Policy Brief, Sustainability Reporting

PB 7/2021: What information is relevant for sustainability reporting? The concept of materiality and the EU Corporate Sustainability Reporting Directive

  • Today, the demand for companies to disclose non-financial information is driven by a keen interest of a wide range of institutions, including governments, financial supervisory authorities, and financial investors.
  • Sustainability disclosures are not only relevant in terms of their financial implications, but also inform for primarily environmental and social considerations.
  • We explain how different definitions of materiality for sustainability disclosures consider the outside-in perspective (the impact that external factors make on a company) and the inside-out perspective (the impact of a company for society and the environment).
  • Research shows that regulatory guidance on materiality definition matters and affects capital market participants’ evaluations of firm value.
  • We recommend for the Corporate Sustainability Reporting Directive (CSRD) to rely on double materiality to capture both, the outside-in and inside-out perspective, while facilitating its operationalization.
  • While the recent CSRD proposal marks progress by clarifying the principle of double materiality, it lacks guidance about which specific sustainability issues are material for which companies or sectors.
  • We further recommend for the European Commission to provide regulatory guidance regarding the materiality of sustainability issues across different industries.
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