The European Commission's recent Omnibus simplification package aims to streamline sustainability reporting and align EU investment rules with global standards like the ISSB’s IFRS S1 and S2. While intended to reduce regulatory burden, the initiative may inadvertently introduce new complexities.
Challenges of a One-Size-Fits-All Framework
The idea of a unified sustainability reporting framework—featuring standardized topics, metrics, and requirements across sectors—appears efficient in theory. However, it overlooks critical nuances, particularly contextual materiality. Sustainability issues vary significantly by context, and uniform reporting risks oversimplifying or misrepresenting key factors, potentially leading to misleading comparisons.
Sectoral and Geographic Differences
Different industries and regions face distinct sustainability risks and regulatory environments. A universal standard struggles to reflect these variations accurately. For example, water scarcity may be material for agribusiness in arid regions but irrelevant for tech firms in temperate zones. A rigid model fails to capture such distinctions.
Stakeholder Expectations Vary
Investors, regulators, communities, and employees often prioritize different aspects of sustainability. A standardized approach may not adequately address the diverse concerns of each stakeholder group, reducing the relevance and impact of disclosures.
Subjectivity in Interpretation
Even with clear frameworks, interpretations of what constitutes "adequate" or "responsible" reporting differ across organizations. This subjectivity undermines the feasibility of a truly consistent scoring system and can lead to inconsistencies in disclosure quality.
Risk of Stifling Innovation
Overly prescriptive standards may shift corporate focus from creating real environmental and social impact to merely achieving high scores within a fixed framework. This compliance-driven mindset discourages innovative or unconventional strategies that fall outside standardized metrics but could deliver greater long-term value.
Flexibility Drives Meaningful Disclosure
Allowing companies to tailor reporting based on materiality and context encourages more authentic engagement. When firms can choose relevant indicators and reporting formats, they are more likely to produce meaningful, actionable data.
Materiality as the Foundation
Materiality remains central to effective sustainability reporting. According to KPMG’s Survey of Sustainability Reporting 2024, 96% of the world’s largest 250 companies and 79% of over 5,800 surveyed organizations already report on sustainability—many adopting CSRD measures voluntarily—indicating strong demand for transparency.
Balancing Alignment and Flexibility
While harmonizing frameworks can reduce duplication and lower compliance costs, enforcing a single mandatory standard risks undermining the very goals it seeks to advance. A flexible, context-sensitive approach that respects materiality, supports innovation, and accommodates diverse stakeholder needs is more effective in driving genuine sustainability progress.
Tailored Solutions for Better Outcomes
A platform built on flexibility enables clients to create customized datasets aligned with specific business objectives, down to the portfolio company level. This granular approach enhances data accuracy, strengthens analysis, and supports more relevant reporting across varied portfolios—delivering tangible value today and contributing to a sustainable future.