New Zealand’s largest companies submitted their first mandatory climate-related disclosures this year; however, a recent study indicates that disclosing this information does not ensure improved corporate behaviour.
This year, New Zealand emerged as one of the first nations globally to mandate its largest companies and financial institutions to disclose their climate-related risks and opportunities in their annual reports and regulatory filings. Over the past month, these disclosures have been submitted under the regime established by the Financial Markets Authority.
But according to a new study co-authored by the University of Auckland’s Professor Charl de Villiers, requiring companies to disclose their social and environmental practices does not lead to improved business performance.
Professor de Villiers and his research team investigated the impact of a significant EU sustainability reporting initiative, Directive 2014/95/EU, which was implemented in 2017. After evaluating a cross-country sample of businesses from 2009 to 2020, it was discovered that the social and environmental outcomes did not show significant improvement following the implementation of the Directive.
“Despite the regulatory push, European companies didn’t exhibit substantial improvements in their social and environmental performance, nor did they improve when compared to US companies,“ said de Villiers.
“The findings are surprising. It’s important that we don’t assume that if we force companies to disclose information, they are actually going to do better for the environment and people.”
“We show that you can’t just put out a piece of legislation like this and assume things will improve. You really have to design it in such a way that there are meaningful sanctions for non-disclosure,” added de Villiers, emphasising how the study serves as evidence of the ineffectiveness of requiring corporate social and environmental disclosures to improve performance.
He also highlighted that the EU Directive’s limited effectiveness could be partly attributed to its absence of comprehensive guidelines, auditing requirements, and insufficient penalties for non-compliance.
“For Aotearoa New Zealand and other countries wanting to see meaningful progress, this highlights the importance of coupling clear disclosure requirements with specific guidelines, rigorous auditing, and strong enforcement mechanisms,” he concluded.