Information in sustainability reports of listed companies often too slight
Listed companies in Europe are increasingly integrating sustainability into their risk governance processes, but the information they report is as yet too often perfunctory. A mix of soft law and hard law could make a difference in attempts to reduce the risk of greenwashing. This Steffie van den Bosch concludes in her PhD thesis, which she defends at Tilburg University on August 31, 2022. She developed a helpful framework for an integrated approach to sustainability in risk governance.
In recent years, the corporate risk landscape has changed considerably, with sustainability risks to people and the environment rising to prominence. If a company cannot adequately map and manage these risks, the consequences for both society and the business itself will be serious and even the company’s existence may be under threat. A major factor is public transparency, and this includes public confidence in large corporations. The question is not so much whether and why large corporations play a role in the transition to a sustainable future as it is how, PhD student Steffie van Den Bosch contends.
Specializing in corporate law, she explored how large, listed companies in Europe deal – and should deal – with sustainability risks, what role regulation plays, and what can be improved.
New framework: integrated approach
Based on extensive literature research, Van den Bosch designed a framework for an integrated approach to integrating sustainability into risk governance, intended for both corporations and policymakers. When it comes to risk governance, the essential elements for managing sustainability risks are not being systematically used to their full extent. It is not just risk management that matters, but also vision and strategy, oversight and accountability at board level, stakeholder involvement, and transparency. An integrated approach ensures that companies internalize so-termed externalities, such as pollution and poor working conditions, in their business operations.
Van den Bosch also analyzed the public reports, including annual reports and sustainability reports, of 58 listed companies in Europe over a six-year period (2014-2019). Her analysis shows that these companies are increasingly integrating sustainability into their risk governance processes. Especially companies that in 2014 were lagging behind have made great strides since 2017 following the introduction of certain reporting requirements and additional guidelines.
At the same time, there is room for improvement in terms of meaningful disclosure. Reported information still too often lacks details, for example, about the company’s sustainability policy and specific sustainability targets, its risk assessment, and its reporting of opportunities related to sustainability. Reports should reflect specific information to a larger extent and should be geared to the corporation concerned. That could avoid a ‘ticking the box’-exercise and reduce the risk of greenwashing.
That is why legislation should address both the form and the content of public reporting, using a smart mix of hard and soft law. Van den Bosch welcomes as promising first steps the proposed initiatives regarding compulsory due diligence and the European Sustainable Reporting Standards included in the proposed EU Corporate Sustainability Reporting Directive. She believes that Corporate Governance Codes standards also play an important role in nudging the companies in the sustainable transition.
Steffie van den Bosch LLM MSc defends her PhD thesis in the Tilburg University Auditorium on August 31, 2022, 2 pm. The defense will also be live-streamed. Title of PhD thesis: 'Business at risk: The governance and disclosure of sustainability risks'. Supervisor: Professor C.F. van der Elst; co-supervisor: A.J.F. Lafarre MSc PhD.