EU weighs new requirements for firms against biodiversity, pandemic risks

BRUSSELS (Reuters) – The European Commission is considering whether to impose new reporting requirements on firms to shield them from growing risks of biodiversity loss and pandemics, a draft document shows, as the EU grapples with the COVID-19 outbreak.

The document is meant to attract comments from experts and the wider public on next possible legislative steps to strengthen financial sustainability.

Among the issues on which Commission officials are seeking advice is linking managers’ bonuses with carbon reduction results and green capital requirements.

The draft public consultation seen by Reuters asks whether biological risks should be taken into account in a more comprehensive manner when companies disclose investment strategies, in light of the growing negative impact these exposures have on profitability and long-term prospects.

The document, which is expected to be published in the coming days and could lead to legislative proposals at a later stage, says the COVID-19 epidemic is showing more clearly the risks associated with human activity and biodiversity loss.

Experts that it cites suggest that degraded habitats, coupled with a warming climate, may cause higher risks of disease transmission, as pathogens spread more easily to livestock and humans.

“It is important – now more than ever – to address the multiple and often interacting threats to ecosystems and wildlife to buffer against the risk of future pandemics,” the document said.

REPORTING REQUIREMENTS

Among options under consideration are more stringent reporting requirements for listed companies, banks and insurance firms about their exposure to biodiversity loss and pandemic risks.

It asks whether investors and lenders should be required to disclose which temperature scenario their portfolios are financing, notably if they entail a rise of 2 degrees Celsius or more.

The Commission also raises the issue of whether a share of managers’ bonuses should be linked to their climate achievements.

Some firms might be required to include carbon emission reductions among factors that would affect directors’ variable remuneration, the document shows.

Banks could face new capital requirements or incentives linked to their exposure to climate risks, the document shows.

There could be a so-called “brown penalising factor” whereby lenders exposed to coal or other fossil fuel investments would need to set aside more capital to hedge the higher risks posed by polluting assets.

But banks could also profit from a “green supporting factor”, allowing them to reduce their capital requirements if they invest in green infrastructure such as renewable energy facilities.