SASB backs European plan to boost ESG reporting

SASB has put its weight behind a European regulatory project that the board believes may result in global standards for ESG reporting by companies.

At issue is Directive 2014/95/EU, more commonly referred to as the non-financial reporting directive (NFRD). The European Commission (EC) in February launched a consultation to collect feedback on potential changes to the directive, with comments due by June 11. SASB has submitted a report to the EC outlining its support.

The aim of the consultation is to address key challenges facing companies and investors around ESG reporting in figuring out what is relevant and comparable information for such disclosures. In a blog post on the commission’s project, SASB Foundation CEO Janine Guillot says it ‘could lead to a giant leap forward for companies, investors and civil society in the realm of [ESG] disclosure.’

Guillot writes that SASB believes a revised NFRD ‘could lead to a globally accepted system of standards for non-financial disclosure.’ There are two key elements to this potential success, according to SASB. First, it believes the EU can use existing standards and frameworks – from organizations such as SASB itself, the Climate Disclosure Standards Board, the Global Reporting Initiative (GRI), the International Integrated Reporting Council and the Task Force on Climate-related Financial Disclosures – as ‘building blocks.’

Such a system needs to be sufficiently comprehensive to meet the unique information demands of a range of stakeholders including investors, policymakers and civil society, Guillot writes. It also needs to be flexible enough to be consistent internationally while allowing for regionally tailored approaches.

Second, SASB supports the EU’s ‘double materiality’ approach. The NFRD requires companies to disclose information ‘to the extent necessary for an understanding of the development, performance, position and impact of [the company’s] activities.’ This means companies should disclose not just how sustainability issues may impact the company, but also how the company affects society and the environment.

‘This perspective helpfully recognizes that ESG information is of interest to a much broader array of stakeholders than traditional financial reporting,’ Guillot writes. ‘It acknowledges that there are two lenses through which to view environmental and social issues: how these issues impact a company’s financial performance and long-term enterprise value, and how a company’s actions on these issues impact society.’

The SASB and GRI standards could provide a basis for relevant, comparable and reliable non-financial information across the entire double materiality spectrum, she adds.

‘The revised NFRD could help establish the market mechanism necessary to scale up sustainable finance in Europe and beyond, fueling a 21st century global economy that will support shared prosperity and sustainable economic growth,’ Guillot says.