EFRAG delivers progress report on ESRS simplification to the European Commission giving clues to ESRS changes and Omnibus updates

On 20 June 2025, EFRAG published its progress report on the simplification of the European Sustainability Reporting Standards (“ESRS”) to the European Commission.

EFRAG was mandated by the Commission to provide technical advice on revised and simplified ESRS.  The work has been carried out in line with the Commission's omnibus simplification proposals published on 26 February 2025 but should those proposals change further changes will need to be made to the ESRS.  As a reminder, the changes are intended to be adopted as a delegated act to be in force at latest six months after the entry into force of the Omnibus proposals.

EFRAG has identified six levers to achieve “50+ per cent” reduction in mandatory datapoints

EFRAG has “identified and activated” six key levers of simplification and EFRAG estimates that a “50+ per cent” reduction in the number of mandatory datapoints can be achieved.  As well as looking at the levers, EFRAG has also carried out a thorough review of all narrative datapoints with a clear objective to emphasise principles-based standards over a tick-box compliance exercise to achieve meaningful disclosure. And specific attention has been given to work which has already been completed by preparers.

When can we expect the Exposure Draft?

The Exposure Draft is planned to be approved in mid-July and will be published together with a basis for conclusions that will illustrate the amendments and how they are expected to reduce reporting burden.  Reports summarising the input gathered from stakeholders will also be published at the latest in conjunction with the Exposure Draft.

The public consultation for the Exposure Draft will be short and will run from the final week of July into August.  The consultation period is short and in a “not very convenient period” and therefore EFRAG has suggested that it would be optimal if the Commission were able to review the deadline so EFRAG was in the position to offer more time and comfort for “stakeholders to provide meaningful feedback”.

We take each of the levers in turn below and set out how EFRAG is addressing them.

Lever 1: Simplification of the Double Materiality Assessment (“DMA”)

Preparers have complained that the DMA is difficult to apply in practice and a significant burden when preparing reports. By eliminating ambiguities and potentially misleading provisions of the DMA, EFRAG aims to address the disproportionate effort needed to apply the DMA and the risk that the process will become a mere compliance exercise rather than a decision-useful outcomes-based process in line with company's strategic context.  They suggest the following changes:

• a ‘top-down' approach will be introduced, starting from the business model to identify the most obvious material topics (this should be supported with reasonable and proportionate evidence, especially when obvious given the sector, peers or business model);
• clarification of the information materiality criteria to emphasis decision-usefulness, introduction of a filter of information materiality for all datapoints and the clarification of the interaction between the identification of material impacts, risks and opportunities (“IROs”) and the assessment of material topics and sub-topics, including the level of granularity required in reporting (ie topical or sub-topic);
• address the following questions: (i) how mitigation, prevention and remediation actions are considered in assessing impact for materiality and how to define positive impacts, (ii) whether an undertaking can include information about non-material matters in its sustainability statement (eg when requested by rating agencies) and (iii) if so, under what conditions;
• clarify that when only a sub-topic is relevant, that will not trigger reporting of all the datapoints in the relevant topical standard – a non-mandatory appendix will support this by illustrating which disclosures relate to which sub-topic; and
• place additional emphasis on the objective of fair presentation, which is a key concept in other reporting frameworks such as ISSB (relevance and fair representation) to reduce the risk of over-burdening associated with compliance exercises (though there is not complete agreement on this within EFRAG).

Lever 2: Better readability/conciseness of the sustainability statements and better inclusion in corporate reporting as a whole

ESRS sustainability statements vary in length and content.  With arguments that they can be too granular, “mixing critical information with excessively detailed datapoints”, companies had difficulties in ‘telling their story'.   In order to focus on matters with critical relevance, EFRAG:

• aims to offer an option for an ‘executive summary' at the beginning of the sustainability statement allowing a summary of an undertaking's material topics, relationship with key aspects of strategy and governance and its performance and contemplated trajectory; and
• will give an option to disclose the most granular information, such as detailed metrics, and additional information on non-material matters in dedicated sections or appendices and generally discourage repetition or fragmentation of information on the same topic. They will clarify also that EU Taxonomy-related information can be set out in a separate appendix.

Lever 3: Critical modification of the relationship between Minimum Disclosure Requirements (MDR) and topical specifications

Part of the complexity of ESRS implementation stems from the overlaps between Minimum Disclosure Requirements (“MDRs”) for policies, actions and targets (“PATs”) in ESRS 2 and topical standards which add to regulatory burden and create “unnecessary duplication/repetition” and granularity, leading to excessive detail in disclosure.  Similar overlaps exist between ESRS 2 and topical standards for governance and strategy and the disclosure requirements for IRO 1.  The provisions related to PATs are also seen as too granular and not always informative.  EFRAG has therefore made preliminary decisions to:

• maintain the cross-cutting MDRs at ESRS 2 level but drastically reduce the mandatory PAT specifications in the topical standards – it will delete datapoints or move them to voluntary guidance – reflecting a more principle-based standard-setting approach to narrative disclosures; and
• clarify that PATs need only be reported ‘if you have' them and if related to material topics, so granularity reflects implemented policies, with a single datapoint for disclosure required of material topics with no PATs. Increasing readability and flexibility and ensuring that there is no duplication of PATs in different parts of the sustainability statement. And disclosure at  topical standard level will not be triggered purely by reason of disclosure under a relevant sub-topic.

Lever 4: Improved understandability, clarity and accessibility of the standards

EFRAG proposes changing approach to voluntary disclosure and reducing this category significantly.  In doing so it will make it very clear which parts are mandatory and which entirely voluntary. 

Lever 5: Introduction of other suggested burden-reduction reliefs

EFRAG will introduce burden-reduction reliefs to address a number of different issues which have been highlighted during the stakeholder process:

• Acquisitions and disposals: A specific relief is proposed based on pragmatism and availability of data.
• IFRS reliefs: Reliefs in IFRS S1 and S2 have been reviewed and will be incorporated where compatible with the European context.  This will include ‘undue costs and effort' and reliefs on sensitive information about opportunities.
• Commercially sensitive information: Recognising that this is a concern of preparers, this is likely to be debated as part of omnibus simplification negotiations but relief on opportunities are also being considered as part of the broader incorporation of IFRS reliefs. 
• SFDR disclosure points: The ESRS include requirements for disclosure of datapoints related to the Sustainable Finance Disclosure Regulation (“SFDR”), including SFDR principal adverse impact (“PAI”) indicators, which form 16% of the overall mandatory ESRS datapoints.  The general objective of ensuring data availability for the SFDR to function has not changed but some of these indicators are not relevant in practice, therefore EFRAG will suggest modifications where necessary considering the relevance of the datapoints to other EU regulations. 
• Relief for metrics when necessary input is not available: In addition to the ‘undue costs and effort' relief mentioned above, where inputs for metrics are unavailable, EFRAG is considering two reliefs one for own operations and a second for value chain.
• Relief on metrics to exclude non-material activities from calculations:  This is intended to avoid unnecessary collection of complete data for group activities where they do not contribute materially to the metrics being measured.
• Clarifications around boundaries for reporting and value chain: EFRAG clarifies that the starting point for boundaries is the perimeter of the consolidated financial statements. But stakeholders have highlighted the need for clarification for specific transactions, including leasing, which relates to real estate, financial institutions and pension funds. Stakeholders have also noted that for greenhouse gas (“GHG”) emissions, there are inconsistencies in boundaries when compared with those used under international standards. EFRAG proposes to adopt consolidated financial statements as the relevant boundary for ESRS E1 with an additional disclosure following an operational control approach in specific circumstances expected to affect industries where ownership structures frequently rely on this concept in practice – this aligns with that used in market communication.  The omnibus simplification is also likely to result in a cap on information gathering down the value chain.  This will lead to a greater reliance on estimates based on secondary data. EFRAG proposes amendments with less prescriptive requirements for the collection of data focussing on areas where severe impacts and risks are likely to arise.
• Financial institutions: Stakeholders have complained that the ESRS do not adequately support financial institution reporting.  EFRAG notes that there is not enough time to prepare specific financial sector guidance but will consider including a few dedicated paragraphs on value chain guidance applicable in the financial sector in the Exposure drafts.
• Reliefs to anticipated financial effects: Acknowledging that anticipated financial effects are critical to users, EFRAG also realises that it is challenging for reporters to disclose as it is forward-looking and potentially sensitive information.  As this requirement was part of the transitional provisions there is limited evidence as to how this has been implemented in practice but EFRAG suggests a starting point as the relief under IFRS S2 (in addition to the general relief for undue cost and effort).  This means that qualitative information could be reported when the level of estimation uncertainty is so high that the resulting information may not be useful. EFRAG is also considering extending this relief to long term estimates.

Lever 6: Enhanced interoperability

EFRAG is looking particularly at interoperability with IFRS S1 and S2.  It is looking to take all opportunities to align provisions and avoid differences.  In particular, it sees enhanced interoperability in changing the reporting boundary for GHG emissions (as discussed above).

Beyond the six levers

EFRAG is also looking beyond the six levers to streamline reporting wherever possible.

It is looking at EFRAG's Implementation Guidance 3: List of Datapoints to reduce their number as much as possible.  It is also looking at the narrative datapoints where the existing granular standard-setting approach leads to less informative and more boilerplate disclosures rather than focussing on key elements to disclose.   Deletions of “shall” datapoints and moving them to non-mandatory guidance will reflect a move to a more principles-based approach.

The omnibus simplification saga continues

On 23 June 2025, representatives of the Member States agreed a Council negotiating mandate for the simplification of sustainability reporting and due diligence requirements (part of the so-called Omnibus I).  In addition to the simplifications proposed by the Commission, the Council added a net turnover threshold of over €450 million, if agreed, which would remove further entities from the scope of CSRD.  The Council's mandate also introduces a review clause concerning a possible extension of the scope to ensure adequate availability of corporate sustainability information.

We await the negotiating position of the European Parliament (representing European citizens) following the publication of a draft report setting out proposals for simplification of sustainability reporting and due diligence by the chief negotiator on 12 June 2025.  We currently expect this in October 2025. The trilogues, negotiations between the Commission, Council and Parliament, can only begin when the Parliament has finalised its position. 

See more updates on the omnibus simplification package together with a timeline here.

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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.