Are materiality determination practices evolving in the wake of increasing legislation on sustainability reporting? Findings from EU pharmaceutical companies' reports

PurposeThis paper aims to contribute to the development of the European Union (EU) regulatory environment for sustainability reporting by analyzing how materiality is defined in the Non-Financial Reporting Directive (NFRD) and Corporate Sustainability Reporting Directive (CSRD) and by examining the added value and challenges of legalizing reporting and materiality requirements from both regulatory and practical company perspectives. It provides insights on whether this is reflected by EU pharmaceutical companies and to what extent companies report information on their materiality analysis process.Design/methodology/approachDoctrinal analysis was used to examine regulatory instruments. Qualitative document analysis was used to analyze companies' reports. The added value and challenges were examined using a governance approach. It focused on legalizing reporting and materiality requirements, with a brief extension to corporate management and organization studies.FindingsMateriality has evolved from a vague concept in the NFRD toward double materiality in the CSRD. This was reflected by the industry, but reports revealed inconsistencies in materiality definitions and reported information. Challenges include lack of self-reflection and company-centric perceptions of materiality. Companies should explain how they identify relevant stakeholders and how input is considered in decision-making.Practical implicationsManagers must consider how they conduct materiality assessments to meet society's expectations. The underlying processes should be explained to increase the credibility of reports. Sustainability reporting should be seen as a corporate governance tool.Originality/valueThis work contributes to the literature on materiality in sustainability reporting and to the debate on the need for a holistic, society-centric approach to enhance the sustainability of companies.