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The State of EU Environmental Disclosure in 2020
1. February 10th , 2021
The State of EU Environmental Disclosure in 2020
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5. The State of EU Environmental Disclosure in 2020
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Since EU Non-Financial Reporting Directive (NFRD) came into effect in 2017, some of
the European Unionโs large companies are required to prepare a non-financial
statement containing information relating to at least environmental matters, social
and employee-related matters, respect for human rights, anti-corruption and bribery
matters. Companies should disclose a description of the policies, outcomes and risks
related to those matters and should be included in the management report of the
undertaking concerned.
In 2020, European companies published their third annual statements under the
NFRD, and the first since the release of the European Commissionโs guidelines on
reporting climate-related information in June 2019. The guidelines define the
relationship between NFRD and Task Force on Climate-related Financial Disclosures
(TCFD) and outline how companies could integrate the two disclosure requirements.
With support from the European Unionโs LIFE program, CDSB conducted an in-depth
review of the 2020 Environmental Disclosures of 50 of the largest EU-listed
companies. โThe state of EU Environmental Disclosure in 2020โ report assesses the
effectiveness of environmental and climate disclosures in meeting the NFRD purpose
of increasing the relevance, consistency and comparability of company reports to
support stakeholders in making informed decisions on sustainable
development. NFRD also supports the corporate reporting process by providing case
studies, good practices and tips.
ยฉ 2021 Sustainability Knowledge Group
The State of EU Environmental Disclosure in 2020
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The state of EU Environmental Disclosure in 2020
The report showed progress in disclosure over the past three years, as most large EU
companies now provide disclosures against NFRDโs core categories. However, TCFD
aligned climate reporting and disclosure of environmental issues remained
insufficient. The report shows that some aspects of disclosure did not improve
compared to 2019, as the strengths (Policies and due diligence, Business model,
KPIs) and the main weaknesses (TCFD, Principal risks, Materiality) remained the
same.
Besides disclosures related to climate change, the report also considered integrating
other environmental aspects, including information on risks and impacts related to
water, biodiversity, deforestation and forest degradation. The report showed that
nearly all companies report climate change and water, while disclosures on other
environmental issues were less prevalent. Lower levels of reporting on these aspects
indicate a lower maturity in disclosure facing companies which should be addressed.
Address problems and solutions
The research highlighted that issues in integration of TCFD, clarity and specificity of
principal risk disclosures, application of a clear materiality definition still remain. The
findings demonstrated that often the quality of disclosures were insufficient to fully
understand the companiesโ impacts, risks, or strategies on environmental issues and
enable effective decision-making.
ยฉ 2021 Sustainability Knowledge Group
The State of EU Environmental Disclosure in 2020
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Companies still do not provide enough information to investors about effectively
allocating capital towards a low-carbon transition at scale. Inclusion of TCFD
recommendations in the NFRD should ensure that this lack of information is
addressed, and companies must provide the necessary transparency.
To improve that:
โข Companies should continue to improve disclosure of these aspects, to provide the
information needed to align investments within the EU to a sustainable, low
carbon, activities for the long-term.
โข Companies must also consider forthcoming reporting requirements from other
pieces of EU legislation to provide complete and cohesive disclosure.
โข The upcoming review of the NFRD by the European Commission, and the explicit
inclusion of TCFD climate-related disclosure into the Directive, play a major and
important role in improving the quality, comparability and consistency of
disclosures.
โข The report also gives some tips to business owners on best practices for reporting
on environmental issues:
โข Be clear on the specific environmental topics that are material for the business,
providing a clear description on the nature-related dependencies of the business
model, in line with the Natural Capital Protocol
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The State of EU Environmental Disclosure in 2020
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โข Consider the location of specific environmental dependencies and impacts, within
the businessโ direct operations and value chain, to identify material topics. For
example, water-related disclosures should consider in particular areas of high or
very-high water stress
โข Clarify the accounting methodologies and definitions of key terms (e.g., water
consumption), referring to existing methodologies, or frameworks
โข Utilise the SASB industry-specific standards and CDP questionnaires to inform the
selection of comparable and consistent metrics to report upon different
environmental topics. Where impacts or risks are identified for particular โhotspotโ
areas, for example regions of high-water stress or biological sensitivity,
disaggregated data should be provided, alongside narrative to explain the
dependencies, risks and opportunities connected to these specific aspects.
With limited time left to achieve the 2030 Agenda for Sustainable Development,
there are still significant gaps in disclosure against TCFD recommendations. There is
a need for a more integrated approach and consistent disclosures in disclosing
environmental material information.
ยฉ 2021 Sustainability Knowledge Group
The State of EU Environmental Disclosure in 2020
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