Corporate sustainability reporting: double materiality, impacts, and legal risk

Following the enactment of the Corporate Sustainability Reporting Directive and the creation of the European Sustainability Reporting Standards (ESRS rules), the European Union has set a new regime of mandatory corporate sustainability reporting in motion. However, most of the ESRS rules will be mandatory depending on, or subject to, the assessment of double materiality. This article sheds light on the double materiality requirement. More particularly, the analysis focusses on the materiality assessment of the impacts of corporate actions, the challenges involved in such determination, and the associated legal risks. Challenges examined include the legal risk in the company-stakeholders engagement process, the accuracy and completeness of reporting, and the uncertainty about the legal criteria for determining impact materiality. This article recommends (1) that a sound legal strategy guide the company-stakeholders interaction regarding external impacts, (2) that enforcement strategies be designed to accommodate unintentional greenwashing, and (3) that assurance practices for sustainability reporting be expeditiously implemented.