• Global Frameworks: IFRS International Sustainability Standards Board (ISSB) S1 & S2, European Corporate Sustainability Reporting Directive (CSRD) / European Sustainability Reporting Standards (ESRS).

1. The ESG Paradigm Shift
Corporate governance has expanded beyond traditional financial reporting to include non-financial sustainability risks. ESG factors measure a firm’s long-term resilience and societal impact:
  • Environmental: Carbon emissions, water stewardship, waste management, and climate change risk exposure.
  • Social: Labor standards, human rights protection, data privacy, and workplace safety.
  • Governance: Executive pay alignment, board diversity, shareholder rights, and anti-bribery policies.

2. Global ESG Disclosure Frameworks
To prevent “greenwashing”—where companies exaggerate their sustainability credentials—regulators have established standardized reporting systems:
  • ISSB Framework (IFRS S1 & S2): Creates a global baseline for sustainability-related financial disclosures. IFRS S1 handles general sustainability risks, while IFRS S2 explicitly requires entities to disclose climate-related physical risks and transition strategies.
  • EU CSRD Framework: Mandates extensive, audited ESG disclosures for large and listed companies operating within the European Union, utilizing the detailed ESRS framework.

3. The Concept of Double Materiality
The European Union’s CSRD enforces the principle of Double Materiality, which requires firms to report on two distinct dimensions:
                     ┌─────────────── Double Materiality ───────────────┐
                     ▼                                                  ▼
        [Financial Materiality]                             [Impact Materiality]
   How ESG and climate change risks                    How the company's operations and
   impact the company's financial value.               strategy impact society and
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