Climate cost debate rages on

Writing in the FT, America’s top financial regulator accused the EU’s recent corporate sustainability reporting and corporate sustainability due diligence directives of putting the “wishes of ideologues” above the wellbeing of investors. These directives require companies to report on two material environmental costs: financial materiality (the impact of environmental costs on the firm’s bottom line) and material impact (the broader cost that the firm’s activities impose on the environment, for society as a whole). Atkins says firms should have to report only financial materiality, as reporting material impact merely imposes a cost on the firm without benefiting investors.

Opinion is divided in Europe. Under pressure to scrap double materiality, the EU has delayed implementing implementation of the directives so it can reduce its burden on business by cutting the data points to be measured by up to two-thirds. In Britain, a recent government proposal for single materiality reporting has met opposition, including from the Institute of Chartered Accountants of Scotland.

Smart investors and firms know that, so long as it is not too costly, double materiality reporting is good corporate citizenship (transparency aids accountability and policy making) and good risk management. Even if a company is not yet bearing the financial cost of its environmental impact, as public awareness and concern grows the risk is it will in future, through new regulations, carbon pricing, legal action or fines. Measuring helps firms avoid costly problems in future. That is not ideological but common sense.

Photograph by Ralf Hirschberger/AFP, Getty Images