We’ve covered the EU’s urging or the IFRS to adopt a double materiality standard for its ISSB disclosure framework. ISSB Chair Emmanuel Faber recently responded by publishing a piece in French publication Le Monde. Faber argues that double materiality is too ambitious and that proper double materiality reporting cannot be developed in time to address the present climate crisis. Faber’s response was covered in an article by Responsible Investor which stated that:
“Faber wrote that this is unrealistic due to the difficulties in measuring certain impact metrics, such as those related to biodiversity, adding that it is a ‘mammoth task’ and ‘incompatible with the urgency of the transition’. Finally, he claimed there is a misunderstanding in the market that a double materiality approach will result in companies complying with the goals in the Paris Agreement, which may not be the case.”
While Faber insists that there is no “war” between the ISSB’s financial materiality standard and the EU’s double materiality standard, companies caught between the two may feel differently. Lawrence wrote about this almost exactly one year ago. Ultimately, both sides of the issue have valid points. Double materiality is ambitious by design as the EU races to grapple with mounting ESG risks. On the other hand financial materiality is grounded in familiar practices making it useful in the near term.
Ultimately there may be room for both standards. In five to ten years, we may be thanking the EU for developing and piloting double materiality reporting while also acknowledging the useful contributions of the ISSB in getting us to that point. If you want to learn more about double materiality, our Guidebook “How to Conduct an ESG Materiality/Double Materiality Assessment” is a helpful resource.
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