Blog: Allianz Risk Barometer 2023 – Changes in legislation and regulation … – Allianz Global Corporate & Specialty

In Europe, this aspiration is crystallized in the Corporate Sustainability Reporting Directive (CSRD), which was finally adopted in November 2022 and will become binding for all companies over the coming years – demanding a great deal of additional effort from them. This is because the CSRD not only targets the environmental aspect of economic activity, but also covers the entire spectrum of sustainability, including social aspects.

This brings the non-financial factors to the forefront of reporting, in line with the logic that it is precisely these factors that become financially material in the long-run. “The preservation of natural and social foundations is the basis for all economic activity, and undermining these foundations will hamper economic success sooner rather than later,” says Ludovic Subran, Chief Economist at Allianz.

Extending the reporting scope beyond the current focus on financial risks makes the disclosure of information a much more complex and challenging exercise, not least as the CSRD follows a “double materiality” approach: it requires assessing both impact directions. While the “financial materiality” is concerned with the impact of environmental, social, and governance (ESG) issues on the financial performance of assets (outside-in perspective), the “impact materiality” concentrates on the environmental and social impacts that an asset causes (inside-out perspective). Furthermore, in addition to the risk assessment, the CSRD requires a reporting of opportunities related to both sides of materiality. With the CSRD, the EU is taking the lead in sustainability reporting, in line with its claim to be a regulatory superpower.

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