Sun. May 29th, 2022

Less than ten out of nearly 12,000 qualifying companies have shown they are ready to comply with new green reporting rules that went into effect in Europe at the beginning of the year, a large business group said.

The Conference Boardthe US-based big business membership club, has warned that the majority of European companies that have analyzed it may fail to provide data at their financial year-end on capital spending on key issues such as renewable energy.

The EU rules that came into force this year require any listed company with more than 500 staff to publish the percentage of revenue, capital expenditure and operating costs of activities covered by the green taxonomy – a classification system that aligns “environmentally sustainable” activities define with the bloc’s goals for climate change.

Financial institutions should report on how much of their portfolio complies with that system.

The global assessment conducted for the business group showed that “only a handful” published taxonomy audits, including Accionaa Spanish infrastructure company.

There has been widespread ignorance among members, says Anuj Saush, leader of the Conference Council’s Management and Sustainability Center, and it sends nearly 200 members an information session on how to comply with it.

“Most people are simply not aware of the taxonomy. And among those who are aware, there is a perception that this is something that is only for investors and asset managers to do. But it is for all companies, ”he said.

China, Japan, South Africa, Canada, the United Kingdom, Malaysia and Singapore were also developing their own taxonomies, Saush noted. “There can be many different reporting standards across different jurisdictions. You need a dedicated team to manage it. ”

The purpose of the reporting rules is to reduce “greenwashing” by setting standards for what is sustainable, and to allow lenders and investors to reliably identify companies that reduce their climate change risk.

EU rules cover six environmental objectives. These include adapting to climate change, sustainable water use and pollution prevention. If an activity meets the criteria and contributes to these goals, it can be classified as compliance.

There are no penalties yet for non-compliance, but companies that do not comply may find it harder to attract funding.

The EU directive applies to around 11 700 large companies, including banks, insurance companies and public interest companies. The conference board survey, in collaboration with Sustainalytics, a research rating firm, found that delays with the legislation were one of the main reasons for the lack of preparedness.

“Companies only had six months to prepare from when the rules were published,” said Anne Schoemaker of Sustainalytics, noting that there was also a lack of clarity.

“If you look closely, there is a lot of ambiguity about the rules. Companies will do things differently, data providers will do things differently and auditors will have their own interpretations. ”

For this year, enterprises should only indicate the part of their activities that take place in taxonomy-related fields. In the next year, they should classify how aligned they are with it.

“A cement company is likely to have 90 percent of its activities eligible, but zero percent align,” Schoemaker explained, referring to the ratio of cement business that will be covered by the rules to those that will count as sustainable.

Most companies judged so far have had less than 10 percent of their revenue related to activities covered by the taxonomy, she estimated. Only 15 percent had any income, capital expenditure or operating expenditure that matched green goals.

The taxonomy is still evolving. The EU is debating whether investment in nuclear energy and cleaner gas should be classified as sustainable. The European Commission chose to include them as green after pressure from France and Germany, which asked Austria and Luxembourg to do so threatens legal action.

The Commission last year corporate sustainability reporting directive which will extend taxonomy reporting to large private companies and smaller listed companies, require independent auditing of the report and oblige the information to be digitally tagged so that it is machine readable, so that EU-wide databases can be built.

“It’s going to be a recurring cost,” Saush said. “The standards will be reviewed every three years in the EU. Every company that is affected now needs a dedicated team in this regard. ”

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