An Overview of Corporate Sustainability Reporting Legislation in the European Union

Accounting in Europe
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An Overview of Corporate Sustainability Reporting

Legislation in the European Union
Katrin Hummel & Dominik Jobst
To cite this article: Katrin Hummel & Dominik Jobst (09 Feb 2024): An Overview of Corporate
Sustainability Reporting Legislation in the European Union, Accounting in Europe, DOI:
10.1080/17449480.2024.2312145
To link to this article: https://doi.org/10.1080/17449480.2024.2312145
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Accounting in Europe, 2024
https://doi.org/10.1080/17449480.2024.2312145
An Overview of Corporate Sustainability

Reporting Legislation in the European
Union
KATRIN HUMMEL and DOMINIK JOBST

Department of Finance, Accounting & Statistics, WU Vienna University of Economics and Business, Vienna, Austria
(Received: February 2022; accepted: January 2024)
A BSTRACT In recent years, sustainability disclosure has increasingly become mandatory in many
countries. The European Union (EU) is at the forefront of this change by adopting legislation that
governs disclosure of (i) companies’ sustainability aspects (Corporate Sustainability Reporting
Directive), (ii) the sustainability of economic activities (Taxonomy Regulation), (iii) the sustainability of
financial products (Sustainable Finance Disclosure Regulation), and (iv) the environmental, social and
governance risks of credit institutions (Pillar 3 disclosures). In addition, international standard setting for
sustainability disclosure is at a rapid pace, and both the International Sustainability Standards Board and
the European Commission have published reporting standards. Overall, these reporting mandates and
standards are interconnected and rapidly progressing, which makes it increasingly difficult to keep track.
The aim of this article is to outline and compare the EU’s sustainability disclosure legislation and major
standard-setting initiatives and thus identify important implications for both researchers and practitioners.
Keywords: Sustainability Reporting Legislation; European Union; Non-Financial Reporting Directive;

Taxonomy Regulation; Corporate Sustainability Reporting Directive
1. Introduction
The 2015 Paris Agreement on Climate Change and the adoption of the Sustainable Development
Goals (SDGs) by the United Nations in 2015 marked a turning point in societal awareness of the
challenges of climate change and sustainable development. In March 2018, the European Com-
mission introduced an ‘Action Plan for Financing Sustainable Growth’ (European Commission,
2018) in response to the recommendations of the High-Level Expert Group on Sustainable
Finance (EU High-Level Expert Group, 2018). The action plan comprises ten key actions that
can be grouped into three broad categories: (i) reorientate capital flows toward a more sustainable
economy, (ii) integrate sustainability into risk management, and (iii) foster sustainability disclos-
ure and sustainable mechanisms of corporate governance. In December 2019, the European
Correspondence Address: Katrin Hummel, Department of Finance, Accounting & Statistics, WU Vienna University of
Economics and Business, Welthandelsplatz 1, Vienna 1020, Austria. Email: katrin.hummel@wu.ac.at
Paper accepted by Lisa Evans, Ioannis Tsalavoutas and Fanis Tsoligkas.
© 2024 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group
This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives License
(http://creativecommons.org/licenses/by-nc-nd/4.0/), which permits non-commercial re-use, distribution, and reproduction in any
medium, provided the original work is properly cited, and is not altered, transformed, or built upon in any way. The terms on which
this article has been published allow the posting of the Accepted Manuscript in a repository by the author(s) or with their consent.
2 K. Hummel and D. Jobst
Commission introduced the ‘European Green Deal’, a set of policy actions that intend to make
Europe climate neutral by 2050 (European Commission, 2019a). In response to the COVID-19
pandemic, in May 2020, the European Union (EU) announced a EUR 750 billion recovery
package, of which the European Green Deal is an integral part.1 In line with the European
Green Deal, in July 2021, the European Climate Law entered into force (European Parliament
and Council of the EU, 2021); this mandates member states to achieve net-zero greenhouse
gas emissions by 2050.
Consistent with these developments, sustainability disclosure legislation is also evolving. The
starting point for an EU sustainability reporting mandate was the Non-Financial Reporting Direc-
tive, known as the NFRD (European Parliament and Council of the EU, 2014), which the EU2
adopted in 2014. The NFRD mandated the disclosure of nonfinancial information, including
information on diversity, for large EU-based public-interest companies with more than 500
employees, effective from the financial year 2017.3 Other EU sustainability disclosure mandates
followed the NFRD, including the Sustainable Finance Disclosure Regulation (SFDR) (Euro-
pean Parliament and Council of the EU, 2019a), which requires that participants in financial
markets and financial advisers disclose specific information on sustainability risks, the Taxon-
omy Regulation (European Parliament and Council of the EU, 2020), which introduces a
system for classifying environmentally sustainable economic activities, and the Capital Require-
ments Regulation (CRR) II (European Parliament and Council of the EU, 2019b), which incor-
porates climate-related risk disclosure standards within its Pillar 3 (i.e. regulatory disclosure
requirements for certain large credit institutions). Moreover, in November 2022, the EU in
2022 adopted the Corporate Sustainability Reporting Directive (CSRD) (European Parliament
and Council of the EU, 2022), which supersedes the NFRD from financial year 2024
onwards. The CSRD substantially increases the number of companies in scope of a sustainability
reporting mandate and introduces more detailed reporting requirements, including the obligation
to report in accordance with European Sustainability Reporting Standards (ESRS), the inte-
gration of sustainability information in the management report, an external assurance require-
ment, and digital tagging of the reported information. The first set of ESRS was adopted by
the European Commission as delegated acts in July 2023 (European Commission, 2023d).
In parallel with these developments, at the 26th UN Climate Change Conference in November
2021 (COP26), the International Financial Reporting Standards (IFRS) Foundation announced
the establishment of the International Sustainability Standards Board (ISSB), dedicated to devel-
oping the IFRS sustainability disclosure standards, and the consolidation of the IFRS Foundation
with the Value Reporting Foundation (VRF) and the Climate Disclosure Standards Board
(CDSB). In June 2023, the ISSB published general requirements for the disclosure of sustainabil-
ity-related financial information (IFRS S1) and climate-related disclosures (IFRS S2) (IFRS
Foundation, 2023a).
The rapid pace of developments in sustainability reporting in the EU and the diversity in the
underlying objectives and requirements makes it increasingly difficult for both decisionmakers in
organizations and researchers to keep track of changes in legislation and reporting standards.
Stolowy and Paugam (2023) discuss the future of sustainability reporting. They find heterogen-
eity in the understanding of sustainability across standard-setters and companies and conclude
that the probability of convergence in future sustainability reporting is low. Similarly, Baboukar-
dos et al. (2023) observe a ‘multiverse’ of sustainability reporting requirements. This ‘multi-
verse’ makes it increasingly difficult for researchers and practitioners to keep track. Against
this background, this paper thus summarizes and contrasts the above-mentioned developments
to help practitioners and researchers better understand them. Consequently, the aim of this
article is to provide an overview of sustainability disclosure legislation and standards at the
EU level and to compare and systematically discuss their key characteristics. Naturally, this
Accounting in Europe 3
overview is provided at the time of writing this article (December 2023) and cannot account for
developments thereafter. Our starting point is the adoption of the NFRD, and we do not elaborate
on national sustainability reporting requirements that preceded the adoption of the NFRD.4 We
provide references to useful sources so that readers can more easily access detailed information
on specific topics. In addition, we facilitate the overview of legislation and standards beyond the
publication of this article5 with an openly accessible and regularly updated register of regulatory
developments in sustainability reporting in the EU.6
The article is structured as follows. In the next section, we briefly review the theory and lit-
erature on mandatory sustainability disclosure. Section 3 focuses on sustainability disclosure
legislation. We start with a brief depiction of the NFRD, followed by a discussion of the
CSRD, the Taxonomy Regulation, the SFDR, and the requirements of Pillar 3 on the disclosure
of environmental, social, and governance (ESG) risks. Section 4 focuses on sustainability report-
ing standards: the GRI Standards, the ESRS, and the IFRS Sustainability Disclosure Standards.
Section 5 provides implications for practitioners and future research avenues. The final section
concludes.
2. Theory and Literature

Economics-based theory suggests that companies voluntarily provide information as long as the
benefits of disclosure exceed the costs (Verrecchia, 1983). Corporate disclosure reduces infor-
mation asymmetries both among investors and between managers and shareholders. In turn,
lower information asymmetry decreases estimation risk and increases market liquidity and the
company’s investor base (Leuz & Wysocki, 2016). Additional capital-market effects associated
with voluntary disclosures include lower costs of capital and higher coverage by financial ana-
lysts (Healy & Palepu, 2001). In recent decades, a substantial body of empirical studies has
evolved on the capital-market effects of disclosure. Valuable reviews of this literature are pro-
vided, for instance, by Healy and Palepu (2001), Holthausen and Watts (2001), Beyer et al.
(2010), Berger (2011), and Leuz and Wysocki (2016).
Researchers often apply this rationale to the disclosure of sustainability information. Thus,
companies have an incentive to disclose sustainability information voluntarily as long as the
marginal benefits of disclosure exceed its marginal costs. Following this rationale, reporting
mandates impact these cost–benefit considerations by inducing additional costs. These costs
include direct costs of preparation, certification, dissemination, and noncompliance and
indirect costs resulting from the negative impact of revelation of proprietary information
to competitors or litigation costs (Admati & Pfleiderer, 2000; Christensen et al., 2021;
Leuz & Wysocki, 2016). The level of compliance thus depends on these costs, which are
determined by the specification of the legislation, in particular how precisely the reporting
requirements are outlined, the magnitude of potential sanctions for noncompliance, and the
likelihood of detection and enforcement (Peters & Romi, 2013). Legitimacy theory offers
another explanation for voluntary sustainability reporting among companies. Legitimacy
can be defined as a ‘generalized perception or assumption that the actions of an entity
are desirable, proper, or appropriate within some socially constructed system of norms,
values, beliefs, and definitions’ (Suchman, 1995, p. 574). According to legitimacy theory,
companies voluntarily provide sustainability information to gain, maintain, or repair their
legitimacy (O’Donovan, 2002). Empirical evidence suggests that companies with poor sus-
tainability performance provide positive sustainability disclosure to influence public percep-
tions of their underlying sustainability performance (e.g. Cho et al., 2010; Cho et al., 2012;
Cho & Patten, 2007; Hummel & Schlick, 2016; Patten, 2002). In that context, researchers
assert that the disclosure of sustainability information is often ‘partial, and, mostly, fairly
trivial’ (Cho et al., 2015; Gray, 2006, p. 803). Such reporting behavior is closely linked to
so-called greenwashing, which is characterized by hiding negative actions through positive
reporting (Christensen et al., 2021). Consequently, sustainability reporting mandates are
needed ‘to transform [sustainability] reporting into a tool of transparency and accountability’
(Patten, 2014, p. 212). Researchers argue that only clearly specified sustainability reporting
mandates in combination with rigid sanctioning and enforcement can ensure the transpar-
ency and accountability of sustainability information (Laine et al., 2022; Patten, 2014).
Therefore, according to both theories, sustainability reporting mandates can lift the quantity
and/or quality of sustainability information (Christensen et al., 2021; Jeffrey & Perkins, 2014;
Patten, 2014). However, to prevent legitimacy-driven reporting practices, such reporting man-
dates need to be detailed and specific, entail severe sanctions for noncompliance, and be strictly
enforced.7 Assurance also plays an important role because it can increase the quality and
reliability of the information disclosed (Ballou et al., 2018; Maroun, 2019). Furthermore, assur-
ance can prevent legitimizing reporting strategies, thus helping ensure the functioning of markets
and improving confidence in the accuracy of sustainability reporting.
Recent reviews of archival studies on mandatory sustainability reporting find ambiguous evi-
dence on the consequences of sustainability reporting mandates and call for further research to
better understand the mechanisms underlying how sustainability reporting mandates translate
into changes in reporting, capital-market consequences, and real effects8 (Christensen et al.,
2021; Haji et al., 2023). The overview of sustainability reporting mandates in the next section
provides a starting point for both quantitative and qualitative researchers to examine these con-
sequences in more detail.
3. Sustainability Reporting Legislation

In this section, we outline five sustainability reporting mandates that have been adopted in the EU
since 2014: the NFRD, the CSRD, the Taxonomy Regulation, the SFDR, and the Pillar 3 disclos-
ures on ESG risks. We discuss these mandates with a focus on companies in scope, objectives,
disclosures required, and timeline of implementation. The chapter concludes with a comparison
of the discussed mandates and a critical reflection.
3.1. Non-Financial Reporting Directive (NFRD)

In September 2014, the EU adopted the NFRD (European Parliament and Council of the EU,
2014), which amended the Accounting Directive (European Parliament and Council of the
EU, 2013a) and required the disclosure of nonfinancial and diversity information by large com-
panies (and parent companies of groups) that are public interest entities (PIEs) with an average
number of more than 500 employees (on a consolidated basis in the case of groups).9 According
to the NFRD, its objective was to ‘increase the relevance, consistency and comparability of infor-
mation disclosed by certain large companies and groups across the Union’ on nonfinancial and
diversity topics (Recital 21) and to stimulate ‘change toward a sustainable global economy’
(Recital 3).
The NFRD extended the scope of management reports and required the inclusion of a nonfi-
nancial statement encompassing the development, performance, position, and impact of activi-
ties related to at least the following areas:10,11 the environment, social and employee matters,
respect for human rights, and anticorruption and bribery matters. Moreover, for EU companies
traded on an EU regulated market, the NFRD extended the scope of the corporate governance
statement, as defined in Article 20 of the Accounting Directive, to also contain diversity
information.
The NFRD first became applicable for financial years starting on 1 January 2017 or during the
calendar year 2017. The NFRD also had to be transposed into national legislation by each
member state and Article 4 of the NFRD provided some discretion to member states in the trans-
position. We provide an overview of differences in national transpositions in the appendix (Table
A1). Further nonbinding reporting guidelines were published by the European Commission in
2017 (methodology for reporting nonfinancial information; European Commission, 2017) and
2019 (supplement on reporting climate-related information; European Commission, 2019b).
The guidelines detailed the concept of double materiality, thereby emphasizing that companies
need to consider not only financial materiality but also its impact on people and the environment
when defining reporting content.
3.2. Corporate Sustainability Reporting Directive (CSRD)

The NFRD was repeatedly criticized for deficiencies regarding comparability, consistency, and
reliability of the information it requires and the limited number of companies in scope (European
Commission, 2021e; La Torre et al., 2018; Mittelbach-Hörmanseder et al., 2021).12 These short-
comings paved the way for a substantial revision of the NFRD. In April 2021, the European
Commission published a proposal for a new CSRD (European Commission, 2021d).13 A provi-
sional agreement on the new requirements was reached in June 2022, and the CSRD was even-
tually adopted in November 2022 and published in the Official Journal of the EU in December
2022 (European Parliament and Council of the EU, 2022). Compared to the NFRD, the main
changes include an extension of the companies in scope, an extension of the reporting require-
ments for a company’s value chain, further specifications of the double materiality concept and
reporting contents, requirements for the integration of sustainability information in the manage-
ment report, the assurance and digital tagging of the information reported, and requirements for
the sanctioning regime for statutory auditors and enforcement. In addition, the CSRD delegates
the development of sustainability reporting standards to the European Commission, which, in
turn, needs to consider technical advice from the European Financial Reporting Advisory
Group (EFRAG). The CSRD was adopted in November 2022 with the following phased-in
application:
. first reporting in 2025 covering the financial year 2024 by companies already subject to the
NFRD (see section 3.1)
. first reporting in 2026 covering the financial year 2025 by other large companies
. first reporting in 2027 covering the financial year 2026 (with the ability to opt-out for
another two years) by small and medium-sized enterprises (SMEs) listed on EU regulated
markets,14 small and noncomplex credit institutions,15 and captive (re)insurance undertak-
ings,16 but excluding microenterprises.
In addition, from financial year 2028 onwards, EU branches and subsidiaries of non-EU under-
takings are also subject to the CSRD if the non-EU undertaking has a net turnover of EUR 150
million in the EU for each of the last two consecutive years and either a large or listed EU sub-
sidiary or an EU branch with a net turnover of at least EUR 40 million (Article 1, paragraphs 1, 4,
7, 14; Article 2, paragraph 2; Recitals 17–27).17
3.2.1. Double Materiality

The CSRD further clarifies the requirement of the double materiality concept (Article 1, para-
graphs 4 and 7; Recital 29), which had already been introduced by the NFRD.18 The double
materiality concept combines two perspectives. Financial materiality provides the outside-in
perspective on the impact of sustainability issues on a company’s performance, position, and

development. Impact materiality provides the inside-out perspective on the impact of the
company on people and the environment. The CSRD specifies that ‘undertakings should consider
each materiality perspective in its own right, and should disclose information that is material
from both perspectives as well as information that is material from only one perspective’
(Recital 29).19
3.2.2. Reporting Content and Standards

Compared to the NFRD, the reporting content is extended and includes the following (Article 1,
paragraphs 3, 4 and 7; Recitals 30-36):
. a description of the company’s business model and strategy, particularly for sustainability
matters;
. a description of time-bound sustainability-related targets, including potential GHG emis-
sion reductions, a description of progress made to achieve these targets, and specification
of whether the targets are based on scientific evidence;
. a description of the role of administrative, management, and supervisory bodies in sustain-
ability matters and their expertise and skills or access to these to fulfill this role;
. a description of the company’s sustainability-related policies;
. information about existing sustainability-linked incentive schemes for members of the
administrative, management, and supervisory bodies;
. a description of the due diligence processes, the principal actual or potential adverse
impacts in the company’s own operations and ‘value chain,’ actions taken to identify
and track these impacts, and actions to mitigate these adverse impacts;
. a description of sustainability-related risks and how these risks are managed; and
. indicators relevant to the disclosures of these issues.
In addition, companies need to provide information on key intangible resources, which are
nonphysical resources that are fundamental to the business model and add to value creation.
The CSRD highlights the consideration of the company’s complete value chain in the disclosure,
including own operations, business relationships, and the supply chain and requires that in the
case of information gaps on the value chain during the first three years of application, companies
should disclose their efforts, reasons, and plans for obtaining missing information.
The CSRD prescribes the adoption of sustainability reporting standards based on delegated
acts and technical advice provided by the EFRAG (Article 1, paragraphs 4, 7, 8, 14 and 17; Reci-
tals 37-54). These delegated acts are to be adopted sequentially. A first set of sector-agnostic
standards was adopted by means of a delegated act by the Commission (European Commission,
2023d) in July 2023. Further delegated acts shall be adopted by the end of June 2024 to define
sector-specific standards, proportionate standards for listed SMEs, and standards for third-
country companies in scope of the CSRD. The ESRS are described in more detail in section 4.2.
3.2.3. Reporting Location, Format, and Assurance

The CSRD requires the inclusion of sustainability information in the management report (Article
1, paragraphs 4 and 7; Recital 57); providing the necessary disclosure under the CSRD in a sep-
arate sustainability report is therefore no longer possible. In addition, sustainability information
should be prepared and marked up in an electronic reporting format (Article 1, paragraphs 9 and
10; Recitals 55-56).
The CSRD prescribes limited assurance on the company’s sustainability reporting, including
compliance with the reporting standards, the process for identifying the information reported, the
mark-up of sustainability reporting, and the reporting requirements detailed in Article 8 of the
Taxonomy Regulation. The assurance can be carried out by the statutory auditors. Furthermore,
member states can define whether auditing firms other than the ones carrying out the statutory
audit of financial statements or independent assurance service providers are also allowed to
provide assurance on sustainability reporting.20 The European Commission shall also adopt stan-
dards for limited assurance by October 2026 (Article 1, paragraphs 12 and 13; Article 3 and
Article 4; Recitals 60–78). Moreover, the CSRD foresees a potential transition to reasonable
assurance based on a preceding assessment of its feasibility for auditors and undertakings. If
that assessment is positive, the European Commission shall adopt applicable standards for
reasonable assurance by October 2028, including a date by which reasonable assurance has to
be performed.
3.3. Taxonomy Regulation

In June 2020, the EU adopted the Taxonomy Regulation (European Parliament and Council of the
EU, 2020), which provides a classification system for environmentally sustainable economic
activities. It was proposed as part of the EU Action Plan on Financing Sustainable Growth (Euro-
pean Commission, 2018), which aims to redirect capital flows toward a more sustainable economy.
Thus, the Taxonomy Regulation applies to policy measures targeting sustainable financing activi-
ties, financial market participants within the scope of the SFDR, and companies subject to the
NFRD and the CSRD (Article 1). The Taxonomy Regulation differs from other sustainability
reporting mandates, such as the NFRD and the CSRD, first because it provides a classification
system to define which economic activities qualify as environmentally sustainable and second
because it requires companies to report on their activities based on this classification.
The classification of the Taxonomy Regulation is organized around six environmental objec-
tives (Article 9):
(1) climate change mitigation,

(2) climate change adaptation,
(3) the sustainable use and protection of water and marine resources,
(4) the transition to a circular economy,
(5) pollution prevention and control, and
(6) the protection and restoration of biodiversity and ecosystems.
Each environmental objective is delineated in greater detail in Articles 10–15. The Taxonomy
Regulation defines three conditions that an economic activity must meet to qualify as environ-
mentally sustainable (Article 3), also referred to as ‘taxonomy-aligned’:
(1) the activity must substantially contribute to meeting at least one of the six environmental
objectives (SC criteria),
(2) the activity does not significantly harm meeting any of the six environmental objectives
(DNSH criteria), and
(3) the activity is carried out in compliance with minimum safeguards.
These conditions are further delineated in Articles 16–18. For instance, the condition of ‘sub-
stantial contribution’ requires a ‘substantial positive environmental impact, on the basis of life-
cycle considerations’ (Article 16); for a lack of ‘significant harm’ to meet any of the six environ-
mental objectives, such damage is defined for each environmental objective (Article 17). The
technical screening criteria that an economic activity must meet for the SC and the DNSH criteria
are defined in the delegated regulations for climate change mitigation (Annex I) and climate
change adaptation (Annex II) (European Commission, 2021b)21, and for sustainable use and pro-
tection of water and marine resources (Annex I), the transition to a circular economy (Annex II),
pollution prevention and control (Annex III), and the protection and restoration of biodiversity
and ecosystems (Annex IV) (European Commission, 2023c). Moreover, a separate delegated
regulation was adopted to define criteria for fossil gas and nuclear energy sectors (European
Commission, 2022b).
The minimum safeguards require that activities are, for example, aligned with the OECD
Guidelines for Multinational Enterprises, and the UN Guiding Principles on Business and
Human Rights must be ensured (Article 18). Another delegated regulation specifies the
content and presentation of the information (European Commission, 2021a).22
The Taxonomy Regulation distinguishes between taxonomy-eligible and taxonomy-aligned
economic activities. An economic activity is taxonomy eligible if it is listed in the annexes of
the delegated regulations that defines the technical screening criteria. Taxonomy alignment
further requires adherence to the SC and DNSH criteria and the minimum safeguards. To
meet the reporting requirements, nonfinancial companies must disclose the proportion of their
turnover, capital expenditures (capex), and operating expenditures (opex) associated with envir-
onmentally sustainable activities (Article 8). Further information needs to be provided on the
description and classification of the economic activities, the composition of the numerators
and denominators of the KPIs, the link to the financial reporting, the comparison with previous
years’ KPIs, and on how double counting is avoided. Financial companies must report KPIs23
that reflect their financing, investment, and insurance activities towards environmentally sustain-
able activities and certain qualitative information to facilitate understanding of the reported KPIs
(European Commission, 2021a).
The Taxonomy Regulation does not need to be transposed into the national law of EU member
states. Companies in the scope of the Taxonomy Regulation must apply it in their reporting since
January 2022, covering financial year 2021 onward, with a gradual phasing in.24 The European
Commission describes the Taxonomy Regulation as a ‘living document’ that will evolve over
time. In particular, the technical screening criteria will be reviewed regularly to account for tech-
nological progress (European Commission, 2021g). Furthermore, the EU provides administra-
tive support with a taxonomy compass, taxonomy calculator, and taxonomy FAQs.25
3.4. Sustainable Finance Disclosure Regulation (SFDR)

In November 2019, the EU adopted the SFDR (European Parliament and Council of the EU,
2019a) with the aim of increasing transparency about the sustainability of financial products26
and strengthening investor protection. Along with the Taxonomy Regulation, the SFDR forms
an integral part of the EU Action Plan on Financing Sustainable Growth (European Commission,
2018). The SFDR applies to financial market participants (e.g. credit institutions and investment
firms providing portfolio management) and financial advisers (e.g. credit institutions and invest-
ment firms providing investment advice) and introduces harmonized disclosure rules in the EU
on the sustainability of financial products (Recital 9). Hence, the disclosure requirements of the
SFDR are closely focused on investment products and services and target the mechanisms for
financing a transition to a more sustainable economy. The SFDR has gradually been phased
in, with the first disclosure requirements being effective since 10 March 2021. Table 1 provides
an overview of the disclosure requirements.
The SFDR distinguishes between disclosure requirements for entities and for products. At the
entity level, financial market participants and financial advisers have to provide website disclos-
ure on their policies for integrating sustainability risks27 in investment processes or financial
Table 1. Overview of the SFDR disclosure requirements.
Entity level Product level

. Website disclosure on: . Precontractual disclosure:
○ Policies for integrating sustainability risks ○ Integration of sustainability risks in
in the investment decision-making process investment decision/advice, assessment of

or financial advice (Article 3) impacts of sustainability risks on financial
○ Consideration of principal adverse impacts returns (Article 6); comply-or-explain
(PAIs) on sustainability factors (Article 4) ○ For financial market participants that
in the investment decisions or financial consider PAIs: consideration of the product’s

advice; comply-or-explain62 PAIs on sustainability factors (Article 7)
○ Integration of sustainability risks in ○ For products that promote ‘environmental’ or
remuneration policies (Article 5) ‘social’ characteristics (Article 8):

information on how the characteristics are
met
○ For ‘products with sustainable investment
objective’ (Article 9): explanation of how the

objective is met
○ Disclosure on alignment with the Taxonomy
Regulation for products that promote

environmental characteristics (Article 8) or
have an environmental objective (Article 9)
. Website disclosure for Article 8 and 9 products
(Article 10):
○ Summary
○ Description of the characteristics/objectives
and methodologies
○ The information in precontractual disclosures
and in periodic reports provided for Article 8

and 9 products
. Information in periodic reports (Article 11):
○ Information regarding the consideration of
PAIs on sustainability factors (Article 7)

○ For Article 8 products: information on the
extent to which characteristics are met

○ For Article 9 products: overall sustainability-
related impact in comparison to any used

reference index and a broad market index
○ Disclosure on alignment with the Taxonomy
Regulation for products that promote

environmental characteristics (Article 8) or
have an environmental objective (Article 9)
○ Utilization of information in management
reports/nonfinancial statements (NFRD,

CSRD) possible
This table provides an overview of entity-level and product-level disclosure requirements according to the SFDR.
advice, the consideration of principal adverse impacts (PAIs) in investment decisions or financial
advice,28 and the consideration of sustainability risks in their remuneration policies.
In addition to the disclosure requirements for entities, the SFDR stipulates precontractual,29
website, and periodic disclosures for product information on sustainability aspects. The SFDR
distinguishes two types of sustainable investment products:
. financial products that promote environmental or social characteristics (Article 8),30 and
. financial products with sustainable investment objectives (Article 9).31
For all types of financial products, regardless of whether they address sustainability according
to Article 8 or Article 9 or not, precontractual disclosures need to include information on the inte-
gration of sustainability risks into investment decisions or investment/insurance advice as well as
an assessment outcome of the likely impacts of sustainability risks on the financial returns of
financial products, on a comply-or-explain basis (Article 6). Furthermore, since 30 December
2022, financial market participants that consider PAIs at entity level are required (Article 7)
to explain if and how financial products consider the PAIs of investment decisions on sustain-
ability factors and a statement that information on PAIs is available in the periodic reporting.
Regarding Article-8 investment products, information on how the environmental and social
characteristics are met needs to be provided. Regarding Article-9 investment products, disclosure
is required on how the objective is to be met.32
In addition, the SFDR imposes certain disclosure requirements for financial market participants’
websites (Article 10) and periodic reports (Article 11) regarding the consideration of PAIs (Article
7) as well as investment products defined according to Article 8 and Article 9. Article 10 requires a
description on the website of the environmental and social characteristics or objectives and infor-
mation on the methodologies applied to measure these characteristics or the impact of the invest-
ments. Furthermore, the information in precontractual disclosures and in periodic reporting
required for Article-8 and Article-9 products must be provided on the website. Starting with the
reporting year 2022, periodic reporting (Article 11) needs to include any information on PAIs con-
sidered, the extent of alignment with environmental and social characteristics for Article-8 pro-
ducts and the overall sustainability-related impact for Article-9 products. Moreover, financial
market participants and financial advisers need to ensure that there is no contradiction between
their marketing communications and their disclosures according to the SFDR (Article 13).
Further information on the degree of alignment of the investment products with the Taxonomy
Regulation objectives and activities must be provided in the precontractual disclosures and in per-
iodic reports if products focus on environmental characteristics (Article 8) or objectives (Article 9).
In April 2022, the European Commission adopted a delegated regulation on regulatory technical
standards (RTS) specifying the details of the content, methodologies, and presentation of disclos-
ures (European Commission, 2022a).33 These standards apply from 1 January 2023. Another del-
egated regulation, adopted in October 2022 and applicable from February 2023, stipulates
disclosures for the exposure of financial market participants to the fossil gas and nuclear energy
sectors as defined by the Taxonomy Regulation (European Commission, 2023a). However, in
2023, the European Commission called for a review of the RTS to broaden the disclosure frame-
work and to address technical issues (EBA, EIOPA & ESMA, 2023a) and a proposal for changes to
the RTS was provided by EBA, EIOPA and ESMA (2023b) in December 2023. Moreover, at the
time of writing this article (December 2023) a public consultation by the European Commission is
taking place to assess potential shortcomings of the SFDR (European Commission, 2023e).
3.5. Pillar 3 Disclosures on ESG Risks

In May 2019, the EU adopted the CRR II (European Parliament and Council of the EU, 2019b),
which amends the original CRR (European Parliament and Council of the EU, 2013b) and takes
into account the reform measures of the Basel Committee of Banking Supervision (BCBS)34
regarding its Pillar 3 disclosure requirements to promote market discipline.
The CRR II amends Part Eight of the original CRR and introduces Article 449a, which
requires large institutions (i.e. credit institutions and certain investment firms)35 with issued
securities publicly listed on a regulated EU market to disclose their ESG risks from the end of
June 2022. Hence, in contrast to the CSRD, the Taxonomy Regulation, and the SFDR, the sus-
tainability-related disclosures required under Pillar 3 focus particularly on risks.
To specify uniform disclosure formats and instructions, the European Commission adopted
implementing technical standards (ITS) in November 2022 (European Commission, 2022c)
based on a draft developed by the EBA. The ITS contain templates, tables, and detailed disclos-
ure instructions for both quantitative and qualitative disclosure requirements. The quantitative
disclosures relate to climate-change transition risks, climate-change physical risks, and insti-
tutions’ mitigation actions, in particular the GAR required by the Taxonomy Regulation and
the Banking Book Taxonomy Alignment Ratio (BTAR).36 The qualitative disclosures focus
on how governance arrangements, business strategy and processes, and risk management con-
sider risks in each ESG dimension. According to the EBA, the ITS will be developed further
to integrate the developments of the technical screening criteria for the environmental objectives
other than climate change mitigation and adaptation according to the Taxonomy Regulation
(EBA, 2022).
The disclosure requirement under Article 449a of the CRR II started in June 2022 and required
a first annual disclosure for the financial year 2022.37 However, to account for challenges in data
collection, several disclosure requirements were phased in, including disclosures on institutions’
financed GHG emissions, for which the reference date was set to end of June 2024. Moreover, the
reference dates for first disclosures of information for the GAR and the BTAR were set to end of
December 2023 and December 2024, respectively.
3.6. Discussion
3.6.1. Comparison
Table 2 provides an overview of the key characteristics of the CSRD, the Taxonomy Regulation,
the SFDR and the Pillar 3 disclosures on ESG risks.
The sustainability disclosure mandates are evidently interconnected. The CSRD and the Tax-
onomy Regulation all apply to a broad range of EU companies, and the CSRD and therefore also
the Taxonomy Regulation are also relevant to certain non-EU companies. In contrast, the SFDR
and the Pillar 3 disclosures of ESG risks target participants in financial markets and large banks,
respectively. They also seek to induce ‘real’ effects on the sustainability performance of the com-
panies within their scope. Additionally, the Taxonomy Regulation aims to prevent greenwashing,
the SFDR aims to stimulate sustainable financing and investment and improve investor protec-
tion, and the Pillar 3 disclosures of ESG risks aim to promote market discipline. The SFDR
focuses only on investors, whereas the CSRD, the Taxonomy Regulation and the Pillar 3 disclos-
ures address a broad range of stakeholders including non-financial stakeholders (e.g. employees,
customers, etc.).
The CSRD, and the SFDR cover all matters of sustainability, whereas the Taxonomy Regu-
lation in its current version focuses exclusively on environmental sustainability in the reporting,
and the Pillar 3 disclosures embrace the ESG concept, which is prominent in the financial sector.
Reporting requirements on environmental aspects across all mandates refer to the classification
system of the Taxonomy Regulation.38 In particular, the ESRS are required to align with the Tax-
onomy Regulation (CSRD, Recital 38), and specific disclosure requirements under the SFDR and
Pillar 3 directly build on classifications according to the Taxonomy Regulation. The classifi-
cation of environmentally sustainable economic activities introduced by the Taxonomy Regu-
lation therefore provides an overarching framework for reporting on sustainability and aims to
address the need for uniform criteria for environmental sustainability across the EU. Its classi-
fication scheme links the reporting requirements imposed on the financial market by the
SFDR and Pillar 3 disclosures with the reporting requirements in the real economy (through
the CSRD). In addition, the ESRS are also aligned to meet certain data requirements for disclos-
ures under Pillar 3 and under the SFDR (see Appendix B of ESRS 2).
12
Table 2. Overview of regulatory initiatives.
K. Hummel and D. Jobst

Pillar 3 Disclosures on ESG
CSRD Taxonomy Regulation SFDR Risks
(Directive (EU) 2022/2464) (Regulation (EU) 2020/852) (Regulation (EU) 2019/2088) (Regulation (EU) 2019/876)
Scope Large EU companies and Scope of the CSRD and SFDR; Financial market participants and Large listed credit institutions
listed SMEs63, certain regulators regarding policy advisers and certain investment firms
branches and subsidiaries measures
of third-country
undertakings
Objectives − To improve sustainability − To establish a classification of − To enhance and harmonize the − To ensure prudential
disclosure environmentally sustainable transparency regarding the disclosures on ESG risks
− To stimulate change activities sustainability of financial − To enhance the comparability
toward a sustainable − To enhance comparability of products of sustainability disclosure
global economy reporting on these activities and − To avoid ‘greenwashing’ − To promote market
prevent greenwashing − To stimulate sustainable financing discipline in the financial
− To stimulate sustainable financing and investment activities sector
and investment activities − To strengthen investor protection
Materiality Double materiality No materiality focus Double materiality Double materiality
Disclosure Environmental, social, Environmental Environmental, social, employee, Environmental, social and
matters employee, human rights, human rights, corruption, bribery governance (ESG)
corruption, bribery
Disclosure Related to matters: Financial undertakings: Entity-level disclosures: Quantitative disclosures:
requirements − Description of business − KPIs by asset managers − Information on policies regarding − Climate-change transition
model and strategy − KPIs by credit institutions sustainability risk integration, risks
− Description of related − KPIs by investment firms consideration of PAIs, and − Climate-change physical
targets, their achievement − KPIs by insurance and reinsurance integration of sustainability risks risks
progress and if they are firmsNonfinancial undertakings: in remuneration policiesProduct- − Mitigation actionsQualitative
based on scientific − Proportion of turnover, capex and level disclosures: disclosures:
evidence opex associated with − Precontractual and website − Regarding ESG risks:
− Role and expertise of environmentally sustainable disclosures and information in governance arrangements,
administrative, activities periodic reports business model and strategy,
management and risk management
supervisory bodies
− Sustainability-related
policies
− Sustainability-linked
incentive schemes
− Description of due
diligence processes and
PAIs and mitigating
actions
− Sustainability-related
risks and risk
management
Granularity of Specific disclosure Technical screening criteria are Specific disclosure requirements are Specific disclosure
information requirements are defined defined in delegated acts defined in the technical standards requirements including
in the ESRS specific KPIs for ESG risks
that are defined in the
technical standards
Stakeholder Broad Broad Investors Broad
focus
Legal character Transposition of directive Direct applicability of regulation and Direct applicability of regulation Direct applicability of
(authority) into national legislation delegated acts (technical screening and delegated acts (regulatory regulation and implementing
criteria) technical standards) acts (implementing technical
standards)
Location of Management report (digital According to the requirements of the Website, precontractual disclosure Pillar 3 report
information tagging) CSRD and SFDR and periodic reporting
Timeline First application for Requirements for climate-related First disclosure requirements First application for financial
financial year 2024, with objectives are applicable for applicable from March 2021, year 2022
a gradual phasing in financial years 2021 onward, with a gradual phasing in of
requirements for other further requirements
environmental objectives are
applicable for financial years 2023
onward
This table provides a comparison of the four EU regulatory initiatives discussed in this article along key parameters.
The Taxonomy Regulation does not embrace the concept of materiality, whereas the CSRD,
the SFDR and the Pillar 3 disclosures39 employ the double materiality concept. All mandates sti-
pulate granular and specific reporting requirements directly or indirectly through sustainability
reporting standards. In particular, similar to the SFDR and the reporting requirements of Pillar
3, the Taxonomy Regulation also stipulates the disclosure of specific KPIs. In addition, for
every mandate more detailed reporting requirements are provided in specific legal acts
adopted by the European Commission. The CSRD refers to the ESRS adopted by a delegated
regulation, and the disclosure requirements for the Taxonomy Regulation are also laid out in a
separate delegated regulation. Similarly, technical standards were adopted by the Commission
regarding the disclosures under the SFDR and Pillar 3.
Moreover, reporting requirements differ significantly for financial and nonfinancial compa-
nies. In particular, although the CSRD and the Taxonomy Regulation are relevant across
sectors, the Pillar 3 disclosures and the SFDR apply only to specific companies in the financial
industry.
All these mandates except the CSRD are directly legally applicable, thus providing no discre-
tion to the member states in their implementation of disclosure requirements and ensuring regu-
latory consistency throughout the EU. Most mandates also become effective almost immediately
after their publication, which highlights the urgency with which EU legislators have approached
the regulation of sustainability disclosure.
3.6.2. Critical Reflection

Generally, all mandates are supplemented by delegated and/or implementing acts by the Euro-
pean Commission to prevent those mandates from being overloaded with technical specifications
and requirements. Although this addition of further technical specifications is explicitly stipu-
lated by the mandates, it eventually enables the European Commission to exert a great deal of
influence. The drafting of these legal acts is typically carried out by technical expert groups
or committees, which, unlike the European legislators, have the necessary expert knowledge.
Because these entities are not elected parliamentary representatives and to limit the risk of lob-
bying, it is important to ensure that the process for developing those drafts is transparent. In
addition, the composition of these expert groups needs to be balanced to ensure a broad stake-
holder perspective. These entities only provide a draft of the delegated act, whereas the final del-
egated act that is passed by the European Commission does not necessarily implement the
suggestions one-to-one.
For instance, the delegated act finally adopted by the European Commission in July 2023
differs from the draft ESRS provided by EFRAG in November 2022. Specifically, the European
Commission made three major modifications to the draft ESRS: phasing-in certain reporting
requirements for companies with less than 750 employees, making all reporting requirements
of the topical standards subject to the outcome of the double materiality assessment40, and con-
verting some of the mandatory reporting requirements into voluntary. In light of the tight
implementation period, companies are challenged by the need to prepare for reporting according
to the ESRS against the background of changing draft legislations. In particular, the short
implementation period can be criticized for all the mandates under study. Recently, Hummel
and Bauernhofer (2024) concluded that complex and detailed reporting requirements in combi-
nation with a tight implementation period result in a reporting response in the first implemen-
tation years they describe as an ‘endeavor to comply’; companies aim to comply with
reporting requirements, but have not yet assembled the reporting processes and systems needed.
Several critical points can be raised about specific mandates, particularly the CSRD. First, the
CSRD extends the number of companies in scope of a sustainability reporting mandate substan-
tially, from approximately 11,700 companies in scope of the NFRD to about 50,000 companies
(European Commission, 2023f) and the additional reporting burden may be disproportionate,
particularly for SMEs in scope, in light of their sustainability impact. Although the CSRD pro-
vides reduced reporting requirements for those SMEs, a proposal for proportionate ESRS for
listed SMEs has not been published at the time of writing this article (December 2023). These
standards will decide whether the EU will find an acceptable balance between reporting
burden for listed SMEs and the information needs of other stakeholders. Furthermore, SMEs’
sustainability disclosures are needed by other companies in the value chain to fulfill their own
reporting requirements. Another critical point concerns the reporting obligation for non-EU com-
panies. Importantly, CSRD reporting covers the company at a consolidated level and not only the
EU-based subsidiary or branch. There will be specific sustainability reporting standards for non-
EU companies, but these standards have not been developed at the time of writing this article
(December 2023). Furthermore, the CSRD also provides the option of reporting in accordance
with standards that are deemed to be equivalent, yet it is unclear on what basis this equivalence
will be defined. Another critical point concerns the assurance of sustainability information.
Although financial and sustainability information are becoming more integrated (also due to
the CSRD’s requirement to report the sustainability information in the management report), it
is currently unclear how responsibilities will be shared between the statutory auditor and the
assurance provider.
The Taxonomy Regulation takes a rather novel and innovative approach41 that combines a
classification system for environmental sustainability with reporting requirements. Although
the clear definition of sustainability for economic activities provides guidance to companies
and has the potential to limit greenwashing, this guidance becomes questionable in light of
the power that lobbying has played in the regulatory development of the Taxonomy Regu-
lation.42 However, the practical implementation of the Taxonomy Regulation is challenging
and resource intense due to the detailed definitions of technical screening criteria. Moreover,
not all industries are currently covered by the Taxonomy Regulation. Since economic activities
that are not taxonomy eligible – by definition – cannot be taxonomy aligned, someone who is not
familiar with the Taxonomy Regulation might assume that companies operating in industries not
currently covered by it are ‘unsustainable’. To overcome these shortcomings, the Platform on
Sustainable Finance has recommended an extension of the current binary classification into a
traffic-light system (Platform on Sustainable Finance, 2022). Such an extended taxonomy
would cover all economic activities and categorize them into green for substantial contributions
to environmental sustainability, amber for intermediate environmental performance, red for
unsustainable performance, and grey for low or neutral environmental impact. However, this
would substantially increase companies’ costs of implementing the reporting requirements.
The SFDR targets firms that provide or advise on financial products and thus focuses particu-
larly on product disclosures as a means for increasing transparency about sustainable investment
opportunities. To fulfill the SFDR’s disclosure requirements, reporting entities also need to cat-
egorize products into whether they promote environmental or social characteristics, pursue a sus-
tainable investment objective, or fall into neither of those categories (see section 3.4). However,
the primary focus of the SFDR on defining transparency requirements rather than setting tech-
nical boundaries for those product categories, has led to rather broad product criteria (Eurosif,
2022). Cremasco and Boni (2022) found evidence that investment funds exhibit a degree of fuz-
ziness in their category memberships, suggesting loose boundaries and a potential need for
adapting the SFDR to better fulfill its aim.43 Moreover, disclosures in line with the SFDR are
rather complex and extensive. As noted by Eurosif (2022), the technical details that are required
by the SFDR may be difficult for retail investors to understand.
A limitation of the Pillar 3 disclosures on ESG risks is its narrow scope: it currently only
applies to large EU-listed institutions. This is remarkable given the crucial role of the banking
sector in financing the transition to a more sustainable economy and considering the EU’s ambi-
tious regulatory initiatives on sustainability. However, the narrow scope and hence the limited
effectiveness of this disclosure rule was acknowledged by the European Commission in
October 2021, which plans to extend the disclosure requirement to encompass all institutions
proportionally as part of a larger proposal to amend the CRR (European Commission, 2021f).
However, this extension is still at the proposal stage, and at the time of writing this article
(December 2023) it has not been decided if and when it will become effective.
4. Sustainability Reporting Standards

In this section, we outline three major sustainability reporting standards: the Global Reporting
Initiative (GRI) Standards, the ESRS, and the IFRS Sustainability Disclosure Standards. We
discuss those three standards due to their connection to the CSRD. On the one hand, the
ESRS are an integral part of the CSRD (see section 3.2). On the other hand, the ESRS also
link to both, the GRI Standards and the IFRS Sustainability Disclosure Standards.44 We
discuss each set of standards in more detail in sections 4.1–4.3 and provide a systematic compari-
son and critical reflection at the end of this section.
4.1. GRI Standards

4.1.1. Institutional Arrangement
Founded in 1997, the GRI was among the first organizations to provide universal guidelines for
sustainability reporting. The first version of the GRI guidelines was published in 2000, with con-
tinuous updates in subsequent years. In 2014, the GRI set up a new governance structure, the
Global Sustainability Standards Board (GSSB), which is responsible for setting sustainability
reporting standards. In 2016, the GRI Sustainability Reporting Standards were launched to set
the first global standards for sustainability reporting. In October 2021, the GSSB launched a
major update, of the GRI Universal Standards, which became effective starting in 2023. The
GRI Standards, or prior versions of them, are currently the most commonly used sustainability
reporting standards worldwide. In 2022, 78 percent of the 250 largest global companies and 68
percent of the largest 100 companies across 58 countries reported in accordance with the GRI
Standards (KPMG, 2022).
4.1.2. Scope and Structure of the Standards

The GRI Standards have a modular structure comprising three sets of standards: the GRI Uni-
versal Standards, the GRI Topic Standards, and the GRI Sector Standards. The GRI Universal
Standards consist of GRI 1: Foundation 2021, GRI 2: General Disclosures 2021, and GRI 3:
Material Topics 2021. GRI 1 outlines the purpose of the GRI Standards and defines four key con-
cepts and eight reporting principles. It also specifies the scope of reporting, distinguishing
between reporting ‘in accordance with the GRI Standards’ and reporting ‘with reference to
the GRI Standards.’45 GRI 2 specifies disclosures of the reporting organization’s structure,
activities and workers, governance, strategy, policies, practices, and stakeholder engagement.
Stakeholders are defined as ‘individuals or groups that have interests that are affected or
could be affected by an organization’s activities’ (GSSB, 2021, p. 12). It also specifies how to
report on restatements of information and external assurance provided. GRI 3 outlines the stan-
dards’ concept of materiality and describes the process for determining material topics. Material
topics are defined as those ‘that represent the organization’s most significant impacts on the
economy, environment, and people, including impacts on their human rights’ (GSSB, 2021,
p. 30). Thus, the GRI Standards focus exclusively on impact materiality (GRI, 2022c). The
GRI Topic Standards prescribe detailed reporting requirements for all sustainability-related
topics, including economic matters (GRI-20x), environmental matters (GRI-30x), and
employee-related, human-rights-related, customer-related, and social matters (GRI-40x). The
GRI Sector Standards indicate sector-specific disclosures for topics that are likely to be material
in each sector. Sector Standards have thus far been published for the oil and gas industry, the coal
industry, as well as agriculture, and aquaculture and fishing.
4.2. European Sustainability Reporting Standards

In January 2020, the European Commission announced a proposal to develop sustainability
reporting standards (European Commission, 2020). In June 2020, the European Commission
mandated Jean-Paul Gauzès ad personam to suggest changes to the governance and funding
of EFRAG related to sustainability reporting and EFRAG to conduct preparatory work for the
development of EU sustainability reporting standards. This work was performed by a project
task force for the elaboration of possible EU nonfinancial reporting standards (PTF-NFRS)46
and was summarized in a final report providing proposals for the development of EU sustain-
ability reporting standards (European Reporting Lab, 2021). In response to the suggestions
made by Jean-Paul Gauzès and the PTF-NFRS, the European Commission requested that
EFRAG undertake the relevant governance reforms and start with the technical work on
the development of EU sustainability reporting standards. Consequently, the PTF-NFRS
has been renamed the Project Task Force on European Sustainability Reporting Standards
(PTF-ESRS).
In addition, in June 2021, EFRAG initiated a consultation on due process procedures for
setting EU sustainability reporting standards (EFRAG, 2021b), and a final version of due
process procedures was approved in March 2022 by EFRAG’s General Assembly
(EFRAG, 2022a). These procedures outline the principles and oversight applied when prepar-
ing draft standards and setting agendas and standards. Moreover, in July 2021, the PTF-ESRS
announced a statement of cooperation with GRI (EFRAG, 2021a). In March 2022, a Sustain-
ability Reporting Board (SRB) was established within EFRAG (EFRAG, 2022c); the SRB is
‘responsible for all sustainability reporting positions of EFRAG including technical advice to
the European Commission on draft EU sustainability reporting standards’ and composed of
members representing European stakeholder organizations, national organizations, and civil
society (EFRAG, 2022e).
In April 2022, the PTF-ESRS issued exposure drafts for a first set of European Sustainability
Reporting Standards (ESRS) and initiated a public consultation process with comments to be
received until the beginning of August 2022 (EFRAG, 2022b). In November 2022, the
EFRAG SRB adopted the first set of draft ESRS and submitted them to the European Commis-
sion (EFRAG, 2022d). By means of a delegated act, the European Commission adopted a first set
of standards in July 2023 (European Commission, 2023d). This delegated act also passed a sub-
sequent two-month scrutiny during which it may have been objected by the European Parliament
or the Council of the EU (European Commission, 2023g).

The ESRS comprise three categories of standards: (i) cross-cutting standards, (ii) topical stan-
dards, and (iii) sector-specific standards. The adopted first set of ESRS consists of cross-
cutting standards (ESRS 1 and ESRS 2) and topical standards (ESRS E1 to E5, ESRS S1 to
S4, ESRS G1) and is sector agnostic: the standards apply to companies irrespective of which
sector they operate in (European Commission, 2023d). A separate annex provides relevant acro-
nyms and a glossary with definitions of terms used in the standards.
The cross-cutting standards contain general reporting requirements (ESRS 1) and general dis-
closures (ESRS 2). ESRS 1 also explains the standards’ double-materiality approach: an ‘impact’
means a sustainability-related impact47 of a company’s business on people or the environment
(impact materiality) whereas ‘risks and opportunities’ refer to a company’s financial risks and
opportunities that are generated by sustainability matters (i.e. financial materiality). According
to ESRS 1.25, a materiality assessment is the starting point for disclosures on sustainability
matters according to the topical standards, and AR16 of ESRS 1 also delineate the sustainability
matters to be considered by a company and which are covered by the topical standards. The
reporting requirements of ESRS 2 and the topical standards focus on a company’s governance,
the interaction of its strategy and business model with material impacts and risks and opportu-
nities, the management of impacts and risks and opportunities, and the use of metrics and targets.
The topical standards contain additional disclosure requirements for material sustainability
topics and are divided into environmental (ESRS E1 to E5), social (ESRS S1 to S4), and govern-
ance (ESRS G1) matters. ESRS 2 requires companies to provide general information on the
materiality assessment process for sustainability matters and the material impacts and risks,
and opportunities. If a specific sustainability matter is assessed as material (i.e. based on
double materiality) by the company, it needs to disclose information according to the topical
standard for that matter.
The ESRS also connect to other EU disclosure legislation. In particular, ESRS 2 contains a list
that reconciles disclosures according to the standards with certain data requirements of the SFDR
and the Pillar 3 disclosures (Appendix B of ESRS 2). Moreover, references are made throughout
the standards whenever disclosure requirements are related to the Taxonomy Regulation. To
relieve the reporting burden on companies, certain disclosure requirements in the first set of
ESRS are to be phased in (Appendix C of ESRS 1). Moreover, EFRAG set up a Q&A platform
to answer technical questions on the ESRS and to support the standards’ implementation.48
4.3. IFRS Sustainability Disclosure Standards

In May 2020, the IFRS Foundation Trustees publicly announced to explore its role in establish-
ing sustainability reporting standards (IFRS Foundation, 2020a). The starting point for the IFRS
sustainability disclosure standards was in September 2020, when the IFRS Foundation Trustees
published a consultation paper on sustainability reporting (IFRS Foundation, 2020b) in which it
emphasized the need for a global framework to ensure the comparability of reporting information
and for reducing the reporting complexity for companies. At the same time, five sustainability
reporting standard-setters, the Carbon Disclosure Project (CDP), the Climate Disclosure Stan-
dards Board (CDSB), the GRI, the International Integrated Reporting Council (IIRC), and the
Sustainability Accounting Standards Board (SASB), published a ‘statement of intent to work
together toward comprehensive corporate reporting’ (CDP, CDSB, GRI, IIRC & SASB,
2020). In November 2020, the IIRC and the SASB announced their consolidation into the
Value Reporting Foundation (VRF), which was then formed in June 2021 (IFRS Foundation,
2021a). In April 2021, the IFRS Foundation delineated the strategic direction for the develop-
ment of sustainability reporting standards (IFRS Foundation, 2021b). In November 2021, at
the COP26, the Chair of the IFRS Foundation Trustees announced the Foundation’s consolida-
tion with the VRF and the CDSB (IFRS Foundation, 2021c)49 and the establishment of the Inter-
national Sustainability Standards Board (ISSB) with the purpose of developing a ‘comprehensive
global baseline of sustainability disclosures for the financial markets’ (IFRS Foundation, 2021c).
In March 2022, the ISSB issued exposure drafts for its first proposed disclosure standards (IFRS
Foundation, 2022b), followed by the publication of its inaugural standards in June 2023 (IFRS
Foundation, 2023a).

The IFRS Sustainability Disclosure Standards provide general requirements for the disclosure of
sustainability-related financial information (IFRS S1) and standards on climate-related disclos-
ures (IFRS S2), each accompanied by guidance and a basis for conclusions (IFRS Foundation,
2023b). The standards integrate the reporting recommendations of the Task Force on Climate-
related Financial Disclosures (TCFD)50 and the reporting concepts of the standard-setters that
were consolidated with the IFRS Foundation (CDSB, SASB, and IIRC).51
IFRS S1 (IFRS Foundation, 2023d) outlines general reporting requirements, including the
objective, scope, conceptual foundations, core content, and general requirements for judgements,
uncertainties, and errors. The aim of the IFRS Sustainability Disclosure Standards is to provide
sustainability disclosure to ‘primary users of general purpose financial reporting’ (IFRS Foun-
dation, 2023d, p. 6), which are defined as ‘existing and potential investors, lenders and other
creditors’ (IFRS Foundation, 2023d, p. 23). Reporting has to include material information
about all sustainability-related risks and opportunities, which is in line with the definition of
financial materiality in the ESRS (see also section 4.2). The disclosures are required to cover
governance, strategy, risk management, and metrics and targets following the structure of the
TCFD. The conceptual foundations define principles of fair presentation, the materiality of infor-
mation, and the reporting entity. The conceptual foundations also emphasize the connectivity of
sustainability-related financial information with other disclosures, such as in the financial state-
ment. The general requirements define that disclosures are to be made concurrently with the
financial statement and may be included in the management commentary52 or in a similar
section within the financial report.
IFRS S2 (IFRS Foundation, 2023e) covers climate-related disclosures. The disclosures are to
focus on climate-related physical and transition risks, and the structure of reporting follows IFRS
S1. IFRS S2 requires the disclosure of cross-industry metrics and targets (including GHG emis-
sions) and industry-based metrics and targets. The ISSB also issued guidance for industry-based
disclosures based on the SASB Standards for eleven53 sectors (IFRS Foundation, 2023f).
As mentioned in subsection 4.3.1, the stated aim of the ISSB is to provide a global baseline for
sustainability disclosure with its IFRS Sustainability Disclosure Standards. The ISSB therefore
emphasizes the standards’ compatibility with multistakeholder-focused reporting standards and
additional jurisdictional disclosure requirements (IFRS Foundation, 2023b). To establish a
potential connectivity with the GRI Standards, the IFRS Foundation for example signed a mem-
orandum of understanding with the GRI (GRI, 2023a) and the ISSB also underlines its efforts to
align disclosures on climate-related risks and opportunities (i.e. IFRS S2) common to those in the
ESRS (IFRS Foundation, 2023b). Moreover, according to the ISSB companies may rely on the
ESRS or the GRI Standards for disclosure of other identified sustainability-related risks and
opportunities that are not covered by IFRS Sustainability Disclosure Standards provided that dis-
closures are in line with the IFRS standards’ objectives and serve the information needs of inves-
tors (IFRS Foundation, 2023d, 2023g).
4.4. Discussion
4.4.1. Comparison
Table 3 provides an overview of the three standards by objective, focus, topics, materiality,
location of information, and legal character.
A general comparison of the ESRS with the IFRS Sustainability Disclosure Standards reveals
key differences.54 The IFRS Sustainability Disclosure Standards focus primarily on investors,
whereas the ESRS consider the information needs of multiple stakeholders of sustainability
reporting. This narrow focus of the IFRS Sustainability Disclosure Standards on investors’
needs and enterprise value has repeatedly been criticized by several accounting researchers
for ignoring the findings of prior literature and applying an understanding of sustainability
that is too narrowly focused on financial materiality (Adams, 2021; Adams & Mueller, 2022;
Cho et al., 2022; Professors of Accounting, 2020).
The standards also differ in their legal character. While the GRI Standards are a voluntary
framework, the IFRS Foundation co-ordinates its standard-setting activities closely with the
International Organization of Securities Commissions (IOSCO)55 (IFRS Foundation, 2022d),
which endorsed the IFRS S1 and S2 in July 2023 (IOSCO, 2023) as a result of which the stan-
dards may apply to companies listed on member stock exchanges in the future. In contrast, the
ESRS are mandatory through the CSRD and were adopted as delegated acts.
Moreover, the standards also differ in the sustainability matters covered and the location of
reporting. As indicated above, the IFRS Sustainability Disclosure Standards currently focus
mainly on climate-related information. In contrast, both the ESRS and the GRI Standards
incorporate a broad spectrum of sustainability-related reporting topics. The GRI Standards
allow reporting either within the annual report or in a separate sustainability report.
However, there is less flexibility for reporting according to the ESRS and the IFRS Sustainabil-
ity Disclosure Standards. The disclosures according to the CSRD, and thus the ESRS, are
required within the management report, but the IFRS Sustainability Disclosure Standards
specify the management commentary56 or a similar report within the financial report as poten-
tial locations for sustainability disclosure. The management commentary is currently under
revision by the IASB (IFRS Foundation, 2022c), and therefore, the role that it might play
for sustainability disclosure is still unclear at the time of writing this article (December
2023). However, the IASB also gathered public feedback on its proposed revision, and
several stakeholders57 called for collaboration between the IASB and the ISSB on the future
of the management commentary project, as it could become an important tool for connecting
financial with sustainability disclosures.
Another distinction between the standards refers to the materiality focus. IFRS S1 and S2 have
a single focus on financial materiality. This approach is also evident in the VRF, which was
Table 3. Overview of sustainability reporting standards.

IFRS Sustainability Disclosure
GRI Standards ESRS Standards
Focus Broad stakeholder focus Broad stakeholder focus Investor focus
Matters Broad spectrum of Broad spectrum of Primary focus on climate-
sustainability-related sustainability-related related information
matters matters
Materiality Impact materiality Double materiality Financial materiality
Location of Annual report or separate Management report Management commentary or
information sustainability report similar report within the
financial report
Legal character Voluntary Mandatory via delegated Currently not defined64 (IOSCO
(authority) act through the CSRD endorsement)
This table provides a comparison of the three sustainability reporting standards discussed in this article along key
parameters.
consolidated with the IFRS Foundation. In contrast, the ESRS apply the double materiality
concept. Again differently, the GRI Standards focus solely on an organization’s impact
materiality.
At the 27th UN Climate Change Conference (COP27), the ISSB highlighted its aim of max-
imizing interoperability between IFRS Sustainability Disclosure Standards and the ESRS. The
published standards of the ISSB allow the ESRS disclosure requirements to be followed if an
identified sustainability-related risk is not covered by the former (see section 4.3.2). The inter-
operability between the ESRS and the IFRS Sustainability Disclosure Standards is also empha-
sized by the European Commission in its delegated act for the first set of ESRS (European
Commission, 2023d). Moreover, in August 2023, the EFRAG published a preliminary
mapping table on the alignment of disclosures according to the ESRS and the IFRS Sustainability
Disclosure Standards (EFRAG, 2023a).58
Both EFRAG and the IFRS Foundation also entered into collaborative arrangements with the
GRI with the aim of achieving interoperability between the standards (GRI, 2022a).59 Accord-
ingly, the ISSB states that efforts were made so that the IFRS S1 and S2 also connect with
the GRI Standards (see section 4.3.2), underscoring the ISSB’s approach to interoperability
(IFRS Foundation, 2023b). Following the publication of the IFRS Sustainability Disclosure
Standards, the GRI also announced the development of technical mapping of the GRI Standards
and the IFRS Sustainability Disclosure Standards and a digital taxonomy for streamlining dis-
closure. According to the GRI, the IFRS Sustainability Disclosure Standards and the GRI Stan-
dards together constitute a ‘comprehensive corporate reporting regime’ encompassing impact
reporting and sustainability-related financial reporting (GRI, 2023a). In June 2022, the GRI
also provided technical mapping of EFRAG’s exposure drafts of the ESRS against the GRI Stan-
dards as part of its response to EFRAG’s public consultation on the drafts (GRI, 2022b). More-
over, the European Commission’s delegated act for the first set of ESRS also highlights the
standards’ interoperability with the GRI Standards (European Commission, 2023d). In a joint
statement issued by the EFRAG and the GRI in September 2023, the two organizations also high-
light that their respective standards closely align with respect to the reporting on impact materi-
ality (EFRAG, 2023b). Related to this, the two organizations issued a draft interoperability index
of their respective standards in November 2023, which maps common data points and outlines
how reporting under the ESRS can be used to report with reference to the GRI Standards (GRI,
2023c).
4.4.2. Critical Reflection

The publication of the IFRS Foundation’s consultation paper on sustainability reporting in Sep-
tember 2020 was the starting point for a critical debate among accounting scholars on the optimal
path towards sustainability standard setting (Adams, 2021; Adams & Mueller, 2022; Cho et al.,
2022; Laine & Michelon, 2020; Professors of Accounting, 2020). These scholars argue that the
IFRS Foundation largely neglected insights from the academic community on sustainability
reporting in the initial phase of standard setting. They criticize the IFRS Foundation’s approach
for its neglect of stakeholders other than investors, the climate-first approach, and the focus
solely on financial materiality. We also advocate a well-founded and inclusive approach to stan-
dard setting that comprehensively embraces the diversity of stakeholders’ needs so that compa-
nies’ reporting activities account for the multiple challenges of future sustainability
developments.
The different approaches to materiality in the three standards discussed and the sustainability
topics covered may also offer significant challenges to reporting entities. Although the ISSB
intends the IFRS Sustainability Disclosure Standards to be compatible with the GRI Standards
to serve stakeholders other than investors, how disclosures according to both standards may in
practice connect is currently not fully clear. How reporting may be streamlined therefore remains
to be seen, because at the time of writing this article (December 2023), technical mapping
between the IFRS Sustainability Disclosure Standards and the GRI Standards has not yet been
published (GRI, 2023a). Consistent with Stolowy and Paugam (2023) and Baboukardos et al.
(2023), we therefore remain skeptical whether interoperability between the standards will even-
tually be achieved.
The different approaches to standard setting taken by the ISSB and by the European Commis-
sion and EFRAG (see section 4.4.1) highlight the importance of compatibility between standards
in keeping the reporting burden for companies reasonable. Following the above, reporting under
double materiality is achieved either by applying the ESRS or by applying the IFRS Sustainabil-
ity Disclosure Standards in conjunction with the GRI Standards. Avoiding duplicate reporting
efforts therefore hinges crucially on how much the standards are streamlined and on the
options for cross referencing. However, the standards of the ISSB currently only cover
climate-related topics whereas the CSRD requires reporting on a broad spectrum of sustainability
topics. In general, given the growing number of sustainability policy measures and their inher-
ently long-term view, a focus on financial materiality and solely on environmental topics might
miss both the connection with other sustainability dimensions and the potential for inside-out
risks to become financially relevant in the long run.60
Aside from potential differences in the content of disclosure required, uncertainties in the
format of reporting may also pose challenges for companies. An important open topic is the man-
agement commentary project of the IASB mentioned above in section 4.4.1. According to the
IFRS Sustainability Disclosure Standards, disclosure may be contained in the management com-
mentary. However, the management commentary is currently under revision and may change.
The IASB has recently also published a comparison between its management commentary
exposure draft and the integrated reporting framework (IFRS Foundation, 2023h). It therefore
remains an open topic at the time of writing this article (December 2023) exactly how sustain-
ability-related financial disclosures in line with the IFRS Sustainability Disclosure Standards
may be integrated into the reporting in the revised management commentary.
5. Implications for Practitioners and Researchers

5.1. Implications for Practitioners
Section 3 outlined the different sustainability reporting mandates in the EU along key character-
istics and inter alia also highlighted differences in their scopes. To facilitate a better understand-
ing of which companies are affected by the legislation, Figure 1 provides a generic decision tree.
Nonfinancial companies are mainly targeted by sustainability reporting requirements via the
CSRD, which provides for a phased-in application depending on a company’s size, listing
status and whether it is located or generating turnover in the EU. In addition to the CSRD report-
ing requirements, financial companies are also affected by the Pillar 3 disclosures on ESG risks
(large credit institutions and certain investment firms) and the SFDR (financial market partici-
pants and financial advisers).
The different requirements in terms of content and reporting formats also lead to different
reporting processes. Again, due to the strong focus of the discussed mandates on the financial
sector, reporting requirements and processes differ significantly between financial and nonfinan-
cial companies. Figure 2 and Figure 3 illustrate the reporting implications from the mandates sep-
arately for financial and nonfinancial companies, respectively.
The CSRD requires reporting according to the ESRS, the disclosure requirements under the
Taxonomy Regulation are defined in delegated acts. Similarly, the SFDR and the Pillar 3
Figure 1. Decision tree for reporting according to the CSRD, SFDR and Pillar 3 disclosures on ESG risks.
disclosures define disclosures in technical standards (both implemented also via delegated
acts). In general, all mandates require some disclosure in periodic reporting. Additionally,
the SFDR also stipulates disclosures on websites and in pre-contractual formats. Finally, the
disclosures according to the CSRD and the Taxonomy Regulation are also subject to external
(limited) assurance.
Figure 2. Sustainability reporting process for financial companies.

Figure 3. Sustainability reporting process for nonfinancial companies.
5.2. Implications for Researchers

We develop the future research agenda with recent literature reviews on the consequences of sus-
tainability reporting mandates (Christensen et al., 2021; Haji et al., 2023), a recent discussion of
the developments in sustainability reporting (Baboukardos et al., 2023; Stolowy & Paugam,
2023), and our own overview of sustainability reporting mandates in the EU.
Every regulatory initiative poses specific challenges and opportunities for researchers. A
specific feature of the NFRD was the differences in its national transpositions, which varied
across EU member states in the firms that are in its scope, the contents that firms need to disclose,
whether external assurance of the content of disclosure is required, and whether firms need to
integrate sustainability information into their management reports or may provide the infor-
mation in a separate sustainability report (see Table A1 in the appendix). Because empirical evi-
dence on the effectiveness of specific regulatory parameters is currently scarce, the NFRD
provides a suitable setting to study the consequences of various regulatory parameters on com-
panies’ sustainability reporting and capital-market and real effects. Insights into the role of these
regulatory parameters help tailor sustainability reporting mandates to the needs of specific sta-
keholders. Similar remarks apply to the national transpositions of the CSRD, albeit the specific
national transpositions were not known when writing this article (December 2023).
Furthermore, the CSRD will result in significant increases in sustainability-related data by
large unlisted companies and small and medium-sized listed enterprises. Researchers can
use this data to better understand the currently under-researched role of smaller and unlisted
companies in achieving the transition to a sustainable economy. Furthermore, the digital
tagging of sustainability information has the potential to provide researchers with a large
dataset independent of third-party data providers. Here, a particular challenge for future
research could be to aggregate the immense amounts of data into measures of sustainability
(Wagenhofer, 2023) that enable high-level cross-sectional and intertemporal comparison. Fur-
thermore, the reporting of sustainability information in companies’ management reports poses
questions about whether such integration improves integrated thinking within the company.
Researchers can also examine whether digital reporting formats could help mitigate infor-
mation overload among stakeholders. Furthermore, the role of assurance in sustainability
reporting is another topic worth investigating in depth, particularly whether it can encourage
companies to improve their sustainability performance.
Researchers could utilize the Taxonomy Regulation’s classification scheme to detect green-
washing (Kim & Lyon, 2015; Lyon & Montgomery, 2015) and potentially manipulative report-
ing. At both the company level and the macro levels, the Taxonomy Regulation can help compare
and assess the sustainability performance of various companies and therefore society’s overall
progress toward a more environmentally sustainable economy. The Taxonomy Regulation
itself is worth researching for its consequences on companies’ reporting and capital-market and
real effects.
Another area that would benefit from further research is sustainability reporting and the per-
formance of banks and other financial market participants, because these organizations play a
major role in achieving the transition toward a sustainable economy. However, research in
this area is limited, not least because of the difficulties entailed in measuring and monitoring sus-
tainability in the financial sector. Both the SFDR and the Pillar 3 ESG risk disclosures have the
potential to overcome some of these difficulties by increasing standardization in sustainability
reporting in this sector. The Pillar 3 disclosures mainly address the sustainability risks that
have been dominant in the financial sector over the last decade, and the SFDR also addresses
the potential of sustainability to create value for companies, investors, and other stakeholders.
Finally, the development and adoption of sustainability reporting standards provide a unique
opportunity for researchers to examine the processes by which such standards evolve and the
needs of various stakeholder groups. Researchers should pay particular attention to the different
concepts of materiality that these standards entail and whether and how these various concepts
and understandings of sustainability ultimately translate into different consequences. The inter-
operability of and bridging between the various sustainability reporting standards also provides
an opportunity for future research. In particular, the field of standards has changed significantly
due to the consolidations of standard-setters and development of new and partly mandatory stan-
dards. Further research can therefore investigate how these changes translate into more compar-
able or converging (Korca et al., 2023; Stolowy & Paugam, 2023) disclosure. Moreover, future
research could also analyze how the role and relevance of voluntary standard-setters change in an
evolving shift towards mandatory standard application and as major players of accounting stan-
dard-setting enter the field (Pesci et al., 2023).
6. Conclusion
This article provides a structured overview of current developments in legislation and standards on
sustainability reporting in the EU. We describe the five main sustainability reporting mandates in the
EU: the NFRD, to which certain large EU companies were subject from 2017 to 2023, the CSRD, the
Taxonomy Regulation, the SFDR and the Pillar 3 ESG risk disclosures. In addition, we outline the
three main sustainability reporting standards: the GRI Standards, the ESRS, and the IFRS sustainabil-
ity disclosure standards. We compare the key characteristics of the mandates and standards, summar-
izing important differences and providing a concise overview.
Our aim is to help decisionmakers within companies as well as researchers, both within the EU and
worldwide to better understand current regulatory developments in the EU. These developments indi-
cate what the road ahead may look like and provide ample opportunities to study the rationale, nature,
and consequences of sustainability reporting. Policy-makers, regulators, and other stakeholders
worldwide can benefit greatly from in-depth insights and large-scale empirical evidence on manda-
tory sustainability reporting, which is currently scant (Christensen et al., 2021).
Inevitably, our article is also subject to some limitations. First, the highly dynamic nature of
legislation on sustainability reporting poses a major challenge to any researcher. Our study only
covers mandates that had been implemented by the publication date of this article. To overcome
this problem, the article is accompanied by an openly accessible website that provides an updated
register of the regulatory developments in the EU.61 Our overview of the major sustainability
reporting schemes enables readers to keep up to date with future developments. Second, our
article focuses only on EU legislation and the most important sustainability reporting standards.
In particular, the extent of the legislation and standards discussed makes them highly important
for companies active in the EU. The scope of our article does not allow us to discuss all the
frameworks, standards, and initiatives of voluntary reporting on sustainability and how they may
interact with mandatory schemes. This discussion is a task that future research could undertake.
Notes
1
See https://ec.europa.eu/info/strategy/recovery-plan-europe_en.
2
Throughout the text, we refer to the adoption of a regulation or directive by the ‘EU’ instead of the European Parliament
and the Council of the EU for the sake of brevity.
3
Heterogeneity in the implementation of the NFRD between EU member states existed due to the individual transposi-
tions into national laws.
4
For instance, in 2001, France adopted the Nouvelles Régulations Économiques #2001-420 (NRE) mandating sustain-
ability reporting for listed companies, which was later amended by the Grenelle II. In 2013, the United Kingdom
adopted the Companies Act Regulations 2013 requiring the disclosure of certain sustainability information in firms’
annual reports.
5
The article provides an overview of sustainability reporting regulations as of December 2023.
6
Website featuring the register: https://www.wu.ac.at/reporting/sure
7
If this is not the case, legitimacy-driven reporting practices can still occur in mandatory settings. Haji et al. (2023,
p. 185) conclude that firms ‘employ diverse strategies in their [mandated] CSR reports ranging from use of self-lau-
datory tone, boilerplate language, dismissal to concealment.’
8
We use the term ‘real effects’ similarly to Christensen et al. (2021) to express a change in firms’ business or sustain-
ability activities as a result of the disclosure regulation. In particular, regulations on sustainability disclosure often aim
to foster public policy objectives that go beyond transparency, such as improving a firm’s sustainability performance.
Hombach and Sellhorn (2019) introduce the concept of targeted transparency to describe this phenomenon.
9
Article 2(1) of the Accounting Directive defines the following companies as PIEs: (i) EU companies admitted to trading
on an EU regulated market, (ii) credit institutions, (iii) insurance undertakings, and (iv) other companies designated by
member states as PIEs. Moreover, Article 3(4) of the Accounting Directive determines a company to be large if it
exceeds at least two of the following criteria on its balance sheet date: (i) a balance sheet total of EUR 25 million,
(ii) net turnover of EUR 50 million, and (iii) an average of 250 employees during the financial year. Note that these
thresholds apply from financial years 2024 onwards and thresholds (i) and (ii) were previously lower (namely,
balance sheet total of EUR 20 million, net turnover of EUR 40 million).
10
An analogous stipulation to report on a consolidated basis was introduced for PIEs that are the parent companies of a
large group. A subsidiary was not required to issue a nonfinancial statement in cases where the subsidiary was included
in the management report on a consolidated level.
11
Under the NFRD, country legislators could allow companies and parent companies in scope of the NFRD to publish the
nonfinancial information in a separate report instead. Table A1 in the appendix provides an overview of countries in
which this option was possible.
12
A review report on the effectiveness of the NFRD published by the European Commission (European Commission,
2021e) accompanied by a fitness check of the EU framework for public reporting (European Commission, 2021c)
also ascertained these limitations.
13
The term ‘nonfinancial’ is replaced by ‘sustainability.’
14
SMEs in scope can opt out of reporting until 2028 provided that they publish a statement declaring the reasons for
nonreporting.
15
‘Small and noncomplex’ as defined in Article 4(1) point (145) of the CRR II.
16
Small and noncomplex credit institutions and captive (re)insurance undertakings are in scope of the CSRD if they are
large companies or listed SMEs according to the Accounting Directive.
17
Note that in this case, the CSRD reporting covers the organization at a consolidated level and not just at the level of the
EU-based subsidiary or branch. For reporting standards, non-EU companies can refer to either the ESRS, specific ESRS
for non-EU companies yet to be adopted by the European Commission, or standards that are deemed equivalent to the
ESRS by the European Commission.
18
More specifically, the term ‘double materiality’ was defined in the supplementing guideline to the NFRD on reporting
climate-related information, which was published in 2019 (European Commission, 2019b).
19
Further information on the application of the double materiality concept is provided in the European Sustainability
Reporting Standards (ESRS 1).
20
All assurance providers are required to fulfill certain requirements, including a minimum level of theoretical knowledge
of sustainability and sustainability reporting.
21
An amendment of the delegated act was adopted in June 2023 to account for further economic activities related to
environmental objectives 1 and 2 (European Commission, 2023b).
22
An amendment of the delegated act was adopted in June 2023 to define the disclosure requirements for additional
activities related to environmental objectives 1 and 2 (see footnote 21) as well as for the environmental objectives
3 to 6 (European Commission, 2023c).
23
For example, the Green Asset Ratio (GAR) is the main key performance indicator to be disclosed by credit institutions
and shows the proportion of exposure to taxonomy-aligned activities compared to their total assets (Recital 5 in Euro-
pean Commission (2021a)).
24
Regarding the environmental objectives 1 and 2, nonfinancial companies must disclose information on taxonomy-eli-
gible activities for financial year 2021 onwards and additionally on taxonomy-aligned activities for financial year 2022
onwards. Regarding the environmental objectives 3 to 6, nonfinancial companies must disclose information on their
taxonomy-eligible activities for financial year 2023 onwards and additionally on taxonomy-aligned activities for finan-
cial year 2024 onwards. Regarding the environmental objectives 1 and 2, financial companies must disclose infor-
mation on exposures to taxonomy-eligible activities for financial years 2021 onwards and additionally on exposures
to taxonomy-aligned activities for financial year 2023 onwards. Regarding the environmental objectives 3 to 6, finan-
cial companies must disclose information on exposures to taxonomy-eligible activities for financial year 2024 onwards
and additionally on exposures to taxonomy-aligned activities for financial year 2025 onwards.
25
See https://ec.europa.eu/sustainable-finance-taxonomy/home.
26
Financial products include managed portfolios, alternative investment funds, undertakings for collective investment in
transferable securities, insurance-based investment products, or pension products.
27
The SFDR defines a sustainability risk as ‘an environmental, social or governance event or condition that, if it occurs,
could cause a negative material impact on the value of the investment’ (Recital 14).
28
The SFDR defines PAIs as ‘effects on sustainability factors that are negative, material or likely to be material’ (Recital
16).
29
Pre-contractual financial product-related documents are defined as ‘documents that share information about financial
products prior to an investor taking a decision to invest’ (Publications Office of the EU, 2023).
30
Article 8 (1) of the SFDR defines it more specifically as a financial product that ‘promotes, among other characteristics,
environmental or social characteristics, or a combination of those characteristics, provided that the companies in which
the investments are made follow good governance practices.’
31
Article 2 (17) of the SFDR defines ‘sustainable investment’ as ‘an investment in an economic activity that contributes
to an environmental objective, as measured, for example, by key resource efficiency indicators on the use of energy,
renewable energy, raw materials, water and land, on the production of waste, and greenhouse gas emissions, or on its
impact on biodiversity and the circular economy, or an investment in an economic activity that contributes to a social
objective, in particular an investment that contributes to tackling inequality or that fosters social cohesion, social inte-
gration and labor relations, or an investment in human capital or economically or socially disadvantaged communities,
provided that such investments do not significantly harm any of those objectives and that the investee companies follow
good governance practices, in particular with respect to sound management structures, employee relations, remunera-
tion of staff and tax compliance.’
32
If the objective of the financial product is to reduce carbon emissions, the precontractual disclosure has to include the
low carbon emission objective in relation to the long-term global warming objectives of the Paris Agreement and a
reference to the benchmarks that are used.
33
These RTS have been jointly developed by the European Banking Authority (EBA), the European Insurance and Occu-
pational Pensions Authority (EIOPA), and the European Securities and Market Authority (ESMA).
34
The BCBS is a committee of banking supervisory authorities with 45 members from 28 jurisdictions. It consists of
central banks and authorities with formal responsibility for the supervision of banking business. The BCBS develops
and publishes standards, guidelines, and sound practices and expects full implementation of its standards by its member
jurisdictions. In response to the financial crisis of 2007–2009, the BCBS developed Basel III to strengthen the regu-
lation, supervision, and risk management of banks. Pillar 3 of the Basel framework defines regulatory disclosure
requirements to promote market discipline.
35
Definitions according to Article 4 of the CRR II.
36
The BTAR captures the taxonomy-aligned exposures toward firms not subject to the NFRD.
37
Hence, the reference date for the first disclosure was 31 December 2022 if the financial year of the institution closed by
the end of December.
38
See Article 25 of the Taxonomy Regulation, Article 1 of the RTS for the SFDR, Article 1 of the ITS for the Pillar 3
disclosures, and Article 1 of the CSRD.
39
More specifically, the double-materiality focus of the ESG risk disclosures under Pillar 3 was specified in the ITS
adopted in November 2022 by the European Commission (European Commission, 2022c), which defines the disclosure
format (see section 3.5).
40
The draft ESRS included mandatory disclosure requirements beyond the cross-cutting standard ESRS 2, such as ESRS
E1 and some reporting requirements about the company’s own workforce. In the final ESRS, only the reporting
requirements of ESRS 2 are mandatory, whereas all other reporting requirements are subject to the outcome of the
double materiality assessment.
41
For an overview of green taxonomies, see Xu et al. (2022) and World Bank (2020).
42
The power of lobbying has become particularly evident in the discussion on whether nuclear power and natural gas are
to be defined as transitional activities.
43
Reclassifications of products by firms to avoid greenwashing perceptions have also been observed in the market
(Stolowy & Paugam, 2023).
44
In particular, the delegated act by which the ESRS were adopted (European Commission, 2023d, p. 3) states that EFRAG
in its development of the ESRS aimed ‘[…] to ensure as much interoperability as possible with the future standards being
developed by the International Sustainability Standards Board and with the standards of the Global Reporting Initiative’.
45
A report in accordance with the updated GRI Standards must fulfill these requirements: applying the reporting prin-
ciples, reporting the disclosures in GRI 2: General Disclosures 2021, determining material topics, reporting the disclos-
ures in GRI 3: Material Topics 2021, reporting disclosures from the GRI Topic Standards for each material topic,
providing reasons for omission for disclosures and requirements that the organization cannot comply with, publishing
a GRI content index, providing a statement of use, and notifying the GRI.
46
The PTF-NFRS operated within the European Corporate Reporting Lab @EFRAG.
47
The ESRS define a material impact as a positive or negative, actual or potential sustainability-related impact over the
short-, medium-, or long-term.
48
See https://www.efrag.org/lab7.
49
The IFRS Foundation eventually consolidated with both the CDSB and the VRF in 2022 (IFRS Foundation, 2022a).
50
In July 2023, the Financial Stability Board (FSB), which established the TCFD in 2017 also transferred the monitoring
of companies’ TCFD reporting progress to the ISSB (IFRS Foundation, 2023i).
51
In May 2023, the ISSB launched a public consultation on agenda priorities for sustainability-related financial disclos-
ure. The consultation also relates to potential enhancements of the SASB standards.
52
The management commentary provides reporting complementary to the financial statements and aims to provide the
capital market with additional explanation of a company’s financial statements and long-term outlook. It was also
named a potentially ‘valuable tool to develop additional links between the sustainability reporting and financial report-
ing’ in the proposed amendments to the IFRS Foundation Constitution (IFRS Foundation, 2021d, p. 40). The disclosure
requirements for the management commentary are outlined in IFRS Practice Statement 1, which is currently under revi-
sion by the International Accounting Standards Board (IASB) (IFRS Foundation, 2022c).
53
The following sectors are covered: consumer goods, extractives and minerals processing, financials, food and beverage,
health care, infrastructure, renewable resources and alternative energy, resource transformation, services, technology
and communications, as well as transportation.
54
Similarly, Giner and Luque-Vílchez (2022) find that the two standards differ substantially in the target audience, the
scope of the information required, the concept of materiality, and the reporting boundaries.
55
In the process of developing the standards, the IFRS Foundation formed a Technical Readiness Working Group
(TRWG) for the development of a first prototype standard and a Jurisdictional Working Group (JWG) for the intero-
perability of potential standards with other jurisdictional disclosure requirements. IOSCO played an observer role in
both working groups (IFRS Foundation, 2023c).
56
The management report is a reporting obligation for certain firms and is defined in the Accounting Directive (Article
19). The management report inter alia requires information on a firm’s development, performance and position includ-
ing risks and uncertainties. In contrast, the management commentary is a framework developed by the IASB. However,
a firm’s financial statement can comply with IFRS Standards also without containing a management commentary (IFRS
Foundation, 2021e).
57
Stakeholders advocating for an interaction between the management commentary project and the ISSB’s work include
practitioners (e.g., accounting firms) but also investors (IFRS Foundation, 2022e, 2022f).
58
Apart from discussing the level of alignment, the assessment also outlines differences. For example, IFRS S2 requires
financial institutions to disclose their financed Scope 3 GHG emissions, whereas ESRS E1 contains no equivalent dis-
closure requirement.
59
The GRI and the IFRS Foundation signed a memorandum of understanding in March 2022, whereas the GRI and
EFRAG also have a cooperation agreement since July 2021 (GRI, 2023a, 2023b) and signed a second cooperation
agreement to further strengthen their collaboration (GRI, 2023c).
60
According to the concept of ‘dynamic materiality’, an inside-out risk of a company that is neglected today may become
an outside-in risk in the future (World Economic Forum, 2020)
61
https://www.wu.ac.at/reporting/sure
62
Since 30 June 2021, the comply-or-explain option is no longer applicable for large financial market participants (i.e.,
with over 500 employees) and those that are parent undertakings of large groups as defined by the Accounting
Directive (with over 500 employees on a consolidated basis).
63
For listed SMEs, simpler reporting requirements and an extended timeline apply.
64
By the time of writing this article (December 2023), the ISSB has announced working with jurisdictions and companies
to support the adoption of the standards (IFRS Foundation, 2023b). Moreover, IOSCO endorsed the IFRS S1 and S2 in
July 2023 (IOSCO, 2023) as a result of which they may apply to companies listed on member stock exchanges in the
future.
65
A review report on the effectiveness of the NFRD published by the European Commission (European Commission,
2021e) accompanied by a fitness check of teh EU framework for public reporting (European Commission, 2021c)
also ascertained these limitations.
66
Please link 4.2
Acknowledgments
The paper has been considered as part of the submissions for the Joint Special Issues on Corpor-
ate Disclosures in Accounting in Europe and The British Accounting Review, with the support of
the IASB. We are grateful to the editor in chief of Accounting in Europe Andrei Filip and the
guest editors of the Joint Special Issues Lisa Evans, Ioannis Tsalavoutas and Fanis Tsoligkas
for their valuable feedback. The paper has also greatly benefited from comments and suggestions
by two anonymous referees. We also thank Giovanna Michelon (University of Bristol), Matthias
Hrinkow (WU Vienna University of Economics and Business), participants at the internal
accounting research seminar of the WU Vienna in Bad Aussee, and participants at the 45th
EAA Annual Congress in Espoo for their helpful comments and discussion. In addition, we
thank Karina Bauernhofer, Nadja Ley, and Alexander Zeinhofer for their valuable research
assistance.
Disclosure Statement
No potential conflict of interest was reported by the author(s).
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Appendix
Table A1. Overview of the national implementations of the NFRD.
Baseline Differences
Scope
PIEs PIE-status as a requirement for being in − No PIE-status requirement or scope
scope ((i) listed enterprises/capital is not limited to PIEs (DK, EL, ES,
market oriented enterprises, (ii) credit FR, LU, SE)
institutions, (iii) insurance undertakings − Additional PIEs determined
or (iv) other companies designated by nationally or under national lawbi
member states as PIE) (AT, BE, BG, CY, CZ, EL, ES, HR,
HU, IT, LV, LT, NL, PL, PT, RO,
SK)
Balance-sheet and Balance sheet > EUR 20 million or net − No thresholds (EE, RO, UK)
turnover threshold turnover > EUR 40 million − Lower thresholds (BE, HU, SE)
− Different thresholds for specific
entities (FR, LU)
− Only turnover threshold (CZ)
− No general thresholds but
○ lower thresholds for specific topics
(EL)
○ higher thresholds for specific
entities (PT)
Employee-number Number of employees > 500 − Lower threshold (DK, LU, SE)
threshold − Lower threshold for specific topics
(EL)
(Continued)
Table A1. Continued

Baseline Differences
Content
Disclosure Business model, policies including due − More reporting details (EL, RO)
requirements diligence processes, outcome of those − Reporting of CSR-relevant sums
policies, risks and key performance (ES, LT, LV, MT, SE, SL)
indicators regarding social,
environmental, employee-related,
human rights, anti-corruption, and
bribery matters
Assurance
Content Statutory auditor to check for presence − Statutory auditor to also check
only ○ the content (BG, CY, FR61, IT,
RO, UK)
○ the consistency with financial
statements (DK)
○ the content when the statement is
included in the consolidated
management report (LV)
Independent No specific requirements − Independent assurance provider (ES,
assurance FR, IT)
Location of information
Management Report Nonfinancial information to be disclosed − Stand-alone report not possible (EE,
in the management report or in a EL, FR, HU, MT, NL, SK, UK)
separate section of the annual report or a
stand-alone report possible
This table provides an overview of the requirements under the NFRD (baseline) and differences of the EU-27 (plus UK)
member states in their national transpositions based on CSR Europe and GRI (2017) and our own analyses.
Country codes: AT = Austria, BE = Belgium, BG = Bulgaria, CY = Cyprus, CZ = Czech Republic, DE = Germany, DK =
Denmark, EE = Estonia, EL = Greece, ES = Spain, FI = Finland, FR = France, HR = Croatia, HU = Hungary, IE = Ireland,
IT = Italy, LT = Lithuania, LU = Luxembourg, LV = Latvia, MT = Malta, NL = Netherlands, PL = Poland, PT = Portugal,
RO = Romania, SE = Sweden, SL = Slovenia, SK = Slovakia, UK = United Kingdom

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An Overview of Corporate Sustainability Reporting

Katrin Hummel & Dominik Jobst

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An Overview of Corporate Sustainability

KATRIN HUMMEL and DOMINIK JOBST

(Received: February 2022; accepted: January 2024)

Keywords: Sustainability Reporting Legislation; European Union; Non-Financial Reporting Directive;

Paper accepted by Lisa Evans, Ioannis Tsalavoutas and Fanis Tsoligkas.

2. Theory and Literature

3. Sustainability Reporting Legislation

3.1. Non-Financial Reporting Directive (NFRD)

3.2. Corporate Sustainability Reporting Directive (CSRD)

3.2.1. Double Materiality

perspective on the impact of sustainability issues on a company’s performance, position, and

3.2.2. Reporting Content and Standards

3.2.3. Reporting Location, Format, and Assurance

3.3. Taxonomy Regulation

(1) climate change mitigation,

3.4. Sustainable Finance Disclosure Regulation (SFDR)

Table 1. Overview of the SFDR disclosure requirements.

Entity level Product level

in the investment decision-making process investment decision/advice, assessment of

in the investment decisions or ﬁnancial consider PAIs: consideration of the product’s

remuneration policies (Article 5) ‘social’ characteristics (Article 8):

objective’ (Article 9): explanation of how the

Regulation for products that promote

and in periodic reports provided for Article 8

PAIs on sustainability factors (Article 7)

extent to which characteristics are met

related impact in comparison to any used

Regulation for products that promote

reports/nonﬁnancial statements (NFRD,

3.5. Pillar 3 Disclosures on ESG Risks

K. Hummel and D. Jobst

3.6.2. Critical Reﬂection

4. Sustainability Reporting Standards

4.1. GRI Standards

4.1.2. Scope and Structure of the Standards

4.2. European Sustainability Reporting Standards

4.2.2. Scope and Structure of the Standards

4.3. IFRS Sustainability Disclosure Standards

4.3.2. Scope and Structure of the Standards

Table 3. Overview of sustainability reporting standards.

4.4.2. Critical Reﬂection

5. Implications for Practitioners and Researchers

Figure 2. Sustainability reporting process for ﬁnancial companies.

Figure 3. Sustainability reporting process for nonﬁnancial companies.

5.2. Implications for Researchers

Table A1. Continued

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