EFRAG launch consultation on simplified European Sustainability Reporting Standards (ESRS) under the Corporate Sustainability Reporting Directive (CSRD)

On 31 July 2025, EFRAG published its much anticipated Exposure Drafts of the amended ESRS which were promised before the end of July 2025.  The consultation on the Exposure Drafts will run until 29 September 2025.

For context, EFRAG’s review of the ESRS forms part of the omnibus simplification package on sustainability reporting and due diligence, which the European Commission announced in February 2025 (see our coverage of the initial announcement here and our latest update on the ongoing EU-level negotiations here). EFRAG was mandated by the European Commission in March 2025 to deliver a critical simplification to make reporting under the CSRD more manageable while preserving its relevance and alignment with the European Green Deal.

EFRAG stated it had carried out extensive engagement with wave one companies already reporting under the CSRD, as well as those preparing to do so, in order to deliver the proposed amended ESRS. EFRAG also explained it has “applied top-down simplification strategies and levers together with a bottom-up detailed review of all datapoints”. 

Overview of the changes included in the Exposure Drafts

EFRAG sets out the main changes proposed by the Exposure Drafts in its Basis for Conclusions: Draft Amended ESRS and its One-Pager Briefing which reiterates the core elements of its approach as set out in EFRAG’s Progress Report published last month (see further information here). Some of the key amendments are set out below:

• streamline the double materiality assessment (“DMA”) – reducing overall complexity of the process and the extent of unnecessary scoring and clarifying that (i) the DMA is normally to start from the analysis of the business model; and (ii) conclusions should be supported with reasonable and proportionate evidence; 
• reduce overlaps across standards and clarify language and structure – (i) across all Standards the relationship between material impacts, risks and opportunities (“IROs”) and the topics and sub-topics to be reported has been clarified; (ii) flexibility has been added as to which level of granularity to report based on IROs; and (iii) simplification to avoid overlapping terms, for example by replacing “matter” with “topic” and “sub-topic” depending on the level needed to meet the relevant disclosure objective.  The concept of connected information has been clarified to avoid fragmentation and/or repetition of information; 
• introduce an option to have an “executive summary” at the beginning of the sustainability statement;
• remove all voluntary disclosures, and move the majority of these (including any previously mandatory requirements that would become voluntary under the amended ESRS) to EFRAG’s new Non-Mandatory-Implementation-Guidance (“NMIA”); and 
• introduce some relief mechanisms which exist in the ISSB’s Standards IFRS S1 and IFRS S2, such as exemptions where reporting would cause undue cost or effort.

EFRAG states that “In total, mandatory datapoints (to be reported if material) have been cut by 57%, and the full set of disclosures—mandatory and voluntary—reduced by 68%. The overall length of the standards has been shortened by over 55%, making ESRS more accessible and implementable, especially for companies that will be in the scope of the CSRD beyond the ones that reported already on financial year 2024”.

Proposed amendments to the impact materiality assessment

A number of EFRAG’s proposed amendments are likely to be particularly significant for reporting companies. For example, a key area for clarification for companies has been how to treat mitigation and prevention measures when conducting impact materiality assessments. As part of EFRAG’s amendments to ESRS 1 (General Requirements), EFRAG has proposed adding clarification that, when assessing impact materiality, companies would be able to take into account “outcomes of any mitigation or prevention measures implemented before the impact occurred”, provided that “supportable evidence exists that mitigation or prevention actions taken reduce the severity and/or likelihood of potential negative impacts (i.e. those that could occur in the future)”. This amendment would address a common ambiguity within the current version of the ESRS, which EFRAG refers to as the “gross versus net” issue, where companies do not know whether they may take into account their mitigation and remediation actions when assessing the severity and scale of a negative impact.

Options for reporting financial effects

In addition, a key area requiring simplification has been in relation to reporting financial effects. EFRAG has asked for feedback on two possible approaches for companies to disclose the anticipated financial effects of material risks and opportunities in the amended version of ESRS 2 (General Disclosures):

• Option 1: Quantitative information disclosure would be mandatory, but ESRS 2 would include certain reliefs inspired by the ISSB Standards when such information cannot be provided, and instead require the company to disclose qualitative information instead; or
• Option 2: Qualitative information disclosure would be mandatory, and ESRS 2 would state that quantitative information can be provided on a voluntary basis.

While these are just two examples of how EFRAG has proposed to clarify and simplify the ESRS, they should hopefully provide some welcome guidance and relief to many reporting companies going forward. 

Level 1 Legislative Amendments

There are a number of requirements which would not change under the amended ESRS, further to the recommendations by the Commission. This is because these requirements are subject to ongoing negotiation at the EU-level, and so any future amendments would be introduced through implementing directives (so called “level 1” amendments, to be agreed by all three co-legislators) rather than through the delegated act. These include, for example, the definition of value chain for financial institutions, any exemption from consolidating subsidiaries by undertakings that are financial holdings, any relief for omission of confidential/sensitive information and clarification of the meaning of “compatibility with 1.5 degrees” for transition plan disclosure.

Voluntary Sustainability Reporting Standard for non-listed Micro, Small, and Medium-sized Enterprises (VSME)

The Exposure Drafts are the second EFRAG-related development this week. First, on 30 July 2025, the Commission officially adopted EFRAG’s Voluntary Sustainability Reporting Standard for non-listed Micro, Small, and Medium-sized Enterprises (“VSME”) as a Recommendation.  The Recommendation is designed for companies with fewer than 250 employees, who are seeking to align with the principles of the CSRD by reporting sustainability information on a voluntary basis. The VSME Standard delivers a simple, proportionate, and practical framework for sustainability reporting, helping SMEs to:

• respond to growing data requests from banks, investors, and large clients;
• improve access to finance through better ESG transparency;
• manage sustainability risks and opportunities effectively; and
• contribute to a more sustainable and inclusive economy.

To mark the launch and discuss next steps, EFRAG will host a dedicated public event in September 2025.

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This note is intended to be a general guide to the latest ESG developments. It does not constitute legal advice.

Authored by Rita Hunter, Julia Cripps and Emily Julier.