EU agrees deal on company disclosures to combat greenwashing

The provisional agreement will require a formal vote by EU states and parliament to ratify it.
European Union flags flutter outside the European Commission headquarters in Brussels, Belgium, 24 March 2021.
European Union flags flutter outside the European Commission headquarters in Brussels, Belgium, 24 March 2021.

The European Union has reached a deal on corporate sustainability reporting requirements for large companies from 2024, a European Parliament committee said on Tuesday.

Regulators have grown more worried about companies engaging in greenwashing, or making exaggerated climate-friendly claims to attract investor cash.

Members of the European Parliament and EU governments struck a provisional agreement on new reporting rules for large companies, parliament's legal affairs committee said in a statement.

"This aims to end greenwashing and lay the groundwork for sustainability reporting standards at the [the] global level."

Listed or unlisted companies with more than 250 staff and turnover of €40 million ($42.13 million) will have to disclose environmental, social, and governance (ESG) risks and opportunities, and the impact of their activities on the environment and people.

Some smaller listed companies will be subject to a lighter set of reporting standards, which they can opt out of until 2028, the committee said.

"From now on, having a clean human rights record will be just as important as having a clean balance sheet," said Pascal Durand, who led negotiations for the parliament.

Disclosures must be externally audited, Durand said, adding that the rules make room for new players to offer this service, and "not just leave it in the hands of ... the Big Four", a reference to EY, KPMG, Deloitte, and PwC, which dominate financial auditing.

The rules are part of a package that includes a "taxonomy" of what constitutes a green investment, and ESG disclosures for asset managers to help transition to a climate-neutral economy.

A formal vote by EU states and parliament is needed to ratify Tuesday's deal.

EU is set to become front-runner in setting global sustainability reporting standards, the committee said.

The US Securities and Exchange Commission has also proposed climate-related disclosures for companies, and the new International Sustainability Standards Board has proposed disclosure rules which mainly focus on climate.

But unlike the EU, neither require disclosures on a company's impact on the environment.