December 03, 2025
_____
The revised European Sustainability Reporting Standards (ESRS), published by EFRAG on Wednesday, 3 December, represent the end of a nine-month effort by EFRAG to find a workable middle ground on corporate sustainability reporting in the European Union. The process has been long, detailed, and, at times, challenging. It has brought together all stakeholders with an interest in both the viability and value of corporate reporting on sustainability matters.
A risk-based approach that serves both due diligence and reporting
The revised ESRS retain the centrality of the double materiality process, with the assessment of material negative sustainability impacts focused squarely on the severity and likelihood of their effects on people and planet. This maintains the standards’ alignment with the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises. Moreover, the revised ESRS continue to recognize that the assessment of material impacts is the starting point for the assessment of a company’s financially material risks and opportunities.
The revisions to the ESRS also seek to reduce the excessive granularity of issue-by-issue analysis that characterised implementation of the original standards. They explicitly allow companies to focus their materiality assessment on areas where material impacts, risks, and opportunities are most likely to arise. And they provide latitude to conclude that an impact is manifestly material or not material without detailed assessment, where that conclusion can be justified on the basis of the impact’s evident severity and likelihood.
This reinforces the ‘risk-based approach’ to prioritizing impacts as the process by which companies should identify their material impacts. It mirrors what we have seen in the Omnibus negotiations on the Corporate Sustainability Due Diligence Directive (CSDDD): that companies experienced in sustainability due diligence consistently emphasise the need for a risk-based process to allow them to continue focusing resources on their most significant impacts.
The importance of alignment between these two frameworks on due diligence and reporting has often been poorly understood, in part because they were developed by different EU bodies and engaged different parts of governments and businesses. As both processes now move toward completion, there is a clear opportunity to reinforce the understanding that conducting sustainability due diligence and implementing sustainability reporting are closely connected. Together, they enable a single, coherent, risk-based approach to the identification and prioritization of sustainability impacts. This should be welcomed by businesses.
A workable and meaningful balance based on constructive compromise
Looking more generally, the revisions to the ESRS achieve substantial simplification, which was the mandate for this process. That includes both a two-thirds reduction in the datapoints that have to be disclosed, and the flexibility for companies to present a coherent, streamlined narrative tailored to the sustainability impacts, risks, and opportunities that are material for their business.
Throughout the revision process, all actors involved have had to make concessions. Every stakeholder group can identify elements they would have preferred to retain, strengthen, or remove. The result is a set of standards that is acceptable to a critical mass of actors across all stakeholder groups.
However, although many changes to the standards could be agreed by all participants in the EFRAG process, some of those that remained divisive are particularly problematic.
Firstly, the extensive ‘reliefs’ granted to companies include flexibility to omit disclosures where securing the necessary information would require ‘undue cost or effort’. There are no clear guardrails or time constraints to this relief (among others), creating a risk that it becomes prone to misuse.
Secondly, changes to the social standards have removed many elements that foster comparability between corporate reports. Although the European Commission was clear that it expected EFRAG to remove voluntary datapoints, the removal of these for the non-employee workers in a company’s own workforce – who are often in a more vulnerable position than direct employees – is particularly lamentable.
Thirdly, various changes in the environmental standards are problematic in their own right, and also increase the likelihood of adverse impacts on workers and communities. This includes, for example, the loosened requirements for climate transition plans and the extensive phase-ins for reporting on substances of concern in the chemical industry.
Success hangs in the balance
The ultimate success of this revision process depends on the final ESRS enabling meaningful progress in corporate disclosures that show whether and how business practices advance the welfare of people and our planet; that support long-term business resilience; and that equip markets to incentivize and reward those outcomes.
The revised ESRS can claim still to meet that goal. However, they are weaker than they should be and opportunities have been missed in the compromises that have been reached. That claim is therefore fragile. Any move by business lobbies to further weaken their content will render it hollow.
The focus for everyone involved – including the European Commission, whose responsibility it now is to formally adopt the standards – should be to lock in what has been achieved and move forward to test the revised standards in practice. Further lessons should come from implementation, not additional debate, hypothesizing, or wordsmithing, and should be leveraged to inform the development of strong implementation guidance. That is where EFRAG should now direct its attention.
