The EU Sustainable Finance Agenda: Developing Governance for Double Materiality in Sustainability Metrics

Abstract

This article argues that the regulatory steers in the recent EU Sustainable Disclosure and Taxonomy Regulations rely heavily on the outworking of market-based governance to meet public interest goals in sustainable finance. Hence, additional work in sustainability metrics development that informs the investment sector of sustainable performance in companies would be of key importance. This article argues that there remain gaps in EU leadership for governing metrics development, and suggests that EU-level governance can be designed appropriately, especially in a multi-stakeholder manner, for metrics development and in relation to key information intermediaries in this space.

Swimming against the tide: back to single materiality for sustainability reporting

“…Their comparison focused on the GRI standards, International Integrated Reporting Framework, SASB Standards, Taskforce on Climate-Related Financial Disclosure recommendations and SDGD recommendations. Chiu (2022) differs from the above studies, as her focus was on the definition of materiality underpinning the EU Sustainable Disclosure and Taxonomy Regulations, which are two regulations supporting the European Green Deal. Chiu (2022) evaluated how environmental, social and governance (ESG) metrics should be developed and showed that double materiality should feature prominently in ESG metrics.…”

“…Chiu (2022) differs from the above studies, as her focus was on the definition of materiality underpinning the EU Sustainable Disclosure and Taxonomy Regulations, which are two regulations supporting the European Green Deal. Chiu (2022) evaluated how environmental, social and governance (ESG) metrics should be developed and showed that double materiality should feature prominently in ESG metrics. These studies reveal how materiality is heterogeneously defined/conceptualised in different sustainability/non-financial reporting standards and regulations.…”

“…Researchers have examined the: evolution and current developments of the concept of materiality in sustainability reporting (Abela, 2022; Baumüller and Sopp, 2022); differences in the definitions of materiality adopted in different sustainability reporting regulations and by standards setters (Baumüller and Sopp, 2022; Chiu, 2022; Cooper and Michelon, 2022; De Villiers et al , 2022; Giner and Luque-Vílchez, 2022); limitations of various interpretations of materiality (Adams and Mueller, 2022; Adams and Abhayawansa, 2021; Cooper and Michelon, 2022); consequences of different interpretations of the materiality principle (Clark, 2021; Jørgensen et al , 2022); and the practice of materiality determination by companies adopting various sustainability reporting standards or frameworks (Beske et al , 2020; Gerwanski et al , 2019; Jones et al , 2016; Puroila and Mäkelä, 2019; Steenkamp, 2018). …”

“…differences in the definitions of materiality adopted in different sustainability reporting regulations and by standards setters (Baumüller and Sopp, 2022; Chiu, 2022; Cooper and Michelon, 2022; De Villiers et al , 2022; Giner and Luque-Vílchez, 2022);…”

“…Thus, they argue that both GRI and ISSB can co-exist. However, Chiu (2022) argues for regulatory involvement to enable the inclusion of double materiality in sustainability metrics. She suggests a co-governance, multistakeholder approach and involving information intermediaries and regulators in sustainability metrics development.…”