The release of the European Sustainability Reporting Standards (ESRS) Exposure Drafts by the European Financial Reporting Advisory (EFRAG) on July 31 marks a significant step toward the simplification of the EU’s corporate sustainability reporting landscape. The ESRS provide detailed guidance on how companies must fulfill their Corporate Sustainability Reporting Directive (CSRD) reporting obligations.

With the Exposure Drafts approved and published, a 60-day consultation period is now open. Stakeholders can respond to EFRAG’s online, 30-question public consultation survey until September 29, 2025. EFRAG will incorporate stakeholder feedback into the final simplified ESRS, which are expected to be published by the end of November.

Simplified ESRS Finalization Timeline

ESRS table

 

The amended ESRS Exposure Drafts were developed by EFRAG in alignment with the landmark EU Omnibus and ‘stop-the-clock’ proposals. The Omnibus package (released in February) is committed to reducing and simplifying the actual scope of what companies need to report under the CSRD, the EU Taxonomy, and the Corporate Sustainability Due Diligence Directive (CSDDD). The ‘stop-the-clock’ proposal (approved in April) delays the timeline for when companies need to report by two years (read more on these proposals here).

This update explores what companies can learn from these new developments, outlines the main proposed changes that they should be aware of, and highlights next steps to take in their CSRD implementation.

What are the main changes in the Exposure Drafts?

The Exposure Drafts provide critical insight on what the simplified ESRS may look like and what in-scope companies will ultimately need to disclose. Companies should familiarize themselves with these key takeaways from the new drafts:

A more flexible and focused materiality approach:

  • Companies now have greater flexibility with the option to identify material topics through a top-down approach focused on market and business model analysis.
  • The information materiality process for sustainability statements is more focused, prioritizing usability and user relevance.
  • Greater emphasis on fair presentation reduces corporate risks of overreporting.

Streamlined and cost-conscious disclosure

  • Minimum disclosure requirements for policies, actions, and targets are significantly reduced and redundancies between standards have been minimized.
  • “Undue cost and effort” relief is extended to all metrics, including within a company’s own operations.
  • Companies can now use value chain estimates based on secondary data rather than having to first attempt to collect primary value chain data.

Sustainability statement changes

  • Companies can choose to report at either the impact, risk, and opportunity (IRO)-level or the topic-level, depending on the nature of their IROs.
  • Sub-sub-topics have been removed to reduce complexity and duplication.
  • Companies can now include executive summaries at the start of sustainability statements and have the option to disclose granular information in dedicated sections or appendices.

Simplified standards

  • Mandatory “shall” data points have been simplified and all voluntary “may” data points have been eliminated or moved to separate guidance documents.

Among the most notable changes is the reduction in the number of required data points. The amended Exposure Drafts include a 67.7 percent total reduction in data points, exceeding the initial aim of 50 percent, as stated in EFRAG’s ESRS simplification progress report (released June 20th). This includes the reduction of mandatory “shall” data points (by 56.8 percent) and the removal of all voluntary “may” data points (by 100 percent*). These data points have either been fully deleted or moved to non-mandatory items and separate guidance documents. Across all standards, the total number of mandatory data points has fallen from 803 to 347*. The greatest reductions have occurred in the E4 Biodiversity and Ecosystems (by 77.8 percent), E3 Water and Marine Resources (by 70.4 percent), and S4 Consumers and End-users (by 63.6 percent) standards.

Below is a detailed overview of the most pertinent amendments included in the ESRS Exposure Drafts.

On materiality:

  • Top-down approach: The Exposure Drafts provide more flexibility in determining key material topics, allowing companies to predetermine their most obvious issues based on a market and business model analysis. This is intended to reduce complexity and unnecessary scoring of individual IROs.
  • Information materiality: The inclusion of information in the sustainability statement is now filtered based on the information materiality hierarchy. The “significance” of information criterion has also been clarified and is connected to usability and the needs of users. Non-material information may still be disclosed where relevant for other users, like rating agencies, etc.
  • Fair presentation: There is greater emphasis on the fair presentation of disclosed information to reduce the risk of over-reporting.
  • Gross vs. net issue: New guidance is provided on how companies should consider implemented remediation, mitigation, and prevention policies and actions when assessing impact materiality.

On disclosure requirements:       

  • Minimum disclosure requirements: Minimum disclosure requirements for policies, actions, and targets within topical standards are drastically reduced. The drafts clarify that policies, actions, and targets only need to be reported “if you have them”. Cross-cutting minimum disclosure requirements at the ESRS 2 level have been maintained and reduced.
  • Metrics and data estimation: The relief of “undue cost and effort ” is extended to all metrics, including metrics within company’s own operations. Non-material activities are excluded from metric calculations. The Exposure Drafts also remove the requirement to first attempt to collect primary data from the value chain before using estimates. Instead, companies can use value chain estimates based on secondary data (e.g., industry averages).
  • Financial quantification: EFRAG is considering two options for financial quantification disclosures. One is to require reporting qualitative instead of quantitative information only when the level of estimation uncertainty is so high that the resulting quantitative information would not be useful. The second option is to only require qualitative information and make quantitative information disclosure voluntary. EFRAG is explicitly seeking input during the public consultation period on this matter. Information on investments and disposal plans will be limited to those that have already been announced.
  • Resilience: Resilience disclosures are limited to qualitative information and only for risks (not impacts or opportunities).

On the preparation and structure of sustainability statements:

  • Material IRO flexibility vs topical reporting: All disclosures offer flexibility to decide whether to report at the IRO- or topic-level, based on the nature of the IROs. The term “matter” is replaced by “topic,” which can refer to a “topic” or a “sub-topic”, depending on the level required to meet a disclosure objective. When only a sub-topic is material, the company must limit the information reported within a topical standard to that sub-topic. To help companies understand the correlation between individual disclosures and specific sub-topics, a non-mandatory appendix will be published.
  • Sub-topic and sub-sub-topic changes: Sub-sub-topics have been removed to streamline the list of sustainability matters in ESRS 1 application requirement 16.
  • Reporting boundaries: The boundary of consolidated financial statements has been clarified as the starting point, but additional guidance on the treatment of specific transactions is provided.
  • Executive summaries and appendices: Options are provided for an “executive summary” at the beginning of the sustainability statement. There are also options to disclose granular information, for example, detailed metrics, in dedicated sections or appendices.
  • Reduction in duplicative content: Policies, actions, and targets only need to be described once (even if covering multiple sub-topics), and they can be limited to a specific sub-topic without triggering disclosure at the topic level.

On the presentation of the ESRS standards:

  • Streamlined requirements: All mandatory “shall” data points have been simplified and counted as separate data points. All voluntary “may” data points have been eliminated or moved to separate guidance documents.
  • Separate mandatory and non-mandatory content: Application requirements have been placed directly under the related disclosure requirement. All non-mandatory content has been moved to separate documents named “Non-Mandatory Illustrative Guidance” (NMIG).

What simplification measures have not been implemented?

Some requirements were not changed in the amended ESRS Exposure Drafts, as recommended by the European Commission, since they are subject to potential revision in the CSRD delegated act. These include:

  • Definition of value chains for financial institutions
  • Exemption from consolidating subsidiaries by companies that are financial holdings
  • Relief for omission of confidential/sensitive information and phasing-in provisions
  • Clarification of the meaning of ‘compatibility with 1.5 degrees’ for transition plan disclosure in the Climate Change standard

What should companies do now?

Companies in scope of the CSRD should continue to monitor the EU Omnibus and the simplified ESRS and provide feedback via survey during the 60-day public consultation period. EFRAG is specifically seeking input to determine the most appropriate relief for quantitative information on anticipated financial effects

As part of the “quick-fix” amendments that the European Commission adopted on July 11th, Wave 1 companies that have already reported on fiscal year 2024 will not have to report additional information in financial years 2025 and 2026. In instances where Wave 1 companies have already exceeded disclosures that will likely be required by the simplified ESRS or have existing data that would enable them to do so, they should carefully weigh the pros and cons of maintaining disclosures beyond what is demanded.

Regardless of which CSRD implementation wave applies to them, companies should focus on no-regret actions. Understanding the financial effect of sustainability-related risks enables businesses to methodically identify and quantify a commercial business case for sustainability. Be ready to review double materiality through a top-down approach. Invest in financial quantification capabilities that can help prepare for post-EU Omnibus reporting as well as enable reporting in accordance with international reporting frameworks such as the ISSB. 

How can companies stay informed?

ERM will continue to closely track further regulatory developments as well as other updates related to the EU Taxonomy. For more information on the EU Omnibus, read our earlier update, our policy alert here, or contact our experts.

* = These values reflect the reduction of data points in ESRS 2 and topical standards, excluding the minimum disclosure requirements (which have been renamed to ‘General Disclosure Requirements’ (GDRs) in the Exposure Drafts).