Most firms don’t know how they’ll finance climate plans, finds French regulator

AMF publishes research to help companies comply with EU disclosure rules

The biggest challenge for companies trying to comply with EU rules on climate transition plans will be explaining how they are going to finance them, according to AMF.

The French financial market regulator recently published a study of companies covered by the Corporate Sustainability Reporting Directive (CSRD) – and its underlying European Sustainability Reporting Standards (ESRS) – to see how they were tackling the requirement to disclose their climate strategies.

“The aim was to gather information about how issuers are coping with the coming regulation, and the difficulties they face,” explained Guillaume Castelbou, a senior policy officer at AMF. “And to understand what information investors feel they need in order to do the necessary due diligence on companies in relation to climate.”

AMF surveyed 28 issuers listed in France and 38 financial institutions, and conducted nine in-depth interviews. It also assessed the transition plans of 31 French companies that it identified as having the most mature approach to the topic.

Funding climate plans

In the findings, published in English last week, it noted that “the information required by the ESRS on financial resources appears to be the most difficult step to be taken by undertakings”.

It added that “currently very few companies disclose the investments allocated to their transition plans, let alone in detail”.

“A large majority of issuers reported, through the questionnaire or interviews conducted, difficulties in determining the budget or investments required to meet the objectives of the transition plans,” said AMF.

CSRD demands a level of granularity that can’t be captured by companies’ current tools, the report continued, suggesting that corporate spending would have to be monitored in a more automated way in future.

One unnamed industrial company told AMF that it was “finding it difficult to monitor investments in systems – to identify them, track them and be able to report on them” as it required a “major overhaul of various systems”.

It was experiencing “operational difficulties in making investments, even when these have been identified and included in the strategic plan” it said.

“Indeed, when cash is under pressure, investment is postponed. What’s more, we are faced with questions about the profitability of these investments, which can block progress within the plans.”

Board expertise

AMF’s research was carried out by a subgroup of its Climate and Sustainable Finance Commission, led by Emilie Thiéry, L’Oréal’s deputy legal director for corporate law, and Mathieu Garnero, a project director at France’s Environment and Energy Management Agency (ADEME).

Garnero told Real Economy Progress that “one of the main messages of this report is that complying with the CSRD needs to be about more than just compliance”.

“Aligning with 1.5°C will require deep strategic thinking, and the board needs to be in charge of that,” he said.

There was wide divergence among the nine entities interviewed for the study when it came to board expertise.

“One company didn’t submit the transition plan to the board for approval, due to its technicality,” explained Garnero. “But when a board can’t understand a transition plan, how can you expect the company to achieve it?”

Another of the companies “is making real efforts to internalise the expertise it needs to monitor and implement its plans” he continued, saying that it would only rely on external consultants for extremely technical areas, such as climate scenario analysis.

France was the first country to transpose the CSRD into national law. The rules came into force in January, with other member states having until July to follow suit.