The European Commission published on 18 June new guidelines on reporting climate change-related information for listed companies, banks and insurance companies under the Non-Financial Reporting Directive 2014/95/EU. They consist of a new supplement to the existing Non-Financial Reporting Guidelines.

The guidelines are non-binding and provide companies with recommendations on how to better report the impact that their activities are having on the climate and the impact of climate change on their business.

FERMA had responded in March to the consultation about these guidelines and called for greater use of a corporate language and references to well-known risk management terminology that resonates with businesses, the primary users of these guidelines.

The guidelines are clearly expressing risk management concepts and terms that require our community’s attention. They explicitly recommend businesses to:

• Categorise the principal risks of climate change on the financial performance of the company according to whether they arise from the transition to a low carbon economy (policy, legal, technological, market and reputational), or physical risks from the direct effects of climate change (acute and chronic).
• Disclose any risk mapping that includes climate-related issues.
• Provide definitions of risk terminology used or references to existing risk classification frameworks used.
• Describe links between principal climate related risks and key financial performance indicators.

These are all elements that point towards the implementation of a professional risk management practice in businesses. This trend is consistent with the findings of our April webinar on integrating ESG-relates risks into ERM, when 70% of the audience declared that they had regular or occasional collaboration with Environment, Social and Governance (ESG) specialists and 68% said they are playing or plan to play a specific role regarding ESG-related risks.

As indicated by one European Commission representative during a stakeholder conference on 24 June in Brussels, sustainable finance requires good climate reporting (data and information) and the next Commission is likely to review the Non-Financial Reporting Directive.

Corporate disclosure of climate related information has improved in recent years. However, there are still significant gaps, and investors and other stakeholders are looking for further improvements in the quantity, quality and comparability of disclosures.

See also FERMA’s statement on the Non-Financial Reporting Guidelines.