Since its announcement in 2021, the Corporate Sustainability Reporting Directive (CSRD) has kicked off significant discussions around sustainability reporting and its role in corporate strategy across Europe. Among those at the forefront of shaping its implementation is Philippe Diaz, a sustainability expert with a career spanning regions and sectors, and a key player in the development of European Sustainability Reporting Standards (ESRS).

With extensive experience in sustainable finance and biodiversity disclosures, Philippe has played a central role in shaping standards that align corporate practices with global sustainability goals. We talked to Philippe to learn more about his role at the EFRAG, and his take on some of the bigger questions in the current sustainability reporting landscape.

From WWF to EFRAG

Philippe Diaz began his journey in sustainability with a focus on sustainability reporting and strategy in the MENA region, Central America, and the EU. By 2020, his work had shifted toward sustainable finance, eventually leading him to a dual role at EFRAG and WWF Germany.

“I wouldn’t call myself a biodiversity expert, but I was one of the few people at EFRAG who had access to biodiversity-related knowledge through my work at WWF. That put me in a unique position to support the development of ESRS E4 Biodiversity and Ecosystems.” Reflecting on the challenge, Philippe adds, “It wasn’t just about writing standards; it was about making these standards meaningful and actionable for companies worldwide.”

He describes his work there as deeply technical yet inherently political: “EFRAG’s mandate is to act in the public interest, not necessarily in alignment with business community expectations. Navigating these often conflicting stakeholder priorities is a core challenge.”

The political and financial landscape of EFRAG

Securing adequate funding has been a persistent challenge for the EFRAG, an organization Philippe describes as being at the heart of sustainability reporting in Europe. He highlights a significant disparity in funding between EFRAG and its global counterpart, the International Sustainability Standards Board (ISSB), which received substantial financial and political backing from the business community.

“EFRAG’s funding has seen a slight increase over the years, but it’s still in the single-digit millions,” Philippe explains. In stark contrast, the ISSB, part of the IFRS Foundation, received more than double its funding after its creation – jumping from €30 million to nearly €80 million. “If you follow the money, it’s clear where the priorities lie.”

Despite these financial constraints, EFRAG has made significant strides, partially due to additional funding secured from the European Commission. Philippe acknowledges the improvement but remains critical. “It’s better than it was two or three years ago,” he notes, “but still far from adequate for the scale of the task at hand. EFRAG is tasked with implementing CSRD – a directive that impacts thousands of companies – on what I’d call a shoestring budget compared to its global counterparts.”

Beyond financial challenges, EFRAG also faces political headwinds. Philippe elaborates on the complexity of navigating diverse stakeholder expectations: “EFRAG’s mandate is to act in the public interest, which doesn’t always align with the interests of the business community. Unfortunately, those two are conflated far too often, both within EFRAG and in the public discourse.”

He points to the broader challenges of aligning sustainability goals with the expectations of business stakeholders: “EFRAG isn’t here to please the business community. It’s here to ensure alignment with sustainability goals as mandated by the European Commission. Navigating that space is incredibly challenging, especially now with the political pressure on the European Green Deal itself.”

The political dynamics have also shaped the organization's internal operations. “Our work is supposed to be purely technical,” Philippe explains, referring to the Sustainability Reporting Technical Expert Group, “but given the political headwinds, it doesn’t always feel that way.”

In Philippe’s view, these pressures are symptomatic of the larger tension between sustainability imperatives and economic priorities. “There’s always going to be resistance when you’re trying to internalize externalities that have gone unaccounted for,” he says. “But if EFRAG is to succeed in its mandate, it must remain steadfast, even when the political winds shift. This is about creating a foundation for long-term resilience, not short-term appeasement.”

Addressing stakeholder concerns

As the implementation of the ESRS progresses, a recurring critique from companies and industry groups revolves around the perceived complexity and cost of compliance – particularly when it comes to the materiality assessments. While these concerns have gained traction in public discourse, Philippe offers a counterpoint.

“There’s a lot of noise about the complexity of sustainability reporting,” Philippe begins. “But if you compare it to financial reporting standards, the argument quickly falls apart. Financial reporting includes roughly three times as many data points as the ESRS, yet it doesn’t attract nearly as much criticism.”

Philippe attributes some of the resistance to the evolving nature of sustainability reporting. “The principles of impact and materiality in sustainability reporting are newer concepts for many organizations,” he explains. “Companies are still learning to integrate these frameworks into their existing processes. That learning curve is steep, especially for firms that haven’t engaged deeply with sustainability before. But the answer isn’t to dilute the principles for the sake of convenience.”

One area of contention is the double materiality assessment itself, a core element of the ESRS that requires companies to evaluate both their impacts on the environment and society and the risks and opportunities posed to the business by these factors. Philippe acknowledges the effort required but sees it as essential to meaningful reporting. 

“Materiality isn’t just a compliance exercise,” he asserts. “It’s a critical tool for understanding what really matters, both in terms of a company’s impact on the world and the risks it faces. Without it, reporting becomes superficial and disconnected from reality.”

However, he acknowledges that the process has room for improvement. “There are elements of the ESRS that could be simplified,” Philippe concedes. “For example, certain data points under ESRS E1 [climate change] and ESRS S1 [workforce] are subject to materiality assessments, even though they’re likely to be material for most companies. Making some of these elements mandatory by default could alleviate firms of the burden of proving their materiality to the auditor.”

Despite these nuances, Philippe believes that much of the resistance stems from a reluctance to shift priorities. “Let’s be honest, the cost of sustainability reporting is often exaggerated. Companies are used to spending significantly more on financial reporting, and yet there’s no comparable outcry. Sustainability reporting covers far more complex issues – biodiversity, human rights, climate impacts – and we need to recognize its value in addressing these challenges.”

In his view, the pushback against the ESRS reflects a deeper resistance to change. “Sustainability and profitability don’t always align perfectly,” Philippe notes. “But if we’re serious about tackling climate change and biodiversity loss, we need to embrace this challenge, not shy away from it.”

Preparing for the first wave of CSRD reports

With the first ESRS reports due in 2025 for 2024 data, Philippe Diaz stresses the need for early and focused preparation, particularly for firms new to sustainability reporting. “The scope of CSRD is vast, and many companies have never engaged with frameworks like the Global Reporting Initiative (GRI),” he explains. “For them, the learning curve is steep, and mistakes can be costly.”

Central to Philippe’s advice is the importance of a solid double materiality assessment. “Materiality isn’t just a checkbox – it’s the foundation of effective reporting,” he emphasizes. “Without it, reports risk being generic or non-compliant.” However, he warns against outdated practices, particularly an overreliance on stakeholder engagement. “Surveys alone are inadequate,” he notes. “They’re often too broad and fail to uncover critical issues. A poorly conducted materiality assessment can lead to wasted effort or worse – having to redo it later.”

Philippe cites striking examples of flawed approaches: “Banco Santander, with 200,000 employees, concluded in their report that workforce issues weren’t material. That’s a red flag, and it shows the risks of cutting corners.” He advises companies to focus on precision. “It’s not about asking everyone; it’s about engaging the right people and using data to guide decisions.”

For companies preparing for the first wave, Philippe’s advice is clear: “Start now and dedicate resources. Take materiality seriously – it’s the foundation of everything. And don’t treat this as a box-ticking exercise. Shortcuts will only cost you more in the long run.”

As firms navigate the requirements, Philippe’s message is one of both caution and optimism. “The companies that invest in this process today will be better positioned for the challenges ahead – and ready to contribute to a more sustainable future.”

The path forward: Trends and challenges

Looking ahead, Philippe Diaz paints a mixed picture of the future of sustainability regulations in Europe. While he remains a firm advocate for the transformative potential of the ESRS, he also anticipates headwinds that could stall progress. “My honest expectation is that we’ll see a rollback. There’s a systemic resistance to change, particularly as the economic and financial systems struggle to align with the reality of planetary boundaries.”

This tension, Philippe explains, arises because sustainability and profitability do not always coexist comfortably. “The fundamental challenge is that the current economic system isn’t fit for purpose when it comes to squeezing it within our planetary boundaries,” he argues. “That resistance isn’t just theoretical – it’s already playing out. What we’re seeing today, with the Green Deal facing increasing political headwinds, is a symptom of that larger problem.”

Philippe believes sector-specific standards can significantly enhance the credibility and comparability of sustainability reports. “Right now, materiality assessments leave too much room for interpretation,” he explains. “Two companies with the exact same business model could arrive at completely different conclusions about what’s material. That undermines the consistency and trust in the system.” By standardizing material issues at the sector level, he argues, “we can reduce the scope for greenwashing and create a reporting landscape that is far more credible and actionable.”

Philippe emphasizes that sector-specific standards also offer significant benefits for investors and stakeholders by increasing comparability. “For investors, this is critical,” he says. “When every company in a sector reports against the same material topics, it provides clarity, reduces noise, and strengthens decision-making. You’re no longer comparing apples to oranges.”

However, Philippe warns that achieving this vision will require political and institutional support. “If the sector-specific standards are deprioritized or delayed, companies will be left grappling with the ambiguity of entity-specific disclosures,” he explains. “We need these standards to be finalized and enforced to give businesses, auditors, and stakeholders a clear framework to work with.”

Despite the challenges, Philippe’s vision remains clear: robust, consistent, and sector-specific standards are key to ensuring that sustainability reporting delivers on its promise. “This isn’t about perfection,” he concludes. “It’s about progress. Sector-specific standards will help us get there – simplifying the process for businesses, enhancing trust for stakeholders, and ultimately driving the action we need to create a more sustainable future.”

Conclusion: A call to action

Philippe’s insights highlight the transformative potential of sustainability reporting, positioning it as far more than a compliance exercise. For him, it represents a critical opportunity to drive systemic change, align businesses with long-term societal goals, and address the urgent environmental challenges of our time. 

“The ESRS are not just about ticking boxes or publishing a report – they are about rethinking how businesses understand their impacts and risks. Done well, it becomes a tool for resilience, strategy, and leadership.”

His message to companies preparing for CSRD is clear and direct: “Start early, dedicate the right resources, and take materiality seriously. This isn’t something you can approach half-heartedly. Materiality is the backbone of sustainability reporting – without it, the whole process falls apart.”

Philippe also emphasizes the need for companies to view sustainability reporting as an investment rather than a burden. “The costs of reporting are often overstated, especially when you compare them to financial reporting. But the benefits – greater transparency, better risk management, and stronger resilience – far outweigh the effort. Treat it as an opportunity, not just a regulatory hurdle.”

Ultimately, Philippe’s call to action extends beyond compliance to something deeper: a commitment to transparency, accountability, and progress. “This is about creating a future where businesses operate within planetary boundaries and respect human rights,” he concludes. “The companies that take this seriously today will be the ones leading tomorrow. We don’t have time to wait.”