Businesses face ever-expanding demands to publish data on their relationship to society, investors and the planet. But is the transparency always worth the cost?
While the US Securities and Exchange Commission dithers on finalising its disclosure rules, the EU has taken a noticeably more hardline approach in preparing to force companies to disclose on issues such as biodiversity and human rights.
One potential blind spot has emerged however, with the EU’s decision to make carbon emissions disclosures largely voluntary.
The latest group to speak out against the EU are scientists, not activists or investors, as I report below. They have waded into an age-old debate about whether corporates fundamentally have a responsibility to their investors, or to society. — Kenza Bryan
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Scientists push for ‘exceptional’ approach to corporate climate data
When European Commission president Ursula von der Leyen promised to slash “red tape” in the EU this year, there was one strategy she did not mention: keep the tape, but let companies choose whether to wrap themselves in it. This is what is playing out for the climate component of the EU’s flagship reporting standards.
Following a deal approved last week, 11,000 listed companies will be left to decide whether their carbon dioxide emissions are significant, or “material” enough to disclose. By the end of 2026, the new standards will apply to up to 50,000 companies.
The laissez-faire approach has been coming under fire. While the deal was still being thrashed out, EFRAG, an advisory group to the EU’s executive body, weighed in to say that all climate reporting should be mandatory. Investor groups such as the European Sustainable Investment Forum and the Institutional Investors Group on Climate Change have also pushed back. Now, scientists are the latest group to sound the alarm, in a letter to European leaders including von der Leyen sent today and seen by Moral Money.
The decision “stands in direct contradiction to the Green Deal [the EU’s high-profile climate strategy] and undermines and discredits the EU’s global climate leadership”, more than 100 scientists from across Europe wrote. They added that the move “forgoes the opportunity to define a global gold standard and is likely to result in lower ambition levels, globally”.
One of the signatories, Theodor Cojoianu, a member of the Platform on Sustainable Finance (which advises the European Commission on some aspects of green regulation), told me that climate reporting was even more crucial than sharing data on the social and governance issues that make up the other letters of ESG.
“With climate change we’re talking about a public good for the entire world,” said Cojoianu, who is also an associate professor of energy finance at the University of Edinburgh.
While a company that pollutes its local rivers could perhaps question whether this information is relevant to investors on the other side of the world, a tonne of CO₂ in Brussels will have the same impact on global warming as one in London or Beijing. This means the bloc needs “disclosures at all costs, with no caveats on it”, Cojoianu said. “Carbon is always material and always of global relevance.”
The decision against mandatory emissions reporting contrasts with other areas where companies will be compelled to share information. One compulsory area of disclosure, for example, will be how companies integrate sustainability-related performance in bonus schemes.
Despite the range of approaches the EU has taken to different data points, the fact that its new rules will consistently focus on impacts to society and the planet should be a cause for celebration, some say, after an attempt by various rightwing and liberal MEPs to block the disclosure rules was rejected by a majority of lawmakers last week.
“The materiality bit [the EU’s focus on impact reporting] is brilliant, even if some of the reporting is optional,” said Richard Gardiner, head of EU public policy at the Amsterdam-based World Benchmarking Alliance.
This emphasis on real-world impacts, known as a “double materiality approach”, stands in stark contrast to the approach taken in the US, and by the influential International Sustainability Standards Board. So-called “single materiality” approaches focus on risks to the company’s own bottom line, and make disclosing the information cheaper and simpler.
Its boss, former Danone chief executive Emmanuel Faber, fiercely defended this approach in a column for French newspaper Le Monde earlier this month. Describing double materiality as “seductive, but deceptive”, he said he was worried “about views fiercely expressed seeking to portray sustainability standard setting as a battlefield”.
This whole debate might seem esoteric, given that the world is already swimming in environmental data. But the quality of that data, and the extent to which it delves into the ugliest corners of companies’ supply chains, is a different matter.
Only four of the world’s 100 largest companies are comprehensively disclosing climate risks in line with recommendations by the Task Force on Climate-related Financial Disclosures, that body said earlier this month.
“By shining a light on the risks and opportunities posed by climate change, [climate] disclosures empower companies and their stakeholders to make informed decisions that safeguard their future,” said Yeo Lian Sim, TCFD vice-chair and special adviser of diversity at Singapore Exchange. “Transparency is the currency of trust.” (Kenza Bryan)
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