In testimony before the European Parliament, Emmanuel Faber, chair of the International Sustainability Standards Board (ISSB), the IFRS Foundation’s sustainability standard-setter, outlined a proposal to grant the EU “full ISSB adopter” status in exchange for adjustments to the European Sustainability Reporting Standards (ESRS).
According to recent reporting, the European Commission is considering this approach, raising the prospect of changes during an ongoing revision, even as implementation is under way.
The proposal appears pragmatic. It is anything but.
At its core lies a simple bargain: recognition within the ISSB framework in return for reshaping the ESRS around an investor-focused interpretation of materiality – what information users need to make informed decisions and must therefore be disclosed.
Concretely, this would involve incorporating ISSB disclosures into ESRS reports and drawing a clearer distinction between how sustainability issues affect a company’s financial performance and how companies affect the environment and society, so that financially relevant information is not “obscured”.
Presented as simplification and interoperability, this would in practice alter the nature of the ESRS framework.
Viewed through a narrow, transactional lens, the question is whether the reward justifies the cost. It is not obvious that it does.
Supporters of the proposal argue that it would enable “two frameworks – one report”, allowing European companies seeking access to investors outside the EU to avoid dual reporting.
This rationale is less compelling than it appears. Of the more than 40 jurisdictions that have decided to use ISSB standards in some form, only about a third are “full adopters”. In practice, the limited number of European companies raising capital in these jurisdictions would still need to reconcile disclosures to local variants, undermining the notion of a global baseline.
Furthermore, the United States – the primary destination for international listings and a key market for European companies seeking global investors – does not require ISSB-compliant disclosures, calling into question how often a second report would be needed in the first place.
The benefits of the proposed alignment are therefore uncertain. The costs are not.
First, the proposal risks increasing, rather than reducing, complexity. It would require companies to adapt reporting systems they have only just begun to implement, introducing additional requirements and interpretation challenges. This burden would not be limited to multinationals but would apply to all companies in scope of the Corporate Sustainability Reporting Directive.
Second, the introduction of a loosely defined “non-obscuring principle” raises legal and operational concerns. Its meaning remains unclear and could give rise to divergent interpretations in reporting and audit. In a context where sustainability disclosures are inherently forward-looking, such ambiguity carries a risk of litigation.
Third, the proposal is being introduced at a late stage in the ESRS revision process, without a clear cost-benefit assessment and outside established governance processes. It reopens questions already addressed through extensive technical work by the Commission’s advisers with preparers, users and auditors. For a framework intended to provide legal certainty, introducing changes in this manner is problematic.
More fundamentally, the proposal is difficult to reconcile in practice with the logic of double materiality that underpins the European approach.
Double materiality is not simply the addition of financial and impact materiality; it requires companies to assess sustainability impacts, risks and opportunities in an integrated manner. The two dimensions are intertwined and dynamic, and imposing a structural distinction risks misrepresenting how they interact.
Even if workable, the “non-obscuring principle” would introduce an implicit hierarchy, making impact-related information secondary and undermining double materiality in practice while preserving it in principle, creating a dynamic in which distinction gives way to hierarchy, and hierarchy to marginalisation.
This may sound like a technical debate. The scale of political and industrial pressures surrounding it suggests otherwise.
Sustainability reporting extends the information set beyond traditional financial reporting – backward-looking and conservative – to inform corporate strategy and capital allocation.
Better information alone will not deliver the transition, but weakening it will make that transition more difficult.
Beyond these immediate concerns lies a more fundamental issue: governance. The EU must be able to align its regulatory framework with its own policy objectives. This sits uneasily with a model in which core elements are shaped by a private standard-setter.
The ESRS were designed to support the Union’s sustainability ambitions and to serve as the informational foundation of its sustainable finance framework, aimed at channelling capital towards the transition.
The wisdom of a rushed and opaque reconfiguration of a framework already being implemented across one of the world’s largest economic areas – to fit the preferences of a body that defines its own priorities and is not subject to the same public governance and accountability mechanisms – is far from self-evident.
The question is not whether Europe should engage with the ISSB, but whether it should do so on terms consistent with its own objectives and priorities.
Frédéric Ducoulombier is programme director for climate regulation and policies at the EDHEC Climate Institute at EDHEC Business School.
