The Alliance for Corporate Transparency is a three-year research project that brings together leading civil society organisations and experts with the aim of analysing the corporate disclosure on environmental, social and governance (ESG) issues by the largest companies operating in the EU and recommending legislative changes.
The project will provide extensive research on how companies are reporting and disclosing key information necessary for understanding their risks and impacts on the environment and society pursuant to the new disclosure requirements introduced by the Non-Financial Reporting Directive. The results will help companies to make their ESG disclosure more meaningful. But even more importantly it will provide crucial missing information that policy-makers need for the development of the EU reporting legislation and the creation of a sustainable finance framework.
Frank Bold is coordinating the project that includes the following members and advisors: Business and Human Rights Resource Centre, CPD Europe, CORE Coalition, ClientEarth, Future-Fit Foundation, Germanwatch, Margaret Wachenfeld (Themis Research and CHRB), Oxfam, Shift Project, Sustentia, Transparency International, and WWF. The project also collaborates with experts from leading business and investor organisations throughout the consultation rounds to discuss the progress and results of the project.
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Why is the project needed
Commencing in 2018, the Directive requires at least 6000 large European companies to disclose information on environmental, social, human rights and anti-corruption issues in order to better describe their wider impact on society. In particular, the reports should include information on the company’s business model, policies and their outcomes, as well as any risks of severe impacts linked to the company and its supply chains and how these risks are managed.
The Directive does not, however, specify which precise information and risks must be disclosed, which undermines the legislation’s objective to increase the relevance, consistency and comparability of information. This lack of standardisation complicates companies’ decision making, reporting, as well as their engagement with stakeholders and investors and their diverging priorities.
Objectives of the project
- Articulate which specific information companies need to report according to their sector to enable understanding of their impact (and thus clarify the new societal dimension of the materiality principle introduced by the NFR Directive)
- Contribute to the development and specification of legislative requirements in the upcoming review of the Directive and the development of an EU sustainable taxonomy
- Build an international consensus on a framework for the reporting of ESG information, allowing investors, companies, regulators and civil society to easily understand what data companies must provide and therefore drive standardisation of the reporting practice.
Methodology
In the next two years, the project aims to assess the information disclosed by 1000 of the largest European companies following the below steps:
- The project will first develop a tool to assess the corporate disclosure by identifying what information are material for understanding a company’s impact in the main industrial sectors, and define the reporting criteria to analyse this. For this purpose, we will draw from international standards and existing accounting and reporting frameworks in order to connect them with the law and show what information is commonly understood to be essential and material, and derive an outcome-oriented methodology for reporting on these issues.
- In 2018, we will design the above-mentioned assessment tool and target a smaller sample of companies representative from the main EU regions and industrial sectors. This phase will include round of consultations with external stakeholders from various fields (i.e policymaking, corporate and academic).
- Companies will be assessed on three main levels: 1) compliance with formal requirements 2) provision of necessary information on key environmental and social risks 3) assessment of information on the company’s approach to environmental and social opportunities
- The results will be made publicly available and presented each year to investors, analysts, civil society researchers, policy makers and companies.
Further background information
The European Commission intends to continue working in order to enhance and standardise corporate reporting. The Directive itself requires the Commission to review its implementation and consider legislative proposals. Furthermore, the Commission’s action plan on financing sustainable growth included a commitment to carry out a fitness check of the Directive’s requirements, and specify, first, the climate-related metrics and financial information, and subsequently, other environmental and social factors.
Frank Bold is a purpose-driven law firm leading the Purpose of the Corporation Project, an open-source platform that brings together leading experts and organisations interested in promoting the long-term health and sustainability of publicly listed corporations. In this context, a global roundtable series was hosted between 2014 and 2016 to discuss the challenges of a corporate governance framework fit for the challenges of the 21st century. The final report was presented at a high-level conference in Brussels, which identified corporate ESG reporting amongst the key elements in building a sustainable corporate governance framework.
For further information, please contact Susanna Arus, Communications and EU Public Affairs Manager at Frank Bold.
