Climate Change Reporting and Human Information Processing – Quo Vadis Transparency?

The Regulation (EU) 2019/2088 of 27 November 2019 on sustainability-related disclosures in the financial services sector has introduced new transparency obligations, mainly about “the policies on the integration of sustainability risks in the investment decision-making process” (Art. 3[1]). This wording is relatively vague and does not contain clear indications about the contents of the required reporting. Therefore, the transparency term needs thorough discussion. Information should be given in a concise, evident, intelligent and easily accessible form, using precise and plain language. But too much transparency could have negative effects: The sheer volume and intensity of the information eventually leads to a confusion effect since recipients lose the overview of the data. Furthermore, overconfidence occurs tending to foster a misdirected judgment. Avoiding such situations, reporting obligations about climate change should optimize the outcome of the information process. Particularly, increased objections have been expressed against the “mandated disclosure paradigm”; apart from the hidden costs caused by any kind of disclosure, mandated information leads to inequality, impairs individual decisions and deters lawmakers from adopting better regulations. The contribution presents an evaluation of the enterprise-related transparency obligations expressed in reporting duties of companies about climate change in the light of a proper understanding of the transparency principle and the intrinsic horizon of the information recipients. The developed key messages can serve as guidelines for the regulatory concretization of the disclosure obligations.