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The three paradoxes of sustainability reporting

  • ESMA (European Securities and Markets Authority) (dark gray) Image

09 Dec 2020

Steven Maijoor, Chair of the European Securities and Markets Authority (ESMA), gave speech at a webinar organised by the French Ministry of the Economy, Finance and Recovery and discussed three (apparent) paradoxes of sustainability reporting and how to address them.

The three apparent paradoxes Mr Maijoor identified were:

  • the need to ensure that reporting standards are, at the same time, international and jurisdiction-specific;
  • the importance of ensuring that the disclosure standards are sufficiently robust to help prevent the risk of greenwashing, while at the same time allowing for sufficient flexibility for entities to tell their own story; and
  • the difficulty of establishing a robust and extensive disclosure regime covering as many companies as possible so to ensure that information by (actual or potential) investee companies is available, while maintaining a proportionate set of requirements especially for smaller companies.

On the first paradox, he stated that he did not believe that global and EU-specific standardardisation are in contradiction, rather, he said, they would be complementary to one another. Mr Maijoor explained that to be effective, a set of international standards would need to be modular to cater for the needs of jurisdictions that are at different stages of progress in the area of sustainable finance.

On the second paradox, Mr Maijoor explained that principles-based standards are typically well-suited to support the efforts of those issuers that aim at innovating in their reporting practices, but they are also helpful in preventing the risk that non-financial reporting is merely based on a check-list approach.

And on the third paradox, he suggested that one potential way forward would be to acknowledge that the size of a company alone is an imperfect proxy of its ESG impact, but that at the same time it is a relatively good indicator of the resource constraint that a company might face if a heavy reporting burdens is imposed on it.

Mr Maijoor concluded his speech by noting:

The future of sustainability reporting depends, in my view, upon good international cooperation, robust, proportionate and principles-based reporting requirements and, most importantly, on a standard-setting process that is centred around the public interest. Like for any standard setting process, extensive and thorough consultation of all relevant stakeholders will also be essential.

Please click to access the full text of Mr Maijoor's speech on the ESMA website.

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