Insight & Analysis

EDHEC’s Madlen Sobkowiak’s guide to the evolution of sustainable reporting

Published: Jul 2024

Madlen Sobkowiak, Associate Professor of Accounting at EDHEC Business School talks through the evolution of sustainability reporting and the alphabet soup of regulations.

Madlen Sobkowiak, Associate Professor of Accounting at EDHEC Business School

Many multi-national or listed firms globally have been reporting on sustainability issues for the last 20 years. Initially, this reporting was voluntary and often lacked standardisation and regulatory oversight, leading to inconsistent and sometimes superficial disclosures. It was often linked to the idea of Corporate Social Responsibility (CSR) and the idea that companies should engage and support local communities, charitable causes, and the environment. As such, it was often self-regulated, only focused on positive news, and not very comprehensive in the scope of the reporting.

Today, sustainability reporting has become more structured and comprehensive, driven by regulatory pressures and stakeholder demands.

In addition to the voluntary reporting done by companies, the EU Non-Financial Reporting Directive (NFRD), implemented in 2018, required large public-interest entities with more than 500 employees to disclose non-financial information. The NFRD was a significant step towards greater transparency but had limitations, including inconsistencies in reporting and insufficient scope as it didn’t mandate how and what specifically companies had to disclose in relation to sustainability risks or impacts.

To address these issues, the EU introduced the Corporate Sustainability Reporting Directive (CSRD). The CSRD, effective for the financial year 2024 onwards (phased rollout for different groups of companies – 2024 only the companies covered by NFRD already), is set to impact over 50,000 companies, including SMEs, mandating detailed disclosures across various sustainability metrics and in line with the reporting standards set by the European Financial Reporting Advisory Group (EFRAG).

Regulatory drivers

The CSRD is probably the leading regulatory framework globally and requires EU businesses above a certain size – including qualifying EU subsidiaries of non-EU companies – to provide detailed sustainability disclosures. The European Sustainability Reporting Standards (ESRS), developed by EFRAG under the CSRD, provide the specific requirements for these disclosures, covering a wide range of environmental, social, and governance (ESG) issues. This regulatory framework aims to standardise and enhance the quality of sustainability reporting across Europe, making ESG and financial reporting equally important.


In contrast, also in the EU, the Sustainable Finance Disclosure Regulation (SFDR) focuses specifically on financial market participants, mandating transparency around sustainability risks and impacts in investment decision-making processes. This regulation aims to ensure financial entities disclose how they integrate ESG factors into their investments, thereby promoting sustainable finance. These different EU frameworks have been seen as complementary to achieving the aims of the EU Green Deal and attracting green investment.

In the United States, the Securities and Exchange Commission (SEC) has proposed new rules that would require public companies to disclose extensive climate-related information in their registration statements and periodic reports, including the company’s governance, risk management, and strategy related to climate risks, as well as metrics related to greenhouse gas emissions. It does not cover social or other environmental areas besides carbon emissions and is currently debated in the US.

Reporting metrics and practices

Companies use various frameworks and metrics for sustainability reporting, The most common ones include:

  • Global Reporting Initiative (GRI): this has been the leading voluntary reporting standard setter and provides industry-specific reporting guidelines but also topic-specific ones for any ESG-related topic that could be material to companies.

  • European Sustainability Reporting Standards (ESRS): detailed requirements under the CSRD covering ESG issues, focused on double materiality .

  • Sustainability Accounting Standards Board (SASB)/International Sustainability Standards Board (ISSB): popular in America, providing industry-specific standards. It is targeted at investors, so the focus here is to provide financially material information on risks and business opportunities.

  • Task Force on Climate-related Financial Disclosures (TCFD): emphasises the financial impact of climate change. Again, investor focussed framework specifically for carbon-related topics and has also inspired the Task Force on Nature-related Financial Disclosures (TNFD).

  • EU Taxonomy: defines environmentally sustainable economic activities, requiring firms to report their alignment with these activities. Not really a full reporting framework but under the EU, companies have to identify environmentally friendly activities and report on ‘green’ [as defined by the taxonomy turnover, OpEx (Operational Expenditure), and CapEx (Capital Expenditure) in terms of eligibility (aka percentage that has the potential to be aligned with the taxonomy as green) and alignment (aka percentage that is currently aligned as green with the taxonomy)].

These standards can be focused on different audiences, so what is seen as material (and thus required for companies to report on) can vary significantly. In general, there are three main differences in what is material for companies:

Financial materiality

Financial materiality refers to the impact of sustainability issues on a company’s financial performance. This perspective is crucial for investors who need to understand how ESG factors might affect a company’s profitability and risk profile. Frameworks like the Sustainability Accounting Standards Board (SASB)/International Sustainability Standards Board (ISSB) emphasise financial materiality, providing industry-specific standards that highlight the ESG issues most likely to impact financial performance. Companies do not have to disclose their own impact on environmental or social topics, just their financial risks.

Impact materiality

Impact materiality considers the effects of a company’s activities on the environment and society, regardless of whether these impacts influence the company’s financial performance. This approach is increasingly relevant as stakeholders demand transparency about a company’s broader social and environmental footprint. The Global Reporting Initiative (GRI) is known for its focus on impact materiality, encouraging companies to report on a wide range of ESG impacts.

Double materiality

Double materiality combines both financial and impact materiality, recognising sustainability issues can affect both a company’s financial performance and its external environment. This concept is central to the EU’s CSRD and the European Sustainability Reporting Standards (ESRS), which require companies to disclose information that is material from both a financial and an impact perspective. This approach ensures a holistic view of a company’s sustainability performance, catering to both investors and broader stakeholders. It is seen as the most comprehensive approach; however, so far, it is only required under the latest EU CSRD requirements, and I am not aware of any other country that would require that.

The depth and meaningfulness of sustainability reporting have significantly improved in the last few years. Leading firms not only integrate these metrics into their corporate strategies but also embed them within their financial statements. Reports now often include comprehensive data on Scope 1 and 2 carbon emissions, resource use, biodiversity impacts, and social factors such as labour practices and anti-corruption measures.

However, it still very much varies depending on the location of the company. Scope 3 carbon emissions, for example, are only mandatory in the EU under CSRD and not in the US. Similarly, in the US, under the latest SEC rulings, no social or biodiversity disclosures would be required in the financial statements.

In general, different countries have very different requirements; in the UK, for example, companies are required to publish Modern Slavery Statements, which detail the steps they have taken to ensure slavery and human trafficking are not taking place in their business or supply chains. This requirement, under the Modern Slavery Act 2015, adds another layer of transparency and accountability, while the UK does not have more comprehensive sustainability reporting obligations.

In the EU, the reporting obligations will now be very comprehensive, and they will dovetail with other EU directives such as the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU taxonomy. As such, the landscape is trickier to navigate in the EU but also seems to show the best potential to achieve real change and more sustainable business practices compared with, for example, the US approach.

Potential loopholes and challenges

Despite progress, there are several challenges and potential loopholes:

Inconsistent standards: the lack of harmonisation between different reporting standards can lead to inconsistencies and difficulties in comparing data across companies and regions.

Greenwashing: without stringent verification and auditing processes, there is a risk of firms exaggerating their sustainability efforts (aka greenwashing). There is a need for clear, standardised audit procedures to ensure consistency and reliability of sustainability disclosures.

Scope 3 Emissions: accurately measuring and reporting indirect emissions across the value chain (Scope 3) is complex and resource intensive. This challenge is particularly significant for companies with extensive and global supply chains, where data collection can be inconsistent and incomplete. CSRD is the first framework requiring mandatory Scope 3 disclosures, so we will see how well companies will be able to provide this data.

Resource constraints for SMEs: smaller firms often lack the resources and expertise to implement comprehensive sustainability reporting systems. As a result, there is a real risk of the sustainability departments turning into compliance centres rather than actual change drivers within companies.

All our content is free, just register below

As we move to a new and improved digital platform all users need to create a new account. This is very simple and should only take a moment.

Already have an account? Sign In

Already a member? Sign In

This website uses cookies and asks for your personal data to enhance your browsing experience. We are committed to protecting your privacy and ensuring your data is handled in compliance with the General Data Protection Regulation (GDPR).