Is the era of ESG reporting standards over?

3 September 2019 - By Donato Calace

One of the benefits of traveling regularly is that you get a lot of time to read. It was while flying to Milwaukee for the National Association for Environmental Management (NAEM) Impact Conference recently that I got to read an interesting report from a task force led by Patrick de Cambourg (Mazars Chairman and President of the Autorité des Normes, the French accounting authority).

Presented to the French government, the report, entitled “Ensuring the relevance and reliability of non-financial corporate information: an ambition and a competitive advantage for a sustainable Europe,” provides an effective summary of the current lay-of-the land on ESG disclosure policies.

Ensuring the relevance and reliability of non-financial corporate information

All the noises coming out of the EU Commission suggest the recommendations in this report will be key when they come to review the EU Green Taxonomy and Non-Financial Reporting Directive (NFR Directive) update, which aim to encourage a more responsible approach to business.

Update: Datamaran submission to the NFRD public consultation

On 10 June 2020, Datamaran responded to the European Commission on Non-Financial Reporting Directive, focusing on the application of the materiality principle.

Our response can be articulated on four main pillars:

  • Materiality shouldn’t be considered exclusively as a reporting activity, but should be regarded as the foundation for a more complete strategic risk management process.
  • Technology has a dramatic impact on resource efficiency while ensuring accuracy of analysis, quality and auditability of data, and comprehensiveness of insights.
  • ESG rating agencies or investors should take into account a company’s materiality determination process, and not penalize lack of disclosure on non-material indicators.
  • Data driven materiality, based on a robust standardized procedure, would allow to move beyond idea that companies’ accountability consists in along list of indicators to disclose on, and bring it back where it belongs - to the Board.

In this blog I present highlights from the De Cambourg report.


The Taxonomy is a list of economic activities which can make a substantial contribution to climate change mitigation and criteria to do no significant harm to other environmental objectives.

Time for public ESG reporting standards?

So what does this mean for the future of ESG disclosure? The policy recommendations in this report essentially say that the era of private ESG reporting standard setters (GRI, SASB, IIRC, ISO, etc.) is over. Their work has been useful so far, but they simply don't have the reach, legitimacy, and resources for the next level. It's time to give ESG disclosure standards a proper legal status, legitimized and institutionalized by public standards. Those observations resonate with the comments that Richard Baker and Robert Eccles shared last December in their Green Paper: “Should FASB and IASB be responsible for setting standards for nonfinancial information?”.

I personally share these concerns about the limited resources and reach of private standard setters, and how this hinders the next level of implementation. The report recommends the introduction of a standard reporting structure and nomenclature, involving the classification of non-financial information. This is vital, especially from the perspective of automating analysis and data extraction and certainly in line with the work we do at Datamaran.
From CSR reporting to extra-financial performance reporting

Page 40 of the report: an overview of French regulatory initiatives: from CSR reporting to extra-financial performance reporting

Upcoming guidelines

Having published a June consultation document on extended external reporting (EER), which refers to integrated reporting, sustainability reporting and other reporting on ESG matters, the International Auditing and Assurance Standards Board (IAASB) is publishing new assurance guidelines in 2020. There will be a second round of consultation in order to gain further views.

In France, the Autorité des marchés financiers (AMF), the French equivalent of the SEC, will publish ESG reporting guidance before the end of the year.

The comparative analysis of the Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB) on standards for the oil and gas, media, and food sectors presented in the report highlights a deeper limitation of the current policy-making approach to non-financial reporting. Every single “long list” of material issues and related indicators that is prescribed through a top-down normative approach will suffer from some inherent limitations:
  • They miss one or more indicators that are material in the eye of a potential user of the Taxonomy. This point is evidently linked to the materiality approach at the foundation of each standard.
  • The rigidity of sector definitions does not fully capture the way companies conduct business in the real world (check for example the remarks in the report from IPIECA to the SASB oil and gas standards on the “undue burden” originating from the separation of upstream, refining, and downstream standards). Not by chance, the EU Green Taxonomy is based on activities, rather than sectors.
Financial materiality against Environmental & social materiality

Page 49 from the report:  Financial materiality affecting  the value of the company.

The future of ESG disclosure

While the standards and frameworks offer important guidelines for companies looking to put in place a comprehensive system of reporting, they can also cause uncertainty and inconsistency. Which standards are most relevant to the business? Are different standards more suited to different areas of the business? With this in mind, how can we bring about consistency of disclosure in the future?

  • A comparative analysis of principles across the standards/frameworks allows for the harmonization of the founding principles. It’s interesting to see how “completeness” goes in hand with “materiality.”
  • For the next generation of policies, a new approach is required. Similarly to what happens in the financial domain, companies, auditors, and boards must make regular materiality judgements based on a standardized process with auditable evidence, transparent accountability and governance, and a consistent methodology. Policy makers then have a role in standardizing such a process – its methodology, phases, participants, audit, and communication.
  • Information on materiality will need to be connected to financial implications. When judging which issues are material, companies need to indicate the financial impact, such as the associated costs, revenues and capital expenditure. Any assessment will need to explain how and why an issue is material.
  • Sector-based taxonomies may be a good starting point, but I really believe that the next level should be activity-based taxonomies, which will be more directly linked to an individual company’s economic activities.

It’s incredible what you can get through on a transatlantic flight! I hope this is a useful summary of the report and the direction of ESG disclosure policies. If you’d like to find out more about how these developments could affect your company or discuss the report in more detail, please contact me.


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