EU Wants Tougher Climate Disclosure Rule as Firms Lag Behind

European authorities are calling for a significant expansion of climate reporting requirements after finding that businesses and banks aren’t providing the information needed to guide capital toward a carbon-neutral future.

The European Commission said the Non-Financial Reporting Directive should be expanded to include unlisted companies and proposed dropping a 500-employee threshold, according to a statement. Listed small and medium-sized companies should also be subject to the requirement, the commission said.

The proposal follows a review showing the existing directive failed to achieve the desired results. Though companies have to report both on how sustainability affects their business and how their business affects the environment, there is “ample” evidence that “the information that companies report is not sufficient,” according to the commission’s statement, which was released on Wednesday.

The recommendations come as the European Union moves a step closer to setting its first criteria for what constitutes a green investment. The EU wants to reduce 2030 emissions by at least 55% from 1990 levels. A key instrument is disclosing CO2 sinners in order to spur investment in environmentally friendly technologies.

But the commission said the information that companies and the financial industry provide is full of holes that make it difficult for investors to compare businesses, and that leave users “often unsure” whether the information can be trusted.

Under the proposal, an advisory group would draft new standards. A mandatory audit requirement would be incorporated, to ensure that information “is accurate and reliable.” If approved by EU lawmakers, the new disclosure package would mean companies would need to start reporting under the new framework in 2024.

The Association for Financial Markets in European said the proposal is a much-needed step toward consistent reporting. The industry group for banks, brokers and investors urged the commission, however, to coordinate its implementation with other climate measures in the EU and abroad.

©2021 Bloomberg L.P.

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