Jane Thostrup Jagd is director of net zero finance at the We Mean Business Coalition
The purpose of reporting is to help capital move towards more sustainable business models, not tick boxes
Recent proposals by the European Financial Reporting Advisory Group to simplify the European Sustainability Reporting Standards, which underpin the EU Corporate Sustainability Reporting Directive, in some respects strike the right chord.
They cut duplication, streamline requirements and aim to ease the workload for companies. But in its eagerness to satisfy the loudest calls for relief, Efrag risks overlooking the very people this reporting is primarily meant to serve: the investors and other capital providers who decide where money flows.
The proposals are now open to consultation. The central question that needs to be answered during this process is why do we want companies to report on sustainability in the first place?
The answer is not compliance for its own sake, it is to help capital move towards more sustainable business models. For this to happen, reporting must remain reliable, comparable and connected to financial disclosures.
Three risks stand out in Efrag’s proposals that may jeopardise the future of reliable and comparable data.
1. Risk reporting without financial coherence
In our analysis of the 100 largest listed companies’ CSRD reports for 2024, many struggled to connect their double materiality assessments with enterprise risk management.
The main problem was the difference between reporting gross (DMA) and net (ERM) risks. Without that link, financial and non-financial reporting remain disconnected, leaving investors without a clear view of what is truly material.
Efrag has recognised the issue, but its solutions are overly complex. A simpler fix would be for companies to distinguish between permanently mitigated risks and those needing ongoing attention.
Permanently mitigated risks, such as physical filters on water discharge devices, should be excluded from the DMA, while risks requiring continuous remediation, such as safety procedures, should remain.
Crucially, companies should list these ongoing remediations to help investors and other capital providers understand why certain risks are not reflected in the ERM, which is always based on net risks.
2. Fuzzy boundaries
Some proposed reliefs could allow companies to define their reporting boundaries too loosely, particularly around joint operations or when buying and selling subsidiaries.
If treated inconsistently with financial reporting, investors cannot build a complete, integrated picture of a company’s development and risk profile.
If investors cannot rely on consistent, comparable, financially contextualised data, the Green Deal’s central objective — to move capital — will falter
Financial context is essential. Investors need to be able to answer questions such as whether a given level of emissions is high relative to revenue and peers, or why a company’s water consumption appears excessive compared with its assets.
Integrated analysis depends on sustainability and financial data covering the same scope. If the boundaries diverge, the result is confusion rather than clarity.
Europe must avoid repeating past mistakes, where boundary definitions left investors unable to reconcile environmental, social and governance data with financial accounts.
3. Numbers matter
Perhaps the most worrying idea is that companies could be excused from reporting the potential financial impact of climate risks. Qualitative descriptions are useful, but they are no substitute for numbers. Capital providers cannot price risk without quantitative, monetised data.
This is not a technical detail. If investors are expected to reallocate trillions to meet Europe’s climate goals, they need hard figures, not vague narratives.
The bigger picture
Simplification is welcome. Less duplication and clearer language will help, but simplification must not come at the expense of usefulness.
If investors cannot rely on consistent, comparable, financially contextualised data, the Green Deal’s central objective — to move capital — will falter.
Efrag must strike the right balance. Listening to preparers is important, but the ultimate test of these standards is whether they equip investors with the information they need.
If that aim is forgotten, Europe risks ending up with sustainability reports that are easier to produce but largely irrelevant to those who matter most.
