Yesterday, the Task Force on Non-Financial Reporting Standards, of which WWF was a member, published its recommendations to the European Commission on what a robust sustainability disclosure standard should look like. The aim of the standards is to guide companies on what they should disclose and how. These recommendations, which were prepared at the request of the European Commission, are crucial elements for the upcoming revision of the Non-Financial Reporting Directive (NFRD), which is currently scheduled to be released on April 21. If the Commission creates an EU sustainability reporting standard, and the related EU Standard Setter, these standards will bring clarity on how and what needs to be disclosed by companies.
For example, in practice, the above recommendations would mean that two power utilities would have to report their environmental impacts with the same metrics, including their emissions, their local air pollution, the degree of alignment of their business model with a 1.5°C scenario, and their plans to decarbonize their power production. This comparability would make it substantially easier for companies, financial institutions, civil society organisations and policy-makers to assess which company is more environmentally-friendly.
Sebastien Godinot, Economist and Head of Sustainable Finance Unit, WWF European Policy Office said: “We support the recommendations published today by the Project Task Force on Non-Financial Reporting Standards, as a breakthrough in corporate sustainability disclosure. The Task Force highlights three key issues in particular: sector-specific disclosure, forward-looking information (companies’ sustainability targets), and alignment of business models with environmental goals like the Paris Agreement–crucial ingredients for ensuring that sustainability disclosure standards can meet their objectives. If these recommendations are put into practice, they will bring some much needed transparency, and force companies to assess their impacts. We call on the Commission to integrate these recommendations into its upcoming legislative proposal on the revision of the NFRD, and ensure they are mainstreamed in all next steps.”
The European Financial Reporting Advisory Group Task Force’s recommendations include:
– sector-specific disclosure to enable comparison between peer companies of the same sector;
– forward-looking disclosure, i.e. disclosing information about future, not past, sustainability issues for the company (in particular corporate sustainability targets);
– disclosure on the alignment of a company’s business model with environmental goals (e.g. alignment with the Paris goal);
-inclusion of SMEs in the scope of disclosure for high-impact sectors;
-clarification of the double-materiality assessment: not only sustainability-related financial risks on the company itself, but also impacts of the company on people and planet must be disclosed;
-consistency with existing EU sustainable finance legislation, especially the structure of the EU Taxonomy in six environmental objectives.