After 18 months of negotiations, the overhaul of European sustainability reporting is on the brink of completion. Early July, the European Commission adopted the final version of the simplified European Sustainability Reporting Standards (ESRS), reducing the total number of data points by more than 60%. In parallel, the European Financial Reporting Advisory Group (EFRAG) issued modified standards for non-EU parent groups, the ESRS-40a, and opened them up for public consultation from July 23 to 31 October 2026.
With the adoption of the ESRS standards, which underpin European corporate sustainability reporting, simplification of the Corporate Sustainability Reporting Directive (CSRD) has entered its final phase. Previously, the Omnibus I Directive, in force since 18 March 2026, reduced the number of entities in scope for CSRD-reporting by approximately 80%.
European regulatory publications can be hard to navigate, and the adopted ESRS and the draft ESRS-40a are no exception. This blog aims to answer the most pressing questions from both European undertakings (Wave 1 and 2) and non-EU parent groups (Wave 4). Listed small and medium-sized enterprises, the former Wave 3, have been removed from mandatory scope. For a deeper dive, download our policy alerts by clicking the download buttons on this page.
Coming in waves
| Group | Final reporting threshold | First reporting date |
| Wave 1 | EU public-interest undertakings already reporting under the original CSRD, provided they remain above the revised threshold of more than 1,000 employees and more than €450 million net turnover. | Reporting has already started for FY2024; FY2026 transition options apply. If still in scope, the revised ESRS needs to be applied from FY2027 onwards. Option to voluntarily use revised ESRS for FY2026. |
| Wave 2 | Large EU undertakings and groups with more than 1,000 employees and more than €450 million net turnover. | First reports expected in 2028, covering FY2027. |
| Wave 4 | Non-EU parent groups with more than €450 million EU net turnover in each of the last two consecutive financial years and an EU subsidiary or branch generating more than €200 million net turnover in Europe. No employee threshold. | First reports expected in 2029, covering FY2028. |
Are the ESRS and ESRS-40a final now?
The ESRS and ESRS-40a are at different stages. The European Commission adopted the revised ESRS as a delegated act on 3 July 2026. It is now subject to scrutiny by the European Parliament and the European Council for a period of two months, with can be extended by two more months. The institutions cannot amend the text during that process, but they may object. The standards apply only after the scrutiny period has concluded and the act has entered into force.
The ESRS-40a still has some way to go. In July, EFRAG published its Exposure Draft. After the public consultation closes late October, EFRAG will submit Technical Advice to the Commission. The Commission will review this and then open its own round of public consultation. Adoption of the ESRS-40a by the Commission is expected by mid-2027. However, much of the final version of ESRS is also relevant for ESRS-40a.
What are the differences between EFRAG's initial ESRS draft, published in late 2025, and the current versions?
They are modest. The final text maintains EFRAG's main simplifications, reduction of data points, consolidated standards, and stronger reliance on relevant materiality. The direction of travel is clear: leaner, more judgment-based reporting, alongside a modified ESRS standard for groups based outside the EU. The ESRS-40a will be covered in separate questions.
Below, the most important overall characteristics of the adopted ESRS standards compared to the current ESRS of 2023:
Simplified architecture
- Stronger alignment with International Financial Reporting Standards (IFRS) sustainability standards S1 and S2.
- Simplified double materiality assessment (DMA) through a top-down approach focused on material impacts, risks, and opportunities (IROs).
- Consolidated general disclosures (ESRS 2), reducing duplication and replacing minimum disclosure requirements (MDRs) with general disclosure requirements (GDRs).
Fair presentation and materiality
- Materiality acts as a filter across all disclosures. Companies are not only allowed to omit immaterial information but are expected not to disclose such information.
- Fair presentation is assessed at the sustainability statement level rather than the data point level.
- Greater emphasis on entity-specific, decision-useful information.
More flexibility to reduce reporting burden
- Only information determined to be material needs to be reported.
- Omissions for commercially sensitive information are allowed.
- Omissions are allowed when information is unavailable without undue cost or effort but are subject to explanation and remediation plans.
How does the adopted version of the ESRS change specific requirements on climate, environmental and social requirements, compared to the current ESRS of 2023?
Climate remains the most detailed topic, but several demanding requirements have been eased. Environmental and social topics have been trimmed more deeply.
Climate reporting simplified (E1)
- Greater flexibility in GHG boundary setting (equity share, operational or financial control)
- Simpler transition plan disclosures (e.g., mandatory scenario-analysis significantly reduced and streamlined)
- Climate targets assessed against 1.5°C compatibility rather than full alignment
Environmental disclosures streamlined (E2–E5)
- Reduced reporting scope for pollution, water, biodiversity, and circular economy topics
- Simpler biodiversity transition plans
- Greater focus on key materials and decision-useful information
Social & governance disclosures streamlined (S1 & G1)
- Fewer workforce and business conduct datapoints
- More targeted disclosures on wages and confirmed human rights/corruption incidents
- Revised reporting thresholds for selected workforce disclosures
Many companies subject to the current ESRS complain about its complexity of and the time and effort it takes to prepare reporting. Is the new ESRS addressing that?
In addition to the reduced number of disclosures, the revised ESRS includes targeted transition provisions and measurement reliefs for specified areas, such as certain financial-effects, value-chain, and business-combination information. The applicable relief depends on the disclosure and the undertaking’s first reporting year.
The revised ESRS also offers companies greater freedom in how they organize and present the sustainability statement itself. The new ESRS offers:
- Greater flexibility in CSRD statement presentation
- Optional executive summary and alternative statement structures
- Use of appendices for detailed calculations and EU Taxonomy disclosures
However, not everybody is convinced that these changes are an improvement. Several Wave 1 companies ERM works with, report it will not reduce their work to prepare reporting, since most quantitative data points remain, and they are forced to modify the systems and processes they have already in place to report on the current ESRS of 2023.
Did full convergence of the ESRS and IFRS S1 and S2 (developed by the International Sustainability Standards Board) materialize, so companies only have to file once?
No. The European Commission has prioritized interoperability over full convergence. ESRS and ISSB reporting can share much of the same climate, governance, and data infrastructure, but framework-specific disclosures and reconciliation will still be needed. However, the standards are highly interoperable, so companies can largely avoid double reporting. For example, almost all climate disclosures in the ISSB standards are also included in the ESRS. Groups can incorporate qualifying information by reference or prepare a single report satisfying both frameworks. Some differences remain, so a clear content index and careful structuring keep the report auditable.
What are the requirements for non-EU parent groups that are emerging in the draft ESRS-40a, and how do they differ from the ESRS for European companies?
The draft ESRS-40a broadly mirrors the architecture of the simplified ESRS, keeping the same twelve standards and reporting areas, but has some distinct differences.
- It removes the financial-materiality side of the framework. If the ESRS-40a is adopted in its current form, this would mean that reporting for third country companies would be based on impact materiality alone.
- ESRS-40a offers three reporting routes: a global approach of ESRS-40; a "mixed approach" that limits non-climate disclosures to EU-related impacts only (climate change (E1) impacts always need to be reported on a global basis) applying ESRS-40, or voluntary application of the full revised ESRS.
Does the fact that we are a non-EU parent group automatically mean that my company does not have to use the full revised ESRS?
No. A non-EU group can face separate obligations. Each EU undertaking or consolidating EU parent that exceeds 1,000 employees and €450 million in net turnover may be required to report under full revised ESRS for FY2027, while the non-EU parent is subject to ESRS-40a for FY2028 if the separate Article 40a thresholds are met. The non-EU parent can also voluntarily publish a full-ESRS parent report. This would support EU subsidiary exemptions, but only if all statutory conditions are met, including publication, assurance, and relevant EU Taxonomy disclosures.
For certain large non-EU issuers (>1000 employees AND €450 million net turnover) with equity or debt traded on an EU-regulated market, it is mandatory to apply the full ESRS to all its operations.
So, if your non-EU parent group has large EU subsidiaries, is it better to voluntarily apply full ESRS across the whole business?And when should non-EU undertakings choose a mixed ESRS-40a approach over a global one?
Using full ESRS is potentially better if you have large EU subsidiaries since it unlocks subsidiary exemptions and may avoid running parallel disclosure systems, but the right route depends on group structure, assurance strategy, and objectives.
Using the mixed ESRS-40a approach could potentially lower the reporting load for multinationals that can faithfully identify and represent impacts of their EU operations. However, EFRAG flagged real limitations: an uneven playing field (since EU peers have to report globally), difficulties in separating regional impacts, and the risk of obscuring human rights and environmental impacts outside the EU. These doubts raise the probability that the mixed approach option could be revised before final adoption of the ESRS-40a.
Non-EU parent group? Many ways lead to the CSRD
| Five pathways into the CSRD/ESRS regime | What should your company do |
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What should every company in scope of CSRD/ESRS start doing tomorrow, no matter what wave they are in?
Despite timeline differences, companies in all three waves urgently need to start preparing the following:
Get your double materiality assessment in shape
- If you have not done so, start preparing your DMA. If you have one, refresh it, based on the revised topic structure and the smaller datapoint set instead of repeating the exercise from scratch.
Refresh your gap assessment against the revised standards
- Start a new or modify an existing gap analysis, factoring in ESRS changes. Use the updated gap analysis as a roadmap for key decisions, deliverables, and assigning ownership.
Map data points that are interoperable with IFRS S1 & S2 standards
- Build one sustainability-information architecture, with shared governance, controls, climate data and materiality outputs. This way, a single core dataset can serve the ESRS as well as other (global) reporting requirements.
Our Wave 1 company started reporting already. How will the adopted ESRS influence our reporting practice?
Wave 1 companies are split into two groups: those no longer in scope of the CSRD after the financial year 2026, and those that still will be. However, both groups still need to report over FY2026.
Wave 1 undertakings have three routes available to them for FY 2026 reporting: use the 2023 ESRS standards with the Quick-fix relief; move fully to the revised ESRS; or take a middle path using the 2023 standards plus a defined menu of reliefs from the revised ESRS.
For Wave 1 companies that will stop reporting after FY 2026, the 2023 standards-Quick Fix option makes the most sense, since companies can keep using their existing reporting systems. For other companies, the middle path offers the opportunity to ease into the new reporting situation, kicking off for FY2027.
Our Wave 2 company is next in line. How should we go about this?
As a Wave 2 reporter, the revised ESRS should be the baseline from the start. It is crucial to review or perform your double materiality assessment and data completeness early, using FY2026 to test the reporting process before it becomes mandatory for FY2027. Wave 2 companies should assess the transition provisions in the revised ESRS directly; the 2025 Quick Fix was limited to Wave 1 companies.
As a Wave 4 company we have plenty of time to figure this out, right? 2029 is still far away.
As a non-EU parent group, you could be affected sooner than you think. Immediately start testing which entities within your group are in scope of CSRD. Scoping errors, like missing EU branches that fall under Wave 2 or only testing the turnover in one year, are common. Secondly, seize the opportunity to engage with the public consultation on the draft ESRS-40a, now open until 31 October 2026. It is your best opportunity to shape the standard.
Conclusion
After a long period of uncertainty about where the overhaul of European sustainability reporting would land, the final shape of CSRD and the ESRS standards is now clear for Wave 1 and Wave 2 companies, subject to completion of the scrutiny period for the ESRS standards, while it is in an advanced stage for Wave 4. However, even in its simplified and reduced form, the CSRD/ESRS reporting is complex, and it will take considerable effort to prepare for it. Reporting companies should start that process as soon as possible.
Do you want more details? Download our policy alert on the overall consequences of the revised ESRS/CSRD or our alert focused on the consequences for North-American parent groups, by clicking the download buttons on this page.
General revised ESRS/CSRD alert Revised ESRS/CSRD alert North America
