Global standard setter ISSB pushes for separating financial, and environmental and social information in CSRD reports
Four months after the EU finally struck a deal to reduce company sustainability reporting requirements, the boat is once again being rocked as policymakers attempt to finalise changes to the European Sustainability Reporting Standards, which underpin the Corporate Sustainability Reporting Directive.
Many sustainability supporters heaved a collective sigh of relief when the deal under the EU omnibus proposal left the principle of “double materiality” intact. The result means that companies remaining in scope of the CSRD will need to report their own impact on the economy, environment and society (impact materiality) and the impact of these factors on their business (financial materiality).
The draft simplified ESRS, published last December, were largely welcomed as a positive step for business and investors. The European Commission is expected to launch a public consultation on further revisions to the standards later this month, and some are concerned this could include closer ties with the International Sustainability Standards Board standards, which are based on single materiality.
Speaking in the European parliament last month, ISSB chair Emmanuel Faber said: “We found a way to remove the interoperable mechanisms [between ESRS and ISSB standards]. The only condition needed for this is that those reports as a whole are written in a way to provide all financially relevant information clearly and not obscured by information that is provided for other users.”
“This would of course fully respect the double materiality principle,” said Faber. “Europe would keep its approach and its standards, and its sovereignty in the field.” He insisted the ISSB standards were a “baseline” that “jurisdictions can build on”.
A spokesperson for the ISSB tells Sustainable Views that its objective is to “reduce the burden” for companies so they can “efficiently comply” with the ESRS and ISSB standards. Allowing flexibility in how businesses present their sustainability-related information would mean companies would only have to produce one report that meets both sets of requirements, they say.
The standards already have an aligned concept of financial materiality and clearly identifying information that is intended for investors enables “better use” of the information provided, they add.
MEP adviser and former CSRD negotiator Abrial Gilbert-D’Halluin describes this approach as a “revamped version” of the so-called building block approach, for which the ISSB has long advocated.
Last year the ISSB asked the EU to use its standards and “top up” with double materiality. This approach was previously rejected because it risked weakening the core of the double materiality approach, says Gilbert-D’Halluin.
‘Non’ from French businesses
In the EU, the call for a more aligned approach with the ISSB is led by Germany. But in a statement dated April 7, seen by Sustainable Views, French business organisation Medef, the French Banking Federation, the French Asset Management Association, and insurance association France Assureurs cite “major concerns” with the “top up proposal”.
They suggest that the proposal would add extra complexity to, and even contradicts, the double materiality principle and introduces a “hierarchy” between financial and impact materiality.
New, fuzzy notions proposed by the ISSB could make CSRD reports more complicated for all European companies — even the great majority which are not in scope of ISSB reporting
The organisations also voice concerns about introducing such a potentially substantial change to the framework at an advanced stage of the ESRS revision process without allowing time to assess operational and legal considerations, and suggest that the proposal runs counter to the EU’s regulatory simplification objectives.
A FBF spokesperson tells Sustainable Views it has written to the Commission to express its concerns. “New, fuzzy notions proposed by the ISSB could make CSRD reports more complicated for all European companies — even the great majority which are not in scope of ISSB reporting,” they say.
It is not easy to make a definite split between financial and impact materiality, since the two are “often closely intertwined,” says a spokesperson for France Assureurs. Questioning the double materiality principle at this stage would create “uncertainty” for European business and undermine efforts already made, they say.
As of the start of 2026, 21 jurisdictions had adopted the ISSB standards on a mandatory or voluntary basis, and more have signalled their plans to use the framework, shows S&P research.
Under political pressure
One source close to the negotiations tells Sustainable Views that German companies have a “fair point” in “anticipating practical challenges where they are, for example, dual-listed in the EU and in ISSB jurisdictions and in seeking clarity on how to ensure they only need to produce a single report”.
“That said, with a few targeted adjustments or clarifications, it should be possible to produce a CSRD-compliant report that also meets ISSB requirements,” they add.
The strength of the ESRS lies precisely in its double materiality approach, which requires companies to consider these two deeply interconnected dimensions, and guides companies to assess and report on them in a coherent manner
Copenhagen Business School professor and associate dean Andreas Rasche tells Sustainable Views: “While the suggested approach may keep the double materiality principle alive in theory, it would also undermine it in practice.
“It implicitly suggests that impact data is secondary and to be separated so as to not ‘obscure’ financially relevant information. The double materiality approach explicitly positions financial and impact materiality as inherently interconnected. This interconnected approach must be reflected in the final sustainability reports.”
Susanna Arus, EU public affairs manager at law firm Frank Bold, has a similar take. “We support an integrated practice for companies to consider their environmental, social and governance impacts and dependencies, and the current or future financial risks these may pose to the business,” she tells Sustainable Views.
“The strength of the ESRS lies precisely in its double materiality approach, which requires companies to consider these two deeply interconnected dimensions, and guides companies to assess and report on them in a coherent manner,” she continues.
“Proposals to require companies to differentiate financial from impact material information at the level of individual data points would artificially break what is by nature an integrated process.”
It would also add an extra additional administrative burden and “further complicate companies’ relationship with auditors, who would face difficult and largely subjective conversations about where exactly to draw the line for each data point”, Arus says.
“Any changes of this nature should follow proper technical review, not be driven by political pressure without adequate consideration of their effects in business practice,” she adds.
The Commission did not respond to a request for comment.