More than half Europe's biggest companies fail to explain possible climate change impact on business model

Jonathan Boyd
clock • 2 min read

Less than half – 44% – of Europe’s biggest companies explain in their management reports how their business models are affected by climate change or environmental challenges, according to research published by the Climate Disclosure Standards Board and CDP.

In the report titled First Steps, the two non profit organisations have analysed 80 of the biggest publicly listed companies in the region, from 12 countries, representing €4.2trn in market capitalisation, and measured them against five reporting requirements outlined in the Non-Financial Reporting Directive of the EU.

The research suggests that there is low takeup of the Directives requirements in annual reports, along with reporting inconsistencies; this makes it harder for investors to compare information from different companies.

Three quarters of company reports analysed include a business model description that falls short of the EU guidelines, and less than 25% include a clear statement that climate or environment is part of the overall due dilligence process.

By country, France is actually home to some of the leaders, with 57% of those French companies studied providing relevant reference to climate or environmental issues in their business models.

However, while some 79% of company reports identified at least one climate or environmental risk, 80% did not prepare a specific strategy to mitigate these risks.

And just 41% of company reports disclosed transition risks, such as future regulation and policy changes, that are likely to have material business impacts.

A link was found between jurisdictions that have implemented stringent reporting requirements before the NFR Directive came into effect, and the propensity for companies to do better in the research: the UK and France are two where this was the case, and companies there perform better, the research suggests, with all French and UK company reports including current emissions, compared to just 56% in Germany and an EU average of 81%.

TCFD

The research also looked to find out how well reporting practices align with recommendations of the G20 Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD).

Mardi Mcbrien, managing director, Climate Disclosure Standards Board said: “To scale up the adoption of the TCFD at the pace and quality needed to bring a realistic picture of climate-related financial risk to the market, mandatory implementation of the 11 recommended disclosures is needed. While we have seen progress by companies on such disclosures, all companies need to discuss the impact of climate change on their business, as outlined by the TCFD recommendations. Aligning these recommendations with the Non-Financial Reporting Directive presents an opportunity to streamline the EU corporate reporting landscape.”

To read the full CDSB report click here: cdsb_nfrd_first_steps_2018

 

Jonathan Boyd
Author spotlight

Jonathan Boyd

Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope.

More on Equities