Félix E. Mezzanotte (Trinity College Dublin) has posted Double Materiality, Principles-Based Rules, and the Quest for Quality Sustainability Reports on SSRN. Here is the abstract:
The double materiality requirement (DMR) is central to the information disclosure regime created by the Corporate Sustainability Reporting Directive and the European Sustainability Reporting Standards (ESRS). However, prior research suggests that assessing materiality negatively impacted on the relevance and accuracy of information disclosures. Whether the DMR will produce similar effects on the quality of sustainability-related disclosures is unclear. Using content analysis of policy documents, this article identifies and discusses the effects of the DMR on reporting quality as perceived by stakeholders during the ESRS rule-making process. Relative to a fully prescriptive regime, the DMR offers greater flexibility to make reporting decisions. Nevertheless, flexibility gains are counteracted by problems of implementation, standardisation and trustworthiness. Since the DMR is principles-based and enables the exercise of managerial discretion, mechanisms to monitor discretion are proposed to mitigate negative effects on reporting quality, including audit committees, external assurance, as well as supervisory and enforcement actions.
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Lawrence Solum