EFRAG provides its technical advice on draft simplified ESRS to the European Commission

Since February 2025, EFRAG has been working to revise and simplify the ESRS to reduce red tape and reporting burdens on companies as part of the omnibus simplification package on sustainability reporting and due diligence. On 31 July 2025, EFRAG delivered its first Exposure Drafts for consultation (read more on the changes included in the Exposure Draft here). On 3 December 2025, following “extensive multistakeholder evidence from the public consultation”, EFRAG published the Amended ESRS. EFRAG states in its cover letter to the Commission that it has ensured that the Amended ESRS are shorter, clearer and easier to apply whilst enhancing interoperability to the maximum extent. For ease of reference, comparisons to the existing ESRS can be found here.

In the Exposure Draft published in July, we saw amendments affecting the double materiality assessment, clarification of language and structure, removal of voluntary disclosures, an option for an executive summary, phasing in and reliefs.

The Amended ESRS includes further changes, reflecting consultation with stakeholders and preparers. Below we set out a summary of the key changes as compared with the Exposure Draft:

• 61% reduction of datapoints: An increase from the reported 57% reduction in the Exposure Draft.
• Structural clarifications: EFRAG has further streamlined terminology, regrouped and reduced mandatory requirements and clarified the relationship between ESRS 2 and topical standards. The preference for direct data in the value chain has also been removed, increasing flexibility in the use of estimates and reducing the pressure for data collection and the burden on value chain companies. As part of this clarification, mandatory provisions and voluntary guidance have been completely separated.
• Emphasis on readability and conciseness: As a result of “overwhelming feedback” that the structure and detail of sustainability statements often hindered clear communication and coherence within the broader management report”, the Amended ESRS have been clarified to allow for (i) narrative disclosure particularly for policies, actions and targets; (ii) principles-based standards for flexibility on how to present the information; (iii) an executive summary at the beginning of the sustainability statement; and (iv) use of appendices and incorporation by reference of connected information so entities can “tell their story” in a balanced and consistent manner.
• Simplified materiality assessment: The Amended ESRS include clearer guidance and a more proportionate approach for the Double Materiality Assessment (“DMA”) to strike a better balance between simplification and robustness”. EFRAG notes that following extensive feedback from reporters, the amendments are intended to “reinforce the role of materiality of information as an overarching filter, clarify the relationship between IROs and reportable topics, and introduce more flexible, principle-based guidance”. The simplifications are intended to refocus the assessment on usefulness of information and disclosure of what really matters.

In particular, for impact materiality, the Amended ESRS 1 includes the following provisions providing clarity for those applying the DMA:

• remediation cannot be considered when evaluating actual negative impacts during the reporting period;
• for potential negative impacts, paragraph 44(b) provides “the severity and likelihood of potential negative impacts – those that may manifest in the future - shall be assessed taking into account only implemented prevention and mitigation policies and actions if those policies and actions can reasonably be assumed to effectively reduce the severity or likelihood. Actions or policies that have not yet been implemented shall not be considered”; and
• for positive impacts, paragraph 45 provides “the results of prevention, mitigation or remediation actions to address negative impacts the undertaking is connected to, or compliance with law and regulation, are not positive impacts”.

For financial materiality, the inclusion of anticipated financial effects has been a heavily debated topic. Investors use this information to assess sustainability risks and opportunities and how that impacts the financial condition of a company but reporters argue that reporting them creates short-term uncertainty, increased litigation risk (due to forward-looking information being used) and a lack of comparability across reports. However, the concept is included in other frameworks such as the International Sustainability Standard’s Board (“ISSB”) and the framework for Task Force on Climate-Related Financial Disclosure (“TCFD”). Therefore in order to maintain interoperability with those frameworks (and to ensure that investors have the information they need), EFRAG has maintained the requirements to disclose anticipated financial effects subject to phasing in (with certain information being required for Wave One reporters from financial year 2027 and quantitative information being required from financial year 2030).

The Amended ESRS also confirm that a full DMA is not required annually unless significant changes arise.

• Fair presentation: In conjunction with the streamlined DMA, as expected the Amended ESRS include reference to a fair presentation framework. During feedback, reporting companies had questioned whether the fair presentation principle would give rise to additional responsibilities in conflict with the principle of materiality. Which would give rise to additional legal risk. EFRAG has clarified sought to clarify that disclosure of ESRS prescribed information is not required if it is not material (this corresponds to the “override feature” in financial reporting) and has specifically included a paragraph making the air presentation principle subject to the existing materiality filter. The intention is to “refocus on usefulness of the information, and help companies to disclose what really matters for users”.
• Substantial reliefs, proportionality mechanisms and ad hoc phasing-in for challenging disclosures: A number of reliefs and phasing in provisions have been introduced to help reporters to transition to the Amended ESRS and to recognise data provision issues across many of the datapoints as well as addressing concerns about confidentiality and commercially sensitive information. The transitional provisions also reflect the “quick fix” delegated act which granted additional phase-ins for Wave One reporters (the “quick fix” delegated act entered into force on 13 November 2025, read more here).

Are the Amended ESRS interoperable with ISSB reporting standards?

The Amended ESRS are intended to have enhanced interoperability with ISSB, building on the ESRS-ISSB Standards Interoperability Guidance published in May 2024. For example the link between entity-specific information and fair presentation is emphasised and the treatment of anticipated financial effects and related reliefs further aligns the two frameworks.

Next steps

We expect the Commission to prepare a Delegated Act to implement the Amended ESRS. The date that the Amended ESRS become applicable will be determined by the Commission in this Delegated Act.  To the extent that the omnibus simplification process introduces amendments to the Corporate Sustainability Reporting Directive which would affect the Amended ESRS, EFRAG stands ready to adapt the Amended ESRS.

EFRAG also launched its ESRS Knowledge Hub, a new digital gateway to sustainability reporting on 4 December 2025 bringing together all ESRS information in one place.

Our global Sustainable Finance & Investment group brings together a multidisciplinary global team that provides clients with best-in-market support.  We are following developments relating to ESG regulation, so please get in touch if you would like to discuss.

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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, Emily Julier and, Julia Cripps.