European standards to give credibility to corporate climate data

2023-08-03 09:57:01

Reliable climate data and less greenwashing: the European Commission published on Monday the final text which defines the extra-financial information to be published by companies, but investors consider it insufficient.

Companies will have to declare how many tonnes of greenhouse gases they emit, the volumes of water they consume, the natural areas they degrade, their impact on local communities, etc.

The European directive, known as CSRD, defines 12 accounting standards to govern financial information on various environmental, societal and governance (ESG) topics. It is the result of work carried out under the leadership of the European Financial Reporting Advisory Group (Efrag).

For Patrick de Cambourg, president of Efrag, this kind of sustainable accounting is a “a crucial step towards the goal of putting sustainability reporting on an equal footing with financial reporting”.

In concrete terms, European companies will have to publish an annual sustainability report from 2025, as they do with their financial accounts, which will decipher their impact on the environment and society, the impact of climate change on their activity and a decarbonization plan.

In some countries, companies already had to inform the market about their climate strategy. From now on, they will have a framework allowing “comparability” data from each other, which will thus be of one ” best quality “according to Chiara del Prete, president of the Efrag technical expert group.

An important issue for the EU, which wants to develop sustainable finance, and investors who are sorely lacking in reliable data to direct their funds towards sustainable activities.

Relevance self-assessment

But investors were not particularly pleased with the text released on Monday. The European Commission has in fact chosen to let companies themselves assess which information is relevant to publish according to their activities, among the list of European standards.

Chiara del Prete cites the example of an accounting firm for which there is little need to assess the impact in terms of soil pollution… Why this self-assessment? For “avoid the costs associated with the publication of irrelevant information”, says the European Commission.

Mairead McGuinness, the Financial Services Commissioner, sees “the happy medium between limiting the burden on companies while allowing them to show the efforts they are making” in terms of climate.

The European employers’ organization BusinessEurope also claims to be “satisfied with this relief”, compared to the first version of the text, “the burden on businesses”, said its deputy general manager, Alexandre Affre.

Depend on the goodwill of companies?

On the investors’ side, Aleksandra Palinska, the managing director of Eurosif, a European organization for the promotion of sustainable finance, regretted that their “calls to make key ESG indicators mandatory” – launched for the sake of transparency – “have not been heard”.

From Eurosif’s point of view, the successful implementation of this regulation “now largely depends on companies and their advisers, consultants and auditors”.

“We cannot say that the standards are not mandatory”, defends Chiara del Prete, recalling that a company must systematically question its impact on water resources, global warming, worker health, etc.

“It is mandatory to describe the methodology and criteria adopted” in this assessment of the relevance of the standards, she adds, specifying that this information will be audited.