The reporting of sustainability and the sustainability of reporting: standards, connectivity and ratings in the aftermath of the EU CSRD

Sustainability, sustainable development and finance, and sustainability-oriented markets and corporate behaviours 'walk on the legs' of sustainability information. Moving from this assumption, the project aims to investigate the issues for the European non-financial companies (NFCs) linked to the introduction of the EU Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRSs) which mark a deep discontinuity in business reporting by making it mandatory for European companies, including listed SMEs, publish a vast range of information on environmental, social and governance topics (ESG).

In April 2021 the European Commission issued a proposed text of this Directive whose definitive version has been approved by the EU co-legislators on 28 November 2022. In parallel, the European Financial Reporting Advisory Group (EFRAG) has started the elaboration of ESRSs (12 so far) that companies must adopt in order to comply with the CSRD. The CSRD and the ESRSs have been developed within the wider EU regulatory framework which started off from the EU Green Deal, and which encompasses the Green Taxonomy (Reg. 852/2020), the Sustainable Finance Disclosure Regulation (SFDR), a proposed Corporate Sustainability Due Diligence Directive and an upcoming Social Taxonomy.

Meanwhile, the IFRS Foundation has established under its umbrella the International Sustainability Standards Board (ISSB) which in April 2022 has released two Exposure Drafts for the international context.

Notwithstanding all these recent developments in the sustainability reporting arena, very little has been investigated on the effective “sustainability” of this type of reporting both from a production and a consumption perspective. In such a sense, the multifaceted challenges faced by both companies and ESG rating agencies in light of this new landscape remain still largely unknown to the academic literature. Using qualitative and quantitative-statistical (of parametric and non-parametric nature) methodologies, the research examines the hard challenges posed by this EU regulation and the associated reporting standards to preparers and users respectively in terms of:

1. a) the internal coherence of the various EU legislations dealing with sustainability reporting as well as their interoperability with the reporting standards of the ISSB),
2. b) the production of sustainability information by NFCs, with particular reference to its materiality and connectivity with traditional financial information, and c) the modalities of construction of ESG ratings and their representational capacity of capturing and appropriately evaluate companies’ sustainability performance.

The research focuses on firms from the largest European countries, and the expected outcome is a better understanding of the above three crucial issues to make this sustainability reporting revolution sustainable for EU companies. Useful policy indications are also expected.