Lhe way in which companies must report on their relationships between their activities and the environment – “sustainable reporting” – is currently the subject of significant controversy in the world of lawyers, accountants and environmental experts. A quiet debate, while the issue is fundamental to achieving the decarbonization and transition objectives assigned by governments and international climate agreements.
In a recent column, Emmanuel Faber is surprised by the choices made by the European Union, with the adoption, on December 16, 2022, of the Corporate Sustainability Reporting Directive (CSRD), which came into force from December 1er January 2024, a choice whose simplism he denounces (“Corporate accounting: “Requiring that materiality extends beyond the economic domain is in reality simplistic””, The world of October 10).
Ambitious approach
Against these choices, he highlights the decision taken by the International Sustainability Standards Board (ISSB), the international standardization body that he chairs, to stick to a measure of “financial materiality”, that is to say, to measure the way in which ongoing climatic upheavals can influence the company’s ability to generate profits. This approach is one-sided, leaving aside the impact of economic activity on climate change.
Emmanuel Faber is right on one point: the European approach is ambitious. It indeed involves taking into account two types of materiality: financial materiality, to which is added (and not replaced) impact materiality. This involves reporting on the consequences of climate change on the company’s business model, but also on the “material” effects of the company’s activity on its environment. The ambition is then twofold: to allow companies to adapt their model (financial materiality) and to encourage them to reduce their impact (impact materiality).
However, according to Emmanuel Faber, this approach is threefold illusory. First of all, because this materiality of impact would not interest investors, and would be outside the scope for the financial markets. This is questionable to say the least. The investment decision is made based on the expected trajectory of the company, its risks and its prospects.
This trajectory is evaluated based on numerous pieces of information, without a priori excluding one of the two materialities. The standardization of dual materiality thus aims to make complex and currently disparate information reliable and comparable, allowing any shareholder to have access to verified indicators and to make an informed decision. Confidence in the financial markets can only be strengthened.
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