On October 1st, the European Securities and Markets Authority (ESMA) provided feedback on EFRAG’s consultation on its Exposure Draft on the revised European Sustainability Reporting Standards (ESRS). Here are some key take-aways on ESMA’s position:

Fair presentation principle

ESMA agrees with the proposed inclusion of the fair presentation principle and notes that introducing an explicit reference to fair presentation emphasizes the role of the qualitative characteristics of information and would require preparers to assess whether the disclosures in the sustainability statement are globally suitable to convey a fair presentation of the undertaking’s material sustainability-related IROs and how they are assessed and managed.

From the perspective of investor protection, a framework that better serves investors and other users of the sustainability statements is to be preferred compared to a framework that does not include such a feature or that – even worse – leaves room for ambiguity as to its nature.

This assessment and the associated assurance procedures would further ensure that the sustainability statement focuses on material information. From a practical perspective, the same approach is common practice in the financial reporting domain.

The fact that the first set of ESRS require undertakings to comply with all the elements of the fair presentation principle without making the principle itself explicit has led to divergence and uncertainty across the Union in the application of the first set of ESRS and, in particular, on the assurance of the resulting information.

Aggregation of information at topic-level vs IRO-level

ESMA is concerned that, in several instances, the draft proposes to change the focus of the disclosures from the Impacts, Risks and Opportunities (IROs) to the sustainability topics related to those IROs.

ESMA notes that a wide divergence could be observed [during 1st wave 2024 reporting] with regards to the level of disclosures provided by undertakings between some undertakings focusing on a granular list of IROs throughout the sustainability statement and others remaining at a higher level of aggregation, i.e. topic/sub-sub-topic level or sustainability matter.

ESMA highlights that information about sustainability-related IROs is at the heart of EU legislation.

The objective of the sustainability statement is not to report on a sustainability topic related to material IROs, but rather to provide material information on the material IROs which pertain to different topical areas.

As the sustainability topics are not a perfect substitute for the IROs, the ESRS should make it clear that any aggregation of IROs should not result in obscuring information as to whether and how the material IROs are managed.

ESMA notes that the ESRS should be clear throughout the text that, in line with the CSRD, the information provided needs to enable an understanding of the IROs linked to sustainability matters and how an undertaking manages them.

Executive summary & appendices

While seeing merit in the idea of undertakings disclosing a concise introductory text to provide users with an unbiased summary of the main aspects disclosed in the sustainability statements. However, in ESMA’s view, the inclusion of an executive summary, even if only on an optional basis, would require some guidance to ensure that the information provided in the summary is prepared on the basis of a consistent logic across undertakings.

The ESRS should be clear that the use of appendices is primarily expected for any non-material information or for information required by other laws and regulations.

References to ESRS requirements within the sustainability statement

There should be a requirement to include a reference to the DRs addressed in the text of the sustainability statement and not only in content tables/index.

There could be several options to do so, e.g. in the title, subtitles, in the text of the paragraphs themselves.

This level of clarity would strike a better balance between a more flexible structure and comparability/readability of the sustainability statement.

Gross vs net assessment of impacts

ESMA believes that EFRAG should be clear in setting a core principle based on the gross approach and deal with any exceptions, application aspects, through specific guidance.

Financial effects from sustainability related risks & opportunities

EFRAG consulted on two options regarding disclosure of financial effects:

• Option 1 requires disclosure of qualitative and quantitative information, but it allows omitting quantitative information under certain conditions.
• Option 2 limits the requirement to qualitative information only, with a choice to report quantitative information on a voluntary basis.

ESMA does not support option 2 which departs from the IFRS S1 requirements and would deprive investors and other stakeholders of material information about an undertaking’s current and future ability to withstand sustainability-related risks with implications to their strategy and business model thereby increasing uncertainty for investors and cost of capital for undertakings.

ESMA agrees with the first option for the enhancement of the disclosures on anticipated financial effects (i.e. disclosure of quantitative information unless specific conditions are met) due to the critical importance that information on anticipated financial effects plays in decision making by investors.

In addition, ESMA recommends including guidance on how to calculate current financial effects in the standard. It should be clarified in the Application Requirements that the current financial effects are to be determined with consideration of the mitigation measures implemented (“net” basis).

ESMA also notes that Option 2 would be contrary to the need – as per the Commission’s mandate to EFRAG – to enhance rather than undermine the interoperability with international standards, most notably in this case the ISSB standards.

ESMA acknowledges that it can be expected that the disclosure of anticipated financial effects as currently required in ESRS Set 1 (i.e. quantitative information) may pose practical challenges, especially for topics beyond climate change.

As the preparation of this information may be complex and involve specific assessments, ESMA stresses that these disclosures already benefit from phase-in provisions which have been further prolonged and extended in scope by the recently adopted “Quick-fix” delegated act.

These additional time serves as preparation time for undertakings and ESMA considers that, if deemed necessary, such phase-in provisions could be extended within a reasonable timeframe for topics other than climate change.

In ESMA’s view, this would be a more balanced solution rather than foreseeing only qualitative disclosures on financial effects.

Furthermore, a number of reliefs on undue cost and efforts and measurement uncertainty are applicable to this disclosure.

Finally, ESMA notes that information on anticipated financial effects provides critical information especially for primary users of financial reports and this is also why such information was originally foreseen in the TCFD recommendations whose first publication dates back to 2017.

Undue cost or effort relief

ESMA disagrees with the proposed reliefs as currently drafted as they are unlimited in time, affect own operations and do not encourage the improvement of disclosures overtime.

The ESRS should support a learning curve, during which the data infrastructure is being built and other processes and internal controls are established, without compromising the quality of sustainability reporting in the long run.

ESMA notes that the proposed relief would discourage undertakings from building the necessary data infrastructure within its own operations, provide incentives for structuring opportunities, and discourage companies from making every effort to improve their disclosures over time.

ESMA therefore does not support this proposed relief, but it stresses the importance of EFRAG identifying more targeted and time-bound reliefs to ensure that any lack of information does not affect users of sustainability statements for a prolonged period of time.

Read the full feedback from ESMA here: https://www.esma.europa.eu/sites/default/files/2025-10/ESMA32-846262651-5289_ESRS_revision_ESMA_response_to_EFRAG_consultation.pdf