Building block 1: Mandatory vs. Voluntary

ANALYSIS

Building block 1: Mandatory vs. Voluntary

Definition: Guidelines, frameworks or international standards usually represent voluntary ESG disclosure measures, while reporting regulations, laws or reporting regimes represent legally binding, mandatory ESG disclosure measures. Entities might be subject to both mandatory and voluntary disclosure measures simultaneously.

Overall recommendation: Existing research provides compelling evidence that the disclosure of corporate sustainability information improves the information environment for capital market participants.22 While we welcome the mandatory nature of the SEC and the ESRS, we see a high danger of less ambitious disclosurerequirements throughIFRS S1 and S2, as theseare currently largely promoting voluntary disclosure. For this building block,we therefore highlight that the ISSB should consider, in the design of their standards, how they could be used as a standard for mandatory disclosure. Although the ISSB does not have the legislative power to mandate their standards, we still recommend theyanticipate makingtheir standards compatible with other, mandatory disclosureschemes.

Design choice: Sustainability disclosures should be mandatory.

Standard Evaluation

SEC

IFRS S1 & S2 (by ISSB) The proposal specifies mandatory reporting obligations. We welcome the mandatory nature of the proposal and thus recommend to maintain this ambition throughout further revision periods.

The proposal reflects a voluntary standard which could be mandated by jurisdictions. We recommend the ISSB to ensure that the standards are suitable to be implemented in a mandatory manner.

ESRS (by EFRAG) The proposal specifies mandatory reporting obligations. We welcome the mandatory nature of ESRS, especially because the CSRD will only deliver mandatory reporting effectively if the mandatory nature of reporting is consistently implemented throughout the ESRS.

Recommendation