The Double Materiality Principle (Article 19a NFRD) as Proposed by the Corporate Sustainability Reporting Directive: An Effective Concept to Tackle Green Washing?

Förster, Philip

doi:10.1007/8165_2022_90

Philip Förster³³

Part of the book series: European Yearbook of International Economic Law ((EUROYEAR,volume 13))

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1 Citations

Abstract

In recent years, investors and lenders have increasingly paid attention to sustainability information, most particularly to sustainability efforts that affect financial performance. Many corporations fulfil these wishes only to a limited extent. Although they publish information, they only select the information that is useful to them (“greenwashing”) or publish so much information that investors cannot get a clear overview of the sustainability performance (“information overload”).

With the rise of reporting on sustainability standards, new standards for measurement of environmental, social and governance (ESG) information and reporting thereof have become necessary. Here the concept of materiality comes into play. Through streamlining reports, focusing on the most relevant factors and reducing information overload, it tries to increase the requested transparency and accountability.

The determination of which sustainability issues are material to companies, industries, investors and other stakeholders remains a lively area of discussion. Article 19a Directive 2014/95/EU (Non-Financial Reporting Directive, NFRD) as proposed by the Proposal for a Corporate Sustainability Reporting Directive (CSRD, COM/2021/189 final) aims to implement a so-called double materiality principle.

Altogether the new wording of Article 19a NFRD as proposed by the CSRD makes sense—it strongly tackles the main issues of non-financial reporting: information overload and greenwashing. The broader approach in regards to stakeholder engagement is beneficial for a comprehensive picture of material matters. However, there is still a need for clarification in order to get the maximum effect out of the materiality principle.

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Notes

1.
Jørgensen et al. (2022), p. 2.
2.
Jørgensen et al. (2022), p. 2.
3.
Pérez-López et al. (2015) p. 723.
4.
Nidumolu et al. (2009), p. 58; Jørgensen et al. (2022), p. 2.
5.
Puroila and Mäkelä (2019), p. 1043.
6.
Eccles et al. (2012), p. 65.
7.
Puroila and Mäkelä (2019), p. 1043.
8.
Jørgensen et al. (2022), p. 2.
9.
Jørgensen et al. (2022), p. 2.
10.
Hicks (1964), p. 159.
11.
Frishkoff (1970), p. 116.
12.
Baumüller and Schaffhauser-Linzatti (2018), p. 101.
13.
Baumüller and Schaffhauser-Linzatti (2018), p. 102.
14.
van Wensen et al. (2010), p. 104.
15.
Baumüller and Schaffhauser-Linzatti (2018), p. 103.
16.
Edgley (2014), p. 257.
17.
Brennan and Gray (2005), p. 3.
18.
Brennan and Gray (2005), p. 4; Edgley (2014), p. 257.
19.
Council Directive 2013/34/EU of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC [2013] OJ L182/19 (Accounting Directive).
20.
IFRS Conceptual Framework for Financial Reporting, IASB, London https://www.ifrs.org/content/dam/ifrs/publications/pdf-standards/english/2021/issued/part-a/conceptual-framework-for-financial-reporting.pdf (last accessed 23 June 2022) para 1.3.
21.
IFRS practice statement 2: making materiality judgements. IASB, London https://www.ifrs.org/content/dam/ifrs/publications/amendments/english/2017/ifrs-practice-statement-2-making-materiality-judgements-basis-for-conclusions.pdf (last accessed 23 June 2022) para BC27-BC30.
22.
Baumüller and Omazic (2021), p. 41.
23.
Christensen et al. (2021), p. 1221.
24.
Christensen et al. (2021), p. 1221.
25.
Christensen et al. (2021), p. 1221.
26.
Christensen et al. (2021), p. 1221.
27.
Jørgensen et al. (2022), p. 3, 4.
28.
Velte (2017), p. 327.
29.
Council Directive 2014/95/EU of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups [2014] OJ L330/1 (NFRD).
30.
Consultation document on the update of the non-binding guidelines on non-financial reporting https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents/2019-non-financial-reporting-guidelines-consultation-document_en.pdf (last accessed 23 June 2022) p. 7.
31.
Consultation document on the update of the non-binding guidelines on non-financial reporting https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents/2019-non-financial-reporting-guidelines-consultation-document_en.pdf (last accessed 23 June 2022) p. 7.
32.
La Torre et al. (2020), p. 714; Baumüller and Schaffhauser-Linzatti (2018), p. 104.
33.
Baumüller and Schaffhauser-Linzatti (2018), p. 104.
34.
La Torre et al. (2020), p. 714, 715.
35.
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36.
La Torre et al. (2020), p. 715.
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38.
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39.
Commission, ‘Proposal for a Directive of the European Parliament and of the Council of 21 April 2021 amending Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) No 537/2014, as regards corporate sustainability reporting’ COM (2021) 189 final.
40.
Puroila and Mäkelä (2019), p. 1048, 1049.
41.
Unerman and Bennett (2014), p. 688; Brown and Tregidga (2017), p. 11.
42.
Adams et al. (2021), p. 6.
43.
Puroila and Mäkelä (2019), p. 1049, 1050; Brown and Dillard (2015), p. 37; Adams et al. (2021), p. 6.
44.
Puroila and Mäkelä (2019), p. 1049; Adams et al. (2021), p. 6.
45.
Oh et al. (2011), p. 285; Adams et al. (2021), p. 6.
46.
Adams et al. (2021), p. 6.
47.
See Khan et al. (2016).
48.
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49.
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51.
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52.
See Martinez (2016).
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54.
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55.
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56.
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57.
See Hart and Zingales (2017).
58.
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59.
Baumüller and Schaffhauser-Linzatti (2018), p. 102.
60.
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61.
Baumüller and Schaffhauser-Linzatti (2018), p. 102.
62.
Baumüller and Schaffhauser-Linzatti (2018), p. 102; see also Neumann et al. (2012).
63.
Baumüller and Schaffhauser-Linzatti (2018), p. 102.
64.
Baumüller and Omazic (2021), p. 42.
65.
Furlow (2010), p. 22.
66.
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67.
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68.
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69.
See for this example also Christensen et al. (2021), p. 1222, footnote 61.
70.
Gibassier (2019), p. 18.
71.
Christensen et al. (2021), p. 1222.
72.
Christensen et al. (2021), p. 1222.
73.
Amel-Zadeh and Serafeim (2018),p. 101; Christensen et al. (2021), p. 1223.
74.
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75.
Christensen et al. (2021), p. 1223.
76.
Hail et al. (2018), p. 667.
77.
Hail et al. (2018), p. 667.
78.
Christensen et al. (2021), p. 1223.
79.
Christensen et al. (2021), p. 1223.
80.
Christensen et al. (2021), p. 1223.
81.
Christensen et al. (2021), p. 1222.
82.
Christensen et al. (2021), p. 1222.
83.
Adams et al. (2021), p. 7.
84.
Gibassier (2019), p. 18.
85.
Gibassier (2019), p. 18.
86.
Dowbiggin (2021), p. 100.
87.
Power (1996), p. 289, 290.
88.
Dowbiggin (2021), p. 100.
89.
Dowbiggin (2021), p. 100.
90.
Gibassier (2019), p. 18.
91.
Adams et al. (2021), p. 7.
92.
Dowbiggin (2021), p. 99, 100.
93.
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94.
Adams et al. (2021), p. 8.
95.
Adams et al. (2021), p. 8.
96.
Adams et al. (2021), p. 7.
97.
Dowbiggin (2021), p. 100.
98.
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99.
O’Dwyer and Unerman (2020), p. 1126, 1127; Dowbiggin (2021), p. 100.
100.
Adams et al. (2021), p. 7.
101.
Biondi et al. (2020), p. 899; La Torre et al. (2020), p. 1061, 1064.
102.
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Baumüller and Sopp (2022), p. 22.
104.
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106.
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107.
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108.
Baumüller and Omazic (2021), p. 46.
109.
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110.
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111.
Baumüller and Omazic (2021), p. 46.
112.
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113.
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Trinity College Dublin, The University of Dublin, Dublin, Ireland
Philip Förster

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Jelena Bäumler
Bundeswehr University Munich, Neubiberg, Germany
Christina Binder
Saarland University, Saarbrücken, Germany
Marc Bungenberg
University of Erlangen-Nuremberg, Erlangen, Germany
Markus Krajewski
Humboldt University, Berlin, Germany
Giesela Rühl
University of Glasgow, Glasgow, UK
Christian J. Tams
Leuphana University, Lüneburg, Germany
Jörg Philipp Terhechte
Université de Lausanne, Lausanne, Switzerland
Andreas R. Ziegler

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Förster, P. (2022). The Double Materiality Principle (Article 19a NFRD) as Proposed by the Corporate Sustainability Reporting Directive: An Effective Concept to Tackle Green Washing?. In: Bäumler, J., et al. European Yearbook of International Economic Law 2022. European Yearbook of International Economic Law, vol 13. Springer, Cham. https://doi.org/10.1007/8165_2022_90

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