The European Commission may make a late effort to ensure new sustainability reporting rules for European companies align with standards produced by the International Sustainability Standards Boards (ISSB), currently in the process of being integrated into UK disclosures.

However, this has created concerns among expert observers: new European reporting rules are based on the “double materiality” principle—by which companies must report their impact on the environment and people together with the impact of sustainability on their business prospects. Under ISSB standards, companies report only the impact of sustainability on business.

According to reports, a way has been found to ensure ISSB reporting and new European Sustainability Reporting Standards (ESRS) work together.

Responsible Investor reports that Emmanuel Faber, chair of the ISSB, has said a route has been found to “potentially give the European standards direct full ISSB adopter status”.

The EU last year overhauled disclosure requirements, massively reducing the volume of data to be published under European Sustainability Reporting Standards. The disclosures have an impact on supply chains around the world connected to EU companies.

Many other jurisdictions have opted for ISSB. Making the two regimes compatible might ease the burden of reporting.

However, the “double materiality” clash remains a point of concern for many, who worry reforms may see the principle positioned lower in a reporting “hierarchy”.

Preserving integrity

Andreas Rasche, a professor at Copenhagen Business School, writes on LinkedIn: “Avoiding dual reporting across the ESRC and ISSB frameworks is critical.

“But any solution must fully preserve the integrity of the double materiality principle, and this means not introducing a ranking or hierarchy of information.”

ESRS came under review last year as part of the “omnibus” that saw revisions to the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).

In both cases, the scope of the legislation was drastically reduced, with far fewer companies now subject to the EU’s non-financial reporting regime.

ESRS also saw big changes, though these are yet to be finalised, with officials proposing that data points listed for reporting be cut by around 70%.

The cuts faced criticism in some quarters from those who claimed they would “undermine transparency and comparability”.

ESRS asked for both mandatory and voluntary reporting. Most of the cuts were to the mandatory data disclosures.

The contrast between the EU approach to sustainability reporting and other schemes, such as ISSB, was always major hurdle to overcome. Reporting experts and critics will be watching closely for the EU’s solution.