Non-Financial Reporting, Double Materiality, and Business Model Evaluation: An Empirical Study of ESG Ratings in Europe

Purpose: This paper investigates the adoption of non-financial reporting (NFR) standards and the double materiality (DM) principle, and their possible implications on external performance measures, namely ESG ratings. By doing so, it positions reporting practices as mechanisms that affect disclosure quality and the transparency and accountability of firms’ business models. Design/Methodology/Approach: Longitudinal analysis over three years (2020–2022) was conducted using the 366 European listed companies' annual reports. Descriptive statistics and ordinary least squares regressions were employed to analyze the association between reporting practices, DM adoption, and ESG ratings from several rating agencies. Findings: The results show that the adoption of non-financial reporting frameworks is associated with higher ESG ratings among European firms. However, the early adoption of double materiality does not yet have a significant impact on ESG performance at this stage. Research implications: The study contributes to the business model literature by demonstrating how reporting practices and regulatory development build external representations of firms' value creation, delivery, and capture. It highlights the role of disclosure frameworks and double materiality as institutional forces with the capacity to transform business models to meet stakeholder and regulatory pressures. Originality/Value: This study is one of the first longitudinal tests that empirically analyze the impact of non-financial reporting frameworks and DM on ESG ratings, and which sheds new light on how they impact evaluation of sustainable business model.