in a situation which is potentially even worse than what we have financially," she told Reuters, referring to failed attempts at deeper convergence between accounting rules in the United States and those from a sister body of the ISSB[vii].
[i] EU agrees deal on company disclosures to combat greenwashing | Reuters
[ii] EU proposes new rules for sustainability reporting in greenwashing crackdown - Just Style (just-style.com)
[iii] Analysis: Overlapping rules to curb greenwashing may only add to company frustration | Reuters
[iv] EU agrees deal on company disclosures to combat greenwashing | Reuters
[v] SEC Climate Disclosure Guidance | Deloitte US
[vi] https://www2.deloitte.com/content/dam/Deloitte/us/Documents/audit/us-audit-executive-summary-of-the-secs-proposed-rule-on-climate-disclosure-requirements.pdf
[vii] Analysis: Overlapping rules to curb greenwashing may only add to company frustration | Reuters
Lauren has extensive experience as an analyst and market researcher in the digital technology and travel sectors. She has a background in researching and forecasting emerging technologies, with a particular passion for the Videogames and eSports industries. She joined the Critical Information Group as Head of Reports and Market Research at GRC World Forums, and leads the content and data research team at the Zero Carbon Academy. “What drew me to the academy is the opportunity to add content and commentary around sustainability across a wealth of industries and sectors.”
