Sustainability reporting in light of the European Union regulations: integrating theory and policy

Sustainability reporting (SR) is a burgeoning topic in the management and finance literature, since social, environmental and governance (ESG) performance have become important dimensions of corporate behavior. The existing studies identify the company and country-level determinants that stimulate firms for greater sustainability disclosure, emphasizing the importance of coercive mechanisms. In line with the legislation introduced in many countries, sustainability reporting is evolving from a voluntary activity to a mandatory one, based on a set of principles and standards. Mandatory sustainability reporting is expected to increase the scope and quality of disclosed social and environmental information, addressing the shortcomings associated with the previous voluntary practice. The goal of the chapter is to discuss the European Union regulations centered around the concept of increasing sustainability disclosure. In particular, it outlines the legislative framework that includes the Non-Financial Reporting Directive (NFRD), Sustainable Finance Disclosure Regulation (SFDR) and Taxonomy Regulation, in addition to the Corporate Sustainability Directive (CSRD) with European Sustainability Reporting Standards (ESRS) and the Corporate Sustainability Due Diligence Directive (CSDDD). These regulations are intended to support the implementation of the EU Green Deal. The EU regulations are discussed with reference to prior studies, integrating theory, empirical evidence and policy recommendations.