13 October 2022

Double materiality will not lead to hyperinflation of ESG data

Double materiality, which is engrained in the European Sustainability Reporting Standards (ESRS) developed by EFRAG, will not lead to a hyperinflation of data, according to EFRAG sustainability reporting board (SRB) member, Patrick de Cambourg.

Speaking at the European Federation of Financial Analysts Societies (EFFAS) Commission on ESG in September, De Cambourg was asked if disclosures of sustainability information that affects a company's enterprise value creation and information on the company's impact on society and environment, and the multiplicity of stakeholders, in double materiality reporting would lead to a hyperinflation of ESG data.

"I don't think so because under the CSRD and the ESRS, but also under the ISSB standards, you don't disclose aspects that are immaterial," he replied. "The key element in the approach is the performance by the entity of an assessment of its material impacts, risks and opportunities."

The question might be one of a risk that the information relevant to an investor would be obscured by too much nitty gritty information relevant to another stakeholder, De Cambourg continued. "It's a matter of judgement and we will take a balanced approach to that, so I would be relatively reassured on the risk of hyperinflation of data."

He was also grilled on alignment with other sustainability reporting initiatives, particularly the ISSB, as well as the risk of double reporting.

"Double reporting is a no go," he said, adding that on climate he believed the EFRAG and ISSB proposals on substance were pretty much aligned, even if some improvements were possible.

"Now, it is hard to aim at a moving target and we don't know yet what other topics the ISSB will decide to work on."

The international and European standards setters have been holding regular discussions to ensure alignment. And De Cambourg revealed that a key point of exchange lied on the investor-focused nature of the ISSB.

"This is precisely one of the discussions we have, from a conceptual standpoint, is it possible to make a distinction between two categories of impacts, the ones that have an impact on enterprise value and others that would have no foreseeable impacts?"

The recording of De Cambourg participation to the EFFAS CESG conference was made public this week on YouTube.