This morning (4/12) EFRAG unveiled the Draft Simplified ESRS: A European Milestone for Sustainability Reporting.

Our key takeaways:

The levers of simplification

• Simplification of the Double Materiality Assessment (DMA) (“when it’s obvious you don’t need to do more”)
• Better readability/ conciseness of the sustainability statement and better inclusion in corporate reporting as a whole
• The critical modification of the relationship between MDR’s and topical specifications (MDR’s have been renamed GDR’s and are cross-cutting) – if you have policies, actions and targets you need to follow the robust principle-based GDR requirements
• Improved understandability, clarity and accessibility of amended ESRS
• Burden relief reductions
• Enhanced interoperability

Additional reliefs have also been introduced

• Undue cost or effort exemptions
• Flexibility for acquisitions and disposals
• Allowances for lacking data
• Exemptions for immaterial activities
• Use of estimates in value chain data
• Exclusion of joint operations
• Protection of confidential information
• Transitional phase-in provisions
• Reduced disclosure on anticipated financial effects

The many reliefs come with an antidote: transparency. “We are trusting the market. The market will judge who is doing enough and who is not doing enough.”

Fair presentation

Fair presentation is a concept brought over from the financial reporting world to the sustainability reporting world.

It focuses on taking a step backwards and asking yourself what really matters, to balance the reporting.

You can hide material information in plain sight by providing too much granularity.

The difficulty is that fair presentation is interpreted differently in different countries, there is not yet a common understanding.

We will progress and find common grounds by learning from each other and by consulting with our stakeholders. And we will have increasing access to benchmarks.

Emphasis on the conciseness of the report

• Flexibility to enhance clear communication and coherence
• Avoid obscuring information
• Policies, Actions and Targets (PAT’s) reported only if the undertaking has them
• Option to include an executive summary (needs to meet the qualitative characteristics of information)
• Option to use appendices to present more detailed information (incl Art 8)

At the end of the day, ESRS is about telling the story in a standardized way.

Anticipated financial effects

It has been one of the most difficult topics.

“Climate change has been around for 20-30 years, we left this to the market for 20-30 years. Did we advance? The answer is no. We try to address difficult topics, but they are pressing.”

“We have a multi-stakeholder approach, we have preparers, and we also have investors and social representation.””

“Those who have their pension funds invested in companies are interested in understanding the possibility of facing stranded assets. So, on the one hand we have preparers saying that it is difficult and new, and a market that needs information.”

“We have 5 years to prepare, but we need to start now. Anticipated financial effects may materialize. If they are likely to materialize in the next 5 years, you better get started and estimate them now. If you want your company to be resilient, I would think twice about using the reliefs.”

“Gross vs net”

“This is the last time we hear ‘gross vs net’.”

What we heard from preparers is “I have implemented measures and now I have to pretend as if they don’t exist”. This does not always make sense.

• Either something is happening – and we need to mitigate the consequences.
• Or it can happen in the future – and we need to prevent it.
• Or it has happened – and we need to remediate.

The approach laid out in the draft simplified ESRS allows to take into account policies and actions for potential events to the extent they are effective. Decision usefulness is key, we need to be able to assess where the company is at.

Who decides which groups of stakeholders may trigger the reporting of policies and actions?

“Companies are connected to their stakeholders on a daily basis. We don’t want to underestimate the seriousness of companies, and knowledge of what they need to do.

And if you are not sure, reach out to stakeholders, experts and investors. Investors are very interested in how risks are managed. You need to show that you are in control.”

It’s about understanding your business but also about understanding your many stakeholders.

Balancing simplification with supporting EU policy goals

“Many are still unhappy: some think we reduced too much, others think that we did not reduce enough.”

There is a tension that we have to recognize: how do we reduce the burden while still keeping the EU policy-alignment?

It’s challenging, much like fitting a square in a circle. But we believe that we have reached a balance by focusing on what is material, in a simpler and more to the point manner. The standards have been simplified, but they do still address all the fundamental goals.

In some cases, we adapted the framework to the reality: not everybody knows where their waste goes, for example, so we can now report “destination unknown”.

Climate-related scenario analysis is not mandatory as such, but if it is performed it will trigger increased resilience.

Another example: SMEs are the engine of many of the EU economies, and CSRD mandates us to protect SMEs from late payments. But the data collection seems to be burdensome.

So, the application requirement now is that “if late payment to SMEs is a material topic for the undertaking, paragraph 11 of ESRS 1 General Requirements applies; therefore, the undertaking shall provide an entity-specific metric, if material.”

The sub-topics of the social standards often go hand in hand, so it made sense to group some of them.

Sustainability reporting, if taken strategically in the company, triggers strategic decisions, and that’s ultimately what we want to achieve.

It is important to focus on data that can move the needle.

The importance of intangible value and quality data

The gap between a firm’s financial book value and its market valuation is explained by significant intangible value. Sustainability reporting will be a game-changer.

A standardized data environment is far less costly than a fragmented data landscape.

Information is always better when it is prepared at the source, in this case by the business.

Standardized corporate reporting should stand on two legs, financial reporting and sustainability reporting, joined by the governance of the business.

If we subscribe to the policy objective of relevant quality data, we need to learn and take stock of what works and what does not work. We have been given the opportunity to perform a post-implementation review earlier than planned.

We are now expecting a virtual circle. It is possible if we calibrate the requirements in a multi-stakeholder environment. Proportionality and relevance will be key.

Technology is a tool to help us overcome the challenges.

If you believe in the benefit of sustainability information, it cannot be left a side. Time is of the essence.

Competitiveness is a medium- and long-term goal that requires addressing critical transition issues – for the future of our companies and society at large.

Reporting is ultimately a question of transparency and management decisions that pave the way for the future. It goes far beyond compliance, it is a strategic decision, whether mandatory or voluntary.

Coming up

• Given the importance of the IG3 guidance document, EFRAG needs to follow a robust process withing the data team to issue a draft for feedback, probably for Q1.
• Updated XBRL taxonomy in 2026.
• Interoperability mapping.
• A very important plea: “We need clarity on the implementation for summer 2026, the improvement is significant and we need time to prepare.”

ESRS knowledge hub

EFRAG has launched a knowledge hub, in English, with the objective is to help the market actors to learn and apply the standards, with all ESRS resources gathered in one place (datapoints, guidance, Q&A, XBRL taxonomy elements…, and other key materials supporting sustainability reporting).

It also includes the VSME resources.

It’s your interactive platform to master sustainability reporting, with the objective to transform complex regulatory frameworks into actionable insights — helping you stay ahead of developments and lead with confidence.

Accessing adopted and Draft standards as well as implementation guidance has been made intuitive with the depth of expert knowledge is delivered with the clarity of structured guidance.

You can access and register it here: https://knowledgehub.efrag.org

VSME

Will the VSME be changed in the future?

VSME has been developed and tested for companies with less than 250 employees.

It mainly supports bilateral reporting relationships: the official way to communicate information for companies with less than 250 employees.

The benefits of DMA, for example, are not included.

For companies that will no longer be in the scope of CSRD after the Omnibus negotiations, the intent is to do something as simple as VSME.

Whether there will be changes will be known when the Commission starts working on that.

Read more

The draft simplified European Sustainability Reporting Standards (ESRS) are available here: https://www.efrag.org/en/news-and-calendar/news/efrag-provides-its-technical-advice-on-draft-simplified-esrs-to-the-european-commission

Read more about the simplified ESRS here: EFRAG has published the draft simplified European Sustainability Reporting Standards (ESRS) – Cleerit ESG

#CSRD, #ESRS, #VSME, #EFRAG, #Governance, #SustainabilityReporting

EFRAG has today, 3/12, submitted its technical advice to the European Commission on the draft simplified European Sustainability Reporting Standards (ESRS), with the objective of fostering greater competitiveness by easing the regulatory landscape without compromising the fundamental objective of the Green Deal to advance sustainability in the European Union.

Using the Amended ESRS, undertakings will be able to better integrate sustainability in their communication to the market, beyond compliance.

The purpose of the streamlined DMA and of the explicit emphasis on fair presentation is to encourage undertakings to focus on what really matters and to avoid unnecessary granular information often associated with a compliance exercise. In doing so the level of alignment with IFRS S1 is further enhanced.

EFRAG received more than 700 responses to its public consultation which, combined with 21 outreach events carried out in the course of September and 2 targeted field tests, provided invaluable input to EFRAG’s due process.

EFRAG notes that the legislative process referred to as Omnibus initiative is not completed. Should the conclusion of the legislative process affect in any way the substance of this technical advice, EFRAG stands ready to adapt the Amended ESRS if required to do so.

While the simplification efforts were broadly supported, some critical remarks were also noted, which mainly relate to the accumulation of reliefs without time limits, and more generally to the fact that reliefs should be the exception, not the norm and that this should be explicit in the standards to avoid creating blind spots in reporting and thus hindering appropriate risk management.

The objective of an ESRS sustainability statement

The Amended ESRS state that the objective of an ESRS sustainability statement, taken as whole, is to present fairly all the undertaking’s

• sustainability-related material impacts, risks and/or opportunities (IROs)
• and how the undertaking manages them,
• organised under topics to which they relate.

The presentation of IROs

The presentation of IROs is now divided into 2 different disclosure requirements in ESRS 2: IRO-2 and SBM-3.

The objective of disclosure requirement IRO-2 is to enable an understanding of the outcome of the materiality assessment, in terms of material IROs and material information reported in accordance with ESRS.

The objective of disclosure requirement SBM-3 is to enable an understanding of the interactions between the undertaking’s material impacts, risks and opportunities and its strategy and business model, as well as of the related financial effects.

Disclosure requirement IRO-2

IRO-2, paragraph 37(a), focuses on a description of impacts, risks and opportunities and how they are likely to affect people and the environment.

The undertaking shall disclose

• a concise description of its actual and potential, positive and negative material impacts,
• including how they affect or are likely to affect people or the environment, and its material risks and opportunities,
• specifying the related topics and
• how and where impacts, risks and opportunities are connected to its own operations and its upstream and downstream value chain,
• the description of material risks and opportunities also covers the related dependencies to the extent that is necessary for an understanding of those risks and opportunities.

The undertaking may present the descriptions of its material IROs in the same location as its disclosures on the related policies, actions, metrics and targets through which it manages them, in order to avoid duplication and support a coherent narrative.

If the undertaking exercises this option, it shall still present a concise description of its material IROs alongside its disclosures prepared in accordance with IRO-2.

Disclosure requirement SBM-3

SBM-3 focuses on reporting the interaction of the undertaking’s material impacts, risks and opportunities with its strategy and business model.

The undertaking shall disclose

• a high-level description of how material impacts originate from its strategy and business model,
• the effects of risks and opportunities on its business model and value chain,
• how it has responded, and plans to respond, to them in its strategy and decision-making
• qualitative and quantitative information about how material risks and opportunities have affected its financial position, financial performance and cash flows for the reporting period (current financial effects)
• qualitative and quantitative information on how it expects its financial position, financial performance, and cash flows to change over the short, medium and long term, given its strategy to manage material risks and opportunities (anticipated financial effects)
• qualitative information about the resilience of its strategy and business model regarding its capacity to manage its material risks, including how the analysis was conducted and the time horizons considered.

Current financial effects and anticipated financial effects of material risks and opportunities

Current financial effects and anticipated financial effects are designed to produce information that complements information provided in the financial statements.

Current financial effects are financial effects for the current reporting period that are recognised in the primary financial statements.

Anticipated financial effects are financial effects that do not meet the recognition criteria for inclusion in the financial statement line items in the reporting period and that are not captured by the current financial effects.

In presenting information about current financial effects and anticipated financial effects, the undertaking may consider the linkage with the information reported in accordance with GDR-A about financial resources allocated to the key actions.

‘Wave-one’ undertakings (=those that were scheduled by the CSRD to report on sustainability for the first time for financial year 2024) may omit quantitative information about anticipated financial effects for their financial years prior to financial year 2030.

The undertaking need not provide quantitative information about the current financial effects or anticipated financial effects if it determines that:

• the effects are not separately identifiable; or
• the level of measurement uncertainty involved in estimating those effects is so high that the resulting quantitative information would not be useful.

The undertaking need not provide quantitative information about the anticipated financial effects of material risks or opportunities if it does not have the skills, capabilities or resources to provide that quantitative information.

If the undertaking cannot provide quantitative information about the current financial effects or anticipated financial effects of a risk or opportunity it shall:

• explain why it has not provided quantitative information;
• provide qualitative information about those financial effects;
• provide quantitative information about the combined financial effects of that risk or opportunity with other risks or opportunities and other factors, unless the undertaking determines that quantitative information about the combined financial effects would not be useful.

If the undertaking cannot provide quantitative information, it is expected to provide qualitative information that is decision useful (including for decisions relating to providing resources to the undertaking).

Managing material IROs with policies, actions, metrics and targets

Information about policies, actions, metrics and targets shall enable an understanding of the level at which the undertaking manages its material IROs.

Policies and actions describe how the undertaking

• manages the prevention, mitigation and remediation of actual and potential material negative impacts, as well as material risks or
• pursues actual and potential material positive impacts and material opportunities.

Metrics and targets describe the assessed progress over time in relation to its material IROs.

The General Disclosure Requirement for policies – GDR-P includes a description of the key contents of the policy, including its general objectives and the material IROs it relates to.

General Disclosure Requirement for actions and resources – GDR-A covers key actions that play a significant role in managing the undertaking’s material IROs including actions taken to support the provision of remedy.

It includes a description of the key actions taken in the reporting year and those planned for the future, including their scope and timeframe and their expected outcomes and, where applicable, how their implementation contributes to achieving the related policy objectives.

It also includes the type and amount of current and future significant financial resources allocated to the key actions.

If the undertaking has allocated significant non-financial resources (e.g. full-time equivalent resources), the information about those resources may be presented as non-monterary quantities.

General Disclosure Requirement for targets – GDR-T includes measurable, time-bound, outcome-oriented qualitative or quantitative targets the undertaking has set related to its material IROs, including description of the relationship of the target to its policy objectives and actions.

They describe how the undertaking tracks the effectiveness of its policies and actions in relation to its material IROs, as well as the overall progress and effectiveness towards the adopted targets over time.

When reporting on policies, actions, metrics and targets, the undertaking shall report relevant information, avoiding information that is boilerplate, and therefore not relevant for users.

Excessive detail, especially about common practices, which are known to reasonably knowledgeable users, may obscure material information

If the undertaking has adopted policies, put in place actions, set targets or uses metrics only for certain aspects of a topic, this shall be reflected in the way the disclosure is prepared and presented, enabling users to understand the specific aspects that are covered.

If the undertaking has not adopted policies, actions, and targets with reference to a topic related to material impacts, risks and opportunities, it shall disclose this fact.

Presentation of sustainability information

Sustainability information shall be presented:

• in a way that allows for clear identification of information required by ESRS from other information included in the management report; and
• under a structure that facilitates access to and understanding of the sustainability statement in a format that is both human-readable and machine-readable.

ESRS do not mandate behaviour except for behaviour specifically related to the reporting of sustainability information.

 

The draft simplified European Sustainability Reporting Standards (ESRS) are available here:

https://www.efrag.org/en/news-and-calendar/news/efrag-provides-its-technical-advice-on-draft-simplified-esrs-to-the-european-commission

Next step

The European Commission will now prepare the Delegated Act revising the first set of ESRS based on EFRAG’s technical advice (expected mid-2026).

On 14 October 2025 the European Securities and Markets Authority (ESMA) issued its annual Public Statement setting out the European common enforcement priorities (ECEP) for the 2025 annual financial reports (which includes sustainability statements and ESEF requirements) of issuers admitted to trading on European Economic Area (EEA) regulated markets.

ESMA, together with national enforcers in the EEA (enforcers), will pay particular attention to these areas when examining the application of the relevant reporting requirements.

Based on the examinations performed, enforcers will take enforcement actions whenever material misstatements are identified and ESMA will subsequently report on their findings.

ESMA underlines the responsibility of management and supervisory bodies of issuers as well as the importance of the oversight role of audit committees to:

• ensure the overall internal consistency of the annual financial report [including the sustainability statement],
• implement and supervise internal controls, and
• ultimately contribute to high-quality annual financial reports [including sustainability statements].

Cleerit’s summary and recommendations

• Conduct your DMA at the level of IRO (and not at the higher level of topics / sub-topics), and map your IROs to the sustainability matters in ESRS 1 AR 16.
• Add your entity specific topics when relevant if they are not present in AR 16.
• Mark your entity-specific topics disclosures for their easier identification within the statement.
• Describe the specific steps in your specific DMA process in detail as required by IRO-1, do not just reproduce ESRS 1 instructions or EFRAG guidance.
• The datapoint (ESRS2.53.g) describing the input parameters (evidence, data sources, scope of operations covered, assumptions…) used in process to identify, assess and manage material impacts, risks and opportunities (IROs), is particularly important.
• When disclosing on your materiality thresholds, be specific (per type of IRO, topic, etc) and not boilerplate generic, and detail the scales applied.
• Be transparent on how you have considered gross impacts (i.e., before the effect of any prevention, mitigation or remediation actions) .
• Do not confuse negative impact mitigation with positive impact, nor risk mitigation with opportunity.
• Affected stakeholders should be identifiable, and related disclosures should give an understanding of how their interests and views were integrated in the materiality process, when that was the case.
• Disclosures (especially SBM-3) should provide a complete view of your material IROs and how they relate to your strategy and business model and how you manage them.
• In this regard, ESMA reminds you of the embedded logic of the ESRS, whereby this objective is being achieved through disclosing the policies, actions and targets (MDR) – or the absence thereof – and metrics related to the corresponding sustainability matters.
• Ensure that the information is not excessively scattered in your report as this would defeat the overall purpose of readability and clarity.
• Include a reference to the Disclosure Requirement (and the datapoint) to increase the accessibility and readability of the sustainability statement. ESMA points out that this way, the disclosures are complete and adapted to the future digital tagging of the information.
• ESMA also encourages the use of hyperlinks to facilitate internal references.
• Use the IRO-management models provided in Cleerit to structure the description of your IROs, policies, targets, actions and related metrics.
• Use the ESRS templates provided in Cleerit, and click on the “?” of each datapoint to read and take into account the expected information. (Do not rely only on the information provided in the datapoint name.)

ESMA’s priorities related to sustainability statements

Due to the uncertainty linked to the current regulatory context, ESMA has exceptionally carried over two of the priorities from its ECEP 2024, namely the

1. implementation of the ESRS requirements on materiality, and the
2. scope and structure of the sustainability statement.

Both areas relate to fundamental features of sustainability reporting.

This year’s priorities on materiality considerations were also informed by the results of a fact-finding exercise ESMA conducted to take stock of evidence from the first cycle of ESRS reporting.

Read more about this analysis here: https://cleeritesg.com/index.php/2025/10/14/esma-has-analysed-91-esrs-statements-for-fy-2024-key-findings/

1. Implementation of the ESRS requirements on materiality

Materiality considerations play a key role in sustainability reporting under the ESRS as the results of the two-step assessment (materiality of Impacts, Risks and Opportunities – IROs and materiality of information) determine the topical disclosures to be provided by the undertaking. As such, double materiality is the filter which ensures the decision-usefulness of reported information for all users of the sustainability statement.

Disclosure Requirement IRO-1

In the light of this structural importance of materiality, ESMA stresses the particular care that should be brought to the disclosures in ESRS 2 pertaining to the assessment process followed by the issuer.

The related Disclosure Requirement (IRO-1) is broken down in several datapoints in the current set of ESRS.

While ESMA’s fact-finding showed that this led to detailed accounts of the methodology and procedural steps taken, the resulting disclosures were in some cases boilerplate when they mostly reproduced the concepts defined in ESRS 1 or the generic approach suggested in EFRAG’s Implementation Guidance on Materiality Assessment (IG1).

Insufficient insight was sometimes provided on how individual issuers had adapted these criteria and steps to their facts and circumstances.

In this regard, ESMA wishes to highlight the datapoint related to the input parameters to the materiality assessment process.

This datapoint is meant to shed light on the basis for determining whether an IRO is material.

These inputs include the data sources, scope of operations that are covered (including in relation to specific geographies or activities) and other considerations, such as the key assumptions relied upon.

On the same line, the disclosures related to the thresholds should help users of the sustainability statement understand the main considerations relied upon for the determination of material sustainability matters, most notably for the matters whose materiality issuers were most uncertain of during the assessment process.

For negative impacts, this can be done through detailing the severity scale that was applied for particular matters.

For risks, disclosure of the indicator used for setting the threshold, or even of the quantitative threshold itself may be most enlightening.

ESMA also expects issuers to be transparent on how they have considered gross impacts (i.e., before the effect of any prevention, mitigation or remediation actions) in their materiality assessment process.

ESMA finally reminds issuers that information regarding the engagement with internal and external stakeholders for the purpose of the materiality assessment refers to affected stakeholders. This group of stakeholders should be identifiable, and related disclosures should help users understand how their interests and views were integrated in the materiality process, when that was the case.

Disclosure Requirement SBM-3

As for information on the results of the assessment process, ESMA underlines the importance of the ESRS 2 disclosures (SBM-3 and IRO-2) which can serve as entry points to the sustainability statement for users.

These disclosures should provide a complete view of the issuer’s material IROs and how they relate to its strategy and business model and also guide the user to where and how the management of these.

IROs (including entity-specific ones) is addressed in the topical sections of the sustainability statement.

In this regard, ESMA reminds issuers of the embedded logic of the ESRS, whereby this objective is being achieved through disclosing the policies, actions and targets – or the absence thereof – and metrics related to the corresponding sustainability matters.

Regarding the description of the IROs, ESMA recalls the disclosure requirement in SBM-3 of ESRS 2, including the related time horizon and whether the IROs arise in the issuer’s own operations or in the value chain.

ESMA recommends that this description also includes explanations of any interdependency among the material IROs, where relevant, and help ensure that the positive impacts identified are not confused with mitigation of negative impacts.

Regarding connection between the IROs and the topical disclosures, ESMA notes that comparability among issuers is better achieved when IROs are mapped to the ESRS topics and sub-topics and when the ESRS terminology is used in the description of the IROs, whenever relevant.

Together with the table of disclosures required in IRO-2 and EFRAG’s explanation of the links between ESRS sustainability matters and disclosure requirements, such mapping can assist the users of sustainability statements in more easily navigating through the topical disclosures. This mapping would also help with the identification of the IROs which are addressed by entity-specific disclosures, as required by SBM-3.

More generally, ESMA encourages as a good practice the systematic signposting of the entity-specific disclosures for their easier identification within the statement. 

Non-material information

ESMA finally reminds issuers that non-material information, in cases allowed by the ESRS, should be clearly identified and not obscure material information.

2. Scope and structure of the sustainability statement

Scope of the sustainability statement

Regarding the scope of the sustainability statement, ESMA reminds issuers that, according to ESRS 1, the sustainability statement shall be for the same reporting undertaking as the financial statements.

When the sustainability statements are subject to scope limitations with regards to entities in the value chain (see paragraph 133 of ESRS 1), ESMA stresses the need to be fully transparent and report on any consequences of such limitations.

In addition, in case the scope of targets has evolved compared to the previous year, issuers should be transparent about any adjustment to the baseline of their targets.

Structure of the sustainability statement

In line with its recommendations in the priority above, ESMA urges issuers to consider the usability and readability of the sustainability statement in line with paragraph 111 (b) of ESRS 1 which sets as a general objective for the presentation of the disclosures to facilitate access and understanding of the reported information.

A structure of the sustainability statement in four parts (General, Environment, Social, Governance) is prescribed by ESRS 1 but the ESRS also allow for some flexibility in the presentation of the different elements.

Cross-referencing within the sustainability statement, for instance, can be used to avoid unnecessary duplication and emphasise connections among disclosures.

However, issuers need to find a balance to ensure that the information is not excessively scattered as this would defeat the overall purpose of readability and clarity.

Similar considerations are valid for the issuers using the possibilities for incorporation by reference mentioned in ESRS 1.

ESMA notes that a practical solution for issuers to increase the accessibility and readability of the sustainability statement while making use of the flexibilities allowed by the ESRS can be to include a reference to the Disclosure Requirement (e.g., “E2-5”, “S1-5”) when disclosing the related information.

This way, the disclosures are complete and adapted to the future digital tagging of the information.

ESMA also encourages the use of hyperlinks to facilitate internal references.

Connectivity to other parts of the issuer’s corporate reporting

Finally, ESMA recalls that ESRS 1 requires issuers to illustrate the connections to other parts of their corporate reporting.

In this regard, ESMA highlights the requirement in ESRS 1 regarding the monetary amounts or other quantitative information included in the sustainability statement that are also presented in the financial statements (direct connectivity).

Taxonomy disclosures

As for Taxonomy disclosures, the Omnibus package included a Delegated Act amending the Taxonomy Disclosures Delegated Act and the Climate and Environmental Delegated Act.

The EC adopted this Delegated Act in July 2025. It will be in force after the scrutiny period if the co-legislators do not raise objections.

Undertakings are encouraged to apply the revised rules to their 2026 disclosures (financial year 2025) but have the option to apply the previous rules to that reporting cycle.

Acknowledging the changing regulatory environment, ESMA has not included specific recommendations on Taxonomy disclosures in the ECEP 2025.

Access the full document from ESMA here: https://www.esma.europa.eu/sites/default/files/2025-10/ESMA32-2064178921-9254_Public_Statement_-_2025_European_Common_Enforcement_Priorities.pdf

Access the full ECEP package from ESMA here: https://www.esma.europa.eu/document/2025-ecep-package

#CSRD, #ESRS, #ESG, #Strategy, #Governance, #SustainabilityReporting, #CleeritESG

AMF, the French Financial Markets Authority assessed a sample of ESRS statements published by French listed companies under the CSRD for financial year 2024.

This report is very valuable as it gives you information on what the financial marketplace is expecting from your sustainability reports. We will send you the information regrouped by subject. Below you will a summary of the key findings related to the Double Materiality Assessment (DMA) process (ESRS 1 & ESRS 2 IRO-1).

 

Presentation of the DMA process (in IRO-1) 

Overall, a heterogeneity was noted with regard to the level of detail and degree of compliance with the required data points on the presentation of the DMA process (IRO-1 data points).

Some companies provide detailed explanations per topic while others present more generic information on how the process was conducted.

Compliance with all IRO-1 data points was generally partial. For instance, a large number of companies do not disclose the topical IRO-1 associated with their non-material topics, although these are always to-be disclosed data points.

Specific information on the DMA process related to social topics is provided only in very rare cases.

 

Input parameters, sources/assumptions

Some companies provide incomplete or boilerplate disclosures on the input parameters used (for instance, only focusing on material topics or providing broad references applicable to all topics such as “industry benchmarks”).

Others disclose very specific information on the sources/assumptions that informed the DMA process.

For social-related topics information on input parameters is often not specified, contrary to other environmental topics.

Some companies provided interesting contextual information on the methodology used in relation to certain materiality criteria. For example, they explain that

• the “scale” of the impacts is assessed in relation to % of people concerned vs. environmental parameters, or
• pollution impacts’ severity is assessed via concentration metrics vs. volume metrics only.

 

Duplicating the content of ESRS 1

Many provide extensive explanations on the definition of impact materiality and financial materiality and the different criteria that must be considered in application of the ESRS (often by duplicating the content of ESRS 1).

These elements can be useful for non-expert readers in the context of the first ESRS application.

However, in some cases, the IRO-1 disclosures have little informative value as they reproduce the content of ESRS 1 with no or few methodological explanations specific to the issuer (for instance, only boilerplate disclosures stating that judgements were applied).

Therefore, it is sometimes difficult to understand how the two processes for impact and financial materiality are designed in practice.

 

Unclear distinction between a risk and an impact

In some cases, the distinction between a risk and an impact is not clear due to misuse of terminology (e.g. use of the term « risk » associated with the description of an impact) or because the company explains that the same materiality threshold is used for both impact and risks.

 

Information on materiality thresholds

Information on impact materiality thresholds is very often generic or missing, limiting the understanding of the DMA methodology used and demonstrating the need for further guidance in this area.

Example of generic disclosures are:

• boilerplate disclosure on the existence of a threshold
• theoretical quantitative threshold (such as: “on a scale from 1 to 5 in terms of materiality score, the impact materiality thresholds is set at 3”), which does not inform on the parameters specific to the entity that define materiality.

Companies may have had difficulties identifying relevant thresholds at consolidated level and only defined generic thresholds at macro level.

A focused assessment of E2 and E4 disclosures showed that the information on how impact thresholds are determined is generally not provided at the topic-level although materiality depends on the nature of topics.

 

Good practices

Conducting an assessment at the level of IRO (vs. at the higher level of topics only) is important since companies should present their IROs and how they manage them, in line with CSRD objectives.

It is key to maintain the assessment of actual and potential impact as well as risks before taking into consideration mitigation efforts, to provide a complete overview of the company’s sustainability profile (meaning not a net assessment).

The most useful data points in IRO-1 are information on the input parameters and their link with the materiality thresholds specific to sustainability topics, as well as information on the nature of financial thresholds (several good practices were identified in 2025).

These disclosures are most useful when the company specify which inputs (sources, tools) were used in relation to a particular sustainability topic (e.g. mention of databases such as UNEP’s ENCORE, WWF’s Water Risk Filter in relation to specific environmental topics or mention of specific rating tools for the business conduct topic). Many companies also cited the Aqueduct water risk tool from the Word Resources Institute to assess water-related risks.

Good practices include the following information in IRO-1:

• a brief explanation on how criteria for impacts or risks are assessed, with concrete examples of input parameters taken into account (e.g. for the “scope” criteria: % of sites or financial expenditures related to the impact)
• information on the difference between the assessment methodology for risks and for opportunities (cases were rare)
• specific information on impact vs. financial materiality thresholds (see below on thresholds)
• precise explanations on the alignment or partial alignment between financial materiality assessment and the ERM (enterprise risks management) process.

Good practices already observed for financial thresholds include:

• Explaining the articulation with the company’s overall risk management process and ESRS thresholds (either to explain alignment or differences).
  • However, some companies provided boilerplate explanations on the alignment with the financial statement thresholds.
• Specifying the nature of the thresholds used (e.g. based on EBITDA or revenue) or even giving the threshold itself: e.g. “critical if >27% of EBITDA”, “threshold set at a probable risk of €50 million.

 

Limits and difficulties identified by companies or auditors on the DMA

As a good practice, several companies explicitly report challenges related to the execution or scope of their materiality assessment

However, the consequences of these difficulties are not always clear (reliability of data? limited scope/coverage? etc.) and the reasons for limitations were not always given.

Examples of challenges and limits identified by companies are:

• Difficulties in defining materiality thresholds
• Lack of value chain data or reliability of value chain data. As a consequence, several companies focused their DMA this year on their own operations and tier-1 value chain – a company mentions in particular the lack of upstream data to assess negative biodiversity impacts and water-related IROs.
• Difficulties in quantifying sustainability risks (translating qualitative risks into measurable financial or impact terms).
• Risks associated with certain topics were not assessed (limited scope/coverage of the DMA assessment)

Very few auditors specifically point out limits in the company’s DMA process.

 

Source: https://www.amf-france.org/sites/institutionnel/files/private/2025-10/amf_study_csrd_reporting_the_way_forward_2025.pdf

 

When you use Cleerit ESG to structure and document your IROs and double materiality assessment you increase both ESRS compliance and make CSRD useful for your business as it will help you identifying issues material for your resilience and competitiveness. Contact us if you want to know more >>>

As part of its objective to coordinate European supervision and enforcement related to corporate sustainability disclosures, ESMA has analysed 91 ESRS statements (whereof 31 voluntarily applied the ESRS) covering FY 2024, published by European issuers from 23 Member States listed in regulated markets, subject to limited assurance (or reasonable assurance in some cases) against ESRS.

The issuers were selected by national enforcers for the purpose of performing the analysis. Issuers with more than 1,000 employees represent 90% of the sample, while 78% have more than 3,000 employees. The median number of employees for the whole sample is close to 10,000 employees. The issuers of the sample are active in a broad variety of sectors.

ESMA’s conclusions are very valuable as it gives you information on what the financial marketplace is expecting from your sustainability reports.

Below you will a summary of the key findings related to disclosure of the double materiality assessment process (IRO-1), the disclosure of IROs (SBM-3) and auditor’s materiality considerations.

Based on these findings, ESMA urges issuers to:

• Avoid boilerplate disclosures in the description of their materiality assessment process and provide clarity on how they have exercised judgements.
• Whenever relevant, map their material IROs with the ESRS sustainability matters (ESRS 1 AR16) and use ESRS terminology to describe them.
• Identify the IROs for which entity-specific disclosures are provided in addition to ESRS disclosures.
• Disclose adopted Policies, Actions, Targets (or indicate their absence) and Metrics for each material sustainability matter, including the entity-specific matters (i.e. those that are not listed in AR16).
• More generally, ensure that the overall objective of the sustainability statement (i.e, disclose material IROs and describe how they are managed) is met and increase usability through facilitating connections between the disclosure of material IROs and the topical disclosures.

 

KEY FINDINGS

IRO-1 Double materiality assessment process

Around 60% of the sample met the overall objective of the IRO-1 disclosure requirement, which is to provide transparency on how the double materiality assessment was conducted. Although encouraging in the first year of application, this result shows room for improvement.

80% of the issuers reported that they used their sustainability due diligence to inform the materiality assessment process. Only 3 issuers disclosed that they had no due diligence process while 8% others did not report whether they had relied on their due diligence process although they conducted one.

While demonstrating that issuers have put in place formal steps to structure their materiality assessment, some disclosures were boilerplate and did not provide meaningful insight on the judgements made regarding the materiality of their Impacts, Risks and Opportunities (IROs), in particular for impacts.

The proportion of issuers disclosing sufficient information as required under the IRO-1 topical datapoints was lower, especially when the topic was eventually not found material (54%). In addition, less than 45% of the issuers disclosed these datapoints in the General information part of the sustainability statement.

A majority of the issuers in the sample provided a separate description of the processes for identifying, assessing, prioritising and monitoring impacts, and risks and opportunities. For 22% of the sample, however, it was not the case.

While risks and opportunities derive from impacts in many cases, a description of the process for determining the materiality of the associated financial risks can provide useful insights to the user of the sustainability statement, for instance regarding how the approach that was followed relates to the overall corporate risk assessment process.

For 72% of the issuers, it was clear that the materiality assessment process considered gross impacts. For the others, the situation was either unclear, or in some cases, materiality was assessed based on net impacts (integrating mitigation or prevention measures and controls to adjust the final score of impacts and/or risks). This unclarity or divergence in practice may hinder comparability of the materiality assessment results, for instance when considering two issuers from the same sector.

Regarding the use of thresholds in the materiality assessment process, either in relation to impacts or risks and opportunities, or both, close to 80% of the sample provided some explanations on how they had set qualitative or quantitative thresholds for determining their material IROs.

This result illustrates the effort made in structuring the materiality assessment process. Two issuers provided information only on impacts thresholds, and 17 (almost 20% of the sample) did not disclose any information about thresholds.

Good practices were especially noted regarding disclosure of thresholds for financial materiality, where some issuers provided detailed information on the nature of the threshold (e.g., based on revenue or EBITDA), with some also disclosing the quantitative threshold they have set.

As an example of good practice for impact materiality when relying on a 5-level scale (e.g., no impact, low, medium, high, very high), explanations were provided that, for the scope component of severity for an environmental impact, “low” corresponds to an issue observed in one location only and “medium” in a few locations, while “high” is widespread and “very high” observed in all locations.

This shows the attention issuers have paid to formalising the materiality assessment process.

However, some of them merely replicated in their disclosures the scoring steps suggested in the Implementation Guidance [EFRAG IG1]. This led to boilerplate disclosures in some cases (especially for impact materiality), when the issuers did not explain which considerations specific to their entity have been factored into the assessment.

Good practices for information on input parameters include the mention of specific tools or methodologies (e.g., LEAP approach for environmental matters, tools for the identification of areas at high water stress) or information sources (e.g., sector benchmarks, human rights country databases).

The other issuers did not disclose sufficient information on at least one of the three broad areas provided as examples in the standard (data sources, scope or assumptions). The least reported was the assumptions. Data sources or scope were also not reported in several cases.

A slight majority of issuers in the sample (54%) provided sufficient information on the IRO-1 datapoints of the topics eventually found non-material and more than 27% of the issuers did not provide any information.

 

SBM-3 Description of IROs and entity-specific information

Most issuers in the sample (close to 90%) provided a brief description of their material IROs DP ESRS2 SBM-3 par 48 (a).

For the remaining 10 issuers, the disclosures were found to be incomplete, either because the description was missing for one or more material IROs or because it was unclear.

In particular, the description of where, in the issuer’s business model, own operations or value chain, the IRO was concentrated was missing in a limited number of cases or considered insufficient.

Many of the IROs disclosed by issuers could be mapped to the ESRS sustainability matters (as listed in Application Requirement AR16 of ESRS 1), providing clarity and comparability for the users when those were covered by standardised topical disclosures.

In some cases, however, it was unclear from the description whether the IRO was related to an AR16 sub-topic or sub-sub-topic or not.

Close to 70% of the issuers disclosed entity-specific information, either related to IROs not covered by ESRS sustainability matters or complementing the ESRS disclosure requirements.

This could demonstrate a good understanding of the requirement to complement the ESRS disclosures with entity-specific disclosures when necessary, noting however that entity-specific disclosures are not to be used where ESRS disclosures would apply.

While some issuers opted to present their material IROs with a mapping of the AR16 (ESRS 1) sustainability matters they were related to, this is not an explicit requirement of the ESRS and the use of different terminology made the reconciliation difficult for some issuers, especially when the requirement to identify IROs covered by entity-specific disclosures was not complied with.  This in turn made it difficult in some cases to ascertain that the embedded logic of the ESRS had been followed.

This logic calls for identification of the IRO and disclosure of Policies, Actions, Targets and Metrics for the related sustainability matter (or their absence) either through disclosing under the ESRS disclosure requirements or through providing entity specific disclosures. On this point, explicit signposting of the IROs covered by entity-specific disclosures as part of the SBM-3 disclosures, and of the entity-specific disclosures themselves, was noted as a good practice by national enforcers.

Notwithstanding the limitations noted above, the national enforcers sought to reconcile the IROs with the AR16 sustainability matters at topic, sub-topic and sub-sub-topic level to evaluate the granularity of the materiality assessment.

For Climate change (E1) sustainability matters, which 100% of the sample considered material, 94% of the issuers had at least one IRO referring to one of the sub-topics. For Resource use and circular economy (E5), which 78% of the issuers found material, 70% identified at least one IRO at sub-topic level.

For Own workforce (S1), national enforcers found that close to 80% of the issuers had at least one IRO which could be traced back to an AR16 sub-sub-topic. This reflects the higher granularity of the S1 sustainability matters in AR16 but also shows how, where they were provided with a more granular framework, issuers used it for conducting their materiality assessment and disclosing the results.

Depending on the topics sufficient granularity may be helpful for both preparers and users to more specifically identify the issue at stake and ensure relevant topical disclosures, either standardised or entity-specific where needed.

Regarding IROs covered by entity-specific disclosures, the largest group identified at topic level broadly relates to data, cybersecurity and use of AI. 26% of the sample disclosed an IRO related to these issues.

Some divergence in practices was noted by national enforcers as in some cases IROs which seemed similar were presented as a separate entity-specific matter, while in others they were associated with the Consumers and end users (S4) or Business conduct (G1) topics.

Guidance could be developed to help determine how these IROs can be connected with the ESRS framework and foster convergence in practice.

Other but less frequent entity-specific sustainability matters related to innovation and research, and tax.

For some of the IROs reported as material, it is questionable whether they refer to issues within scope of the sustainability statement (e.g., customers’ satisfaction, corporate citizenship).

In other cases, the limited description made it difficult to understand the related IRO (e.g., product portfolio, investment projects).

Targets

As part of the analysis, a check was conducted on whether targets had been disclosed for the sustainability matters found material, or in their absence, whether the issuer had provided a negative statement.

National enforcers found that more than 71% of the population disclosed either the targets or a negative statement. For the remainder, however, at least one target was missing with no negative statement.

This situation was more likely to be encountered in relation to social topics (especially Consumers and end users – S4) and Governance (G1) but was also noted for environmental topics for some of the issuers.

National enforcers noted that a number of targets were of a generic nature or expressed as high-level commitments.

Clear identification of the targets (as well as of policies and actions), or of their absence, in a summary table presenting them with the related material IROs and sustainability matters was noted as good practice, enabling easy reference for the user of the sustainability statement.

In a few cases, a clear indication of the non-materiality of the disclosure was missing, for instance when the issuer disclosed information on a sustainability matter which had not been considered material in the results of the materiality assessment.

Reporting of lists

Close to 90% of the sample provided a list of the disclosure requirements they had complied with. 85% reported a list of the datapoints derived from other EU legislation, with 70% reporting complete information, including whether these datapoints had been assessed to be material or not and where they could be found in the sustainability statement.

Assurance

The analysis also considered whether the auditor’s or assurance provider’s opinion referred to any materiality considerations.

For almost all issuers, the auditor or independent assurance services provider delivered unqualified limited assurance conclusions regarding the sustainability reports prepared in accordance with ESRS.

A qualified opinion was delivered for two issuers of the sample reporting under CSRD and ESRS.

The opinions pointed at significant omissions in the sustainability statement, including in relation to the materiality assessment for one of the issuers.

For four other issuers, the auditor or independent assurance services provider did not qualify its opinion but stressed materiality considerations as emphasis of matter in its opinion.

When related to the materiality assessment process, these were either of a general nature or more specific (highlighting for instance a disclosure mentioning the limitation of the materiality assessment in the supply chain to tier 1 for a specific sustainability matter).

In other cases, the emphasis of matter related to the application of the materiality regime prescribed by the ESRS (e.g., omission of material disclosures).

Emphasis of matters were also mentioned in relation to non-materiality-related reporting areas.

They pointed at, for instance, the scope limitations reported in the basis for preparation of the disclosures, the use of estimates or uncertainties associated with the quantitative metrics.

 

We strongly recommend that you use the IRO E/S/G plan in Cleerit to structure your information on IROs, policies, actions, targets and metrics related to sustainability matters in AR16 (pre-created in Cleerit), before including these the information in a tabular form into the datapoints in the ESRS templates. This will ensure that you structure the information as expected by the financial market. Don’t hesitate to contact us if you need further guidance on this point >>>

 

Source: https://www.esma.europa.eu/sites/default/files/2025-10/ESMA32-846262651-5288_Fact_finding_on_materiality_disclosures_in_sustainability_statements.pdf

AMF, the French Financial Markets Authority assessed a sample of ESRS statements published by French listed companies under the CSRD for financial year 2024.

This report is very valuable as it gives you information on what the financial marketplace is expecting from your sustainability reports. Below you will a summary of the key findings related to ESRS E1 Climate change.

We strongly recommend that you use the IRO E plan in Cleerit ESG to structure your information on E1 IROs, policies, actions and targets, before including these tables into the datapoints in the ESRS templates. We also recommend that you set up a specific governance model in Cleerit to structure and report on your transition plan by decarbonisation lever. This will ensure that you structure the information as expected by the financial market. Don’t hesitate to contact us if you need further guidance on this point.

E1 Transition plans

There is an overall improvement as compared to previous non-financial statements in terms of quality and comparability (use of denominations, consistency, etc.) which highlight the added value of the ESRS.

None of the transition plans (TPs) covered in the sample can be considered compliant with all ESRS data points.

Beyond the mere “tick-the-box” exercise, AMF assessed whether TPs manage to convey a sense of the broader undertaking’s strategy which is consistent throughout the report.

In this respect major difficulties are still present in the TPs’ building blocks:

• target-setting;
• decarbonisation levers;
• financial resources.

« Net-zero » targets and « GHG neutrality » claims (E1-7)

Some improvements are identified compared to previous non-financial statements: some companies deleted unclear claims from previous reports and show considerable efforts in adjusting to the ESRS framework (for example, the 90-95% reduction pathway with the possibility for justified sectoral variations, associated with a Net-Zero target).

However, there is still a lot of confusion with the use of the following concepts:

Net Zero claims, which are very popular (probably due to extensive use of SBTi external validation) are undermined by 3 types of breaches:

• Not respecting the 90-95% reduction ambition, in both absolute and gross value.
• Not covering the scope of GHG emissions, especially along the value chain (3 Scopes).
• Dealing with residual emissions (5-10%): disclosures tend to be succinct or inexistant. Some issuers explain that the action plans to neutralize residual emissions are not yet fully defined.

The use of GHG neutrality claims (although less common) also raises questions:

• Confusion with the net-zero claim (or transition plans).
• Lack of reporting associated with the claim: cf. the 3 items of §61 of E1-7 which are important to understand the consistency of the claim with E1-4 targets and their reliance on the use of carbon credits.

AMF recommends preserving the “net-zero” concept in the revised ESRS (with a minimum 90-95% GHG reduction pathway), which the ESRS has helped to strengthen, while clarifying some aspects such as the options available for residual emissions (carbon credits + removals) and the different types of removals (transfer of CO2).

AMF recommends clarifying the expectations around “carbon neutrality claims”: emission reductions vs use of carbon credits and removals; target-setting (all Scopes, etc.) – thereby clarify the interactions between the two notions. 

Reporting on GHG emissions reduction targets

A few surprising shortcomings with regards to clear ESRS expectations:

• Although rare, AMF still finds some targets set in intensity value for non-financial institutions. In this case, the associated absolute value is not always (clearly) displayed. For financial institutions, targets are usually set in intensity and sector-by-sector (except for fossil fuels).
• Gross value reporting: some undertakings are setting targets in net value (taking into account removals or credits), either explicitly (rare) or implicitly. In the latter case, the information on the use of carbon credits or removals is not easy to spot.

Overall, there seems to remain some confusion around the identification of actions that are eligible as GHG reduction levers under E1-4 compared to actions that should be excluded from these targets (carbon credits, removals, avoided emissions, cf. section on E1-7).

Some companies do not make a clear distinction between GHG emission reduction in their value chain (reported under E1-4) and emissions associated with carbon credits or removals (to be reported under E17) – they are netting these different types of emissions.

This is not compliant with the requirements in E1-4 to set targets in gross value, by excluding emissions associated with removals, carbon credits and avoided emissions.

Depending on the tool used, different reporting requirements are expected: E1-4 for very specific types of removals (transfer of CO2 into geological storage) vs E1-7 for other removal and carbon credits mechanisms.

Scope 3: undertakings could also be clearer on the consistency between the scope of their targets (E1-4) and their GHG inventory boundaries (E1-6) as climate targets are sometimes set on a limited number of Scope 3 categories.

For financial undertakings, AMF is still seeing significant differences in the scope of reporting from one financial institution to the other

More generally, climate reporting tends to lack explanations around the methodology used to set targets:

• Are they derived from a sectoral decarbonisation pathway?
• What are the underlying scenarios?
• Justification of the reference year; explanations on the consideration of future developments, etc.).

Good practice

Use of the “AR 48 table” that puts into perspective the GHG inventory (including Scope 3 Categories) with the entity’s targets. 

Decarbonisation levers

Qualitative description

Practices tend to be heterogenous with some companies displaying a simple list of items while others strive to be more granular (for instance, separating actions taken from actions planned for the future) and comply with MDR-A requirements [on actions] .

Overall, the latter [MDR-A] tend to be missing (time horizons, clear scope, expected outcomes…).

Financial resources allocated to the transition plan

Information on the nature and the amounts of CapEx/OpEx allocated to the transition plan is identified as the most difficult step to be taken by companies on transition planning.

This leads to various types of reporting practices (including good practices):

• Detailed reporting by lever, by type of expenditure (Human, CapEx, Opex) and for both planned and future resources across different time horizons
• Detailed reporting for part of the requirements (resources already planned)
• Aggregated reporting: a few overall figures (x billion in low-carbon overall actions)
• No quantitative reporting but with justifications: non-materiality or challenges to disentangle low carbon investments from general Capex
• No reporting at all on financial resources

AMF noticed very few elements of reconciliation between the resources associated with the transition plan (if any– see point above) and the financial statements.

Source: https://www.amf-france.org/sites/institutionnel/files/private/2025-10/amf_study_csrd_reporting_the_way_forward_2025.pdf

When you use Cleerit ESG to structure your E1 disclosures on transition plans, IROs and PATs you increase both ESRS compliance and organizational efficiency. Contact us if you are interested in learning more >>>.

AMF, the French Financial Markets Authority assessed a sample of ESRS statements published by French listed companies under the CSRD for financial year 2024.

This report is very valuable as it gives you information on what the financial marketplace is expecting from your sustainability reports. We will send you the information regrouped by subject. Below you will a summary of the key findings related to ESRS S1 Own workforce.

We strongly recommend that you use the IRO E/S/G plans in Cleerit to structure your information on IROs, policies, actions and targets, before including these tables into the datapoints in the ESRS templates. This will ensure that you structure the information as expected by the financial market. Don’t hesitate to contact us if you need further guidance on this point.

The AMF (Autorité des Marchés Financiers) regulates the French financial marketplace, its participants and the investment products distributed via the markets. It also ensures that investors are properly informed and is a driving force behind regulatory change at both European and international levels. As an independent public authority, it has regulatory powers and a substantial level of financial and managerial independence. To carry out their tasks, AMF is required to regulate, authorize, monitor and where necessary, inspect, investigate and enforce.

Overall comments on ESRS S1 Own workforce first-wave disclosures (FY 2024)

For social-related topics specific information on the DMA process is provided only in very rare cases, and information on input parameters (sources/assumptions) is often not specified.

Policies, actions and targets (PAT) disclosures are overly narrative and often lack the structure and precision needed for usability and comparability. This narrative-heavy approach results in lengthy but low-informational disclosures.

While some companies articulate the alignment clearly between PATs, and their explicit linkage to the material impacts, risks, and opportunities (IROs) identified during DMA, most disclosures remain siloed, preventing readers from understanding how corporate responses are tailored to material sustainability topics.

Many companies rely on general wording, high-level ambitions, or reaffirmations of principles (e.g. alignment with international frameworks or « commitment to diversity »), without operational details.

Good practices:

• Embedding the IRO-to-response logic systematically across S1 disclosures would enhance narrative coherence, reduce duplication, and reinforce alignment with the ESRS architecture.
• Using tables to summarize the expected outcomes, time horizons and progress of actions, provides clearer insight into how impacts are managed.

PATs – policies, actions and targets

Human rights and DEI policies are disclosed almost systematically, but often in very boilerplate terms, without explaining how international frameworks are translated into internal processes.

DEI-related disclosures sometimes omit a breakdown of the types of discrimination addressed.

Not all concretely explain how the effectiveness of policies is monitored (internal audit mechanisms, examples of corrective actions taken in response to policy breaches…), and only a small number explain how the effectiveness of actions is assessed over time.

Very few provide information on the financial or operational resources allocated to actions.

Companies still structuring their sustainability governance and processes likely lack the tools or processes to track and disclose the associated resources deployed, even for topics deemed material.

The quality and usefulness of targets vary widely. Only a few are precise and time-bound, while others are broad qualitative aspirations.

Only a minority report on progress year-over-year, or even indicate a reference value preventing stakeholders from assessing the effectiveness of the actions deployed.

Very few companies disclose changes to targets or metrics over time, thereby missing the opportunity to explain strategic reorientations or learning processes.

Nearly none of the companies provide evidence of engagement with workers or relevant stakeholders in the design or monitoring of targets, which calls into question the degree to which the targets reflect operational priorities or workforce realities. Where engagement is mentioned, it remains high-level and provides little information about the actual performance management process.

When companies do not set targets, they either don’t indicate it or mention the absence of a target without explaining the underlying reasons (e.g. lack of data, etc.).

Gender and age breakdown metrics are valued by investors, but the prevailing disclosure approach remains largely descriptive and non-analytical, often limited to high-level figures without commentary or interpretation.

Very few companies provide a breakdown by job function, a level of detail that helps identify potential imbalances – such as age concentration in lower-level positions or lack of age diversity in management roles.

In most cases, disclosures do not discuss how age diversity is monitored or linked to workforce planning or inclusion goals. This suggests a low level of maturity in how companies use this metric as a tool for organizational development.

Source: https://www.amf-france.org/sites/institutionnel/files/private/2025-10/amf_study_csrd_reporting_the_way_forward_2025.pdf

By using Cleerit ESG to structure your S1 disclosures on IROs and PATs you will increase both ESRS compliance and organizational efficiency. Contact us if you are interested in learning more >>>.

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

Monday 22/9, the Swedish Corporate Reporting Board hosted an outreach event with EFRAG to gather feedback on the ESRS simplification proposal. Approximately 50 people participated online, whereof a handful asked questions and/or gave feedback.

The goal was twofold: to clarify the upcoming changes and ensure Swedish stakeholders’ perspectives are heard.

Here are some key takeaways:

Overall, the Confederation of Swedish Enterprises (Svenskt Näringsliv) recognized EFRAG’s work as “a good step in the right direction”.

Insurance Sweden (Svensk Försäkring) shared that opinion but added that they were disappointed that the simplification did not go further, as “the weight of the datapoints is more important than the number”. They also expressed that although clarified, “DMA is still overly complex” and “should be more principle based”.

Insurance Sweden expressed support for the fair presentation concept, but in their opinion the current wording risks introducing a compliance mindset. Wording such as “information necessary for” is difficult to appreciate.

They also pointed out that auditors in different countries have different views. The fair presentation provision “is not a concern in Sweden but in the South of Europe it seems to be”. They suggested clarifying the wording to stress “the overarching principle-based framework to avoid information overload”.

The Confederation of Swedish Enterprises added that “it is the management’s view of fair presentation that is important”, depending on their stakeholders.

There was also a suggestion not to publish a non-mandatory implementation (NMIG) at all and “leave it up to the market” to determine practices, as larger companies will lead the way.

The gross vs net issue does not seem to be a big issue in Sweden. The need to preserve comparability was stressed, with the suggestion to keep just one mandatory method, gross evaluation with an option for net evaluation, and move the appendix C to the non-mandatory implementation guidance (NMIG). “Verifying remaining impacts is difficult, and it is challenging to define when a net approach is appropriate.”

Regarding the two options for disclosure of anticipated financial effects, the Confederation of Swedish Enterprises prefer option 2 (only qualitative) over option 1 (qualitative/quantitative), but “option 3 to remove financial evaluation of risks and opportunities altogether” (both qualitative and quantitative) is their most preferred option “from a reliability point of view”.

Insurance Sweden also prefer option 2 with only qualitative information, stating that “it is more balanced and realistic” as it recognizes “practical and legal risks” as well as audit complexities. Sensitive data is particular difficult to report and can give a false impression. To ensure interoperability with IFRS-SS, financial data could be subject to voluntary disclosure.

As part of the ESRS simplification process, the French Accounting Standards Authority (ANC) organized an outreach session on September 12th between French stakeholders and EFRAG on the ESRS simplification proposal published on July 31st.

The objective was to better understand the issues and changes underway, and to ensure the voice of French stakeholders was heard by EFRAG.

Representatives of preparers and auditors attended in person at the Ministry of Economy and Finance in Paris, and approximately 80 participated remotely. Patrick de Cambourg, Chair of EFRAG’s Sustainability Reporting Board (EFRAG SRB), was also present in person.

The session began with an introduction by Patrick de Cambourg, who explained, among other things, that the ESRS simplification proposal was a combination of two policy priorities: (1) reducing administrative burden and (2) ensuring high-quality sustainability reporting.

6 Simplification Levers

EFRAG has implemented six simplification levers:

1. Simplification of the double materiality assessment – including the assessment process and documentation for audit purposes.
2. Increased readability/conciseness of sustainability statements – improved flexibility in organizing information, including the ability to add an executive summary and use annexes, and a focus on how the company manages its sustainability topics and the interconnectedness of the disclosed information (Topics-IROs-Policies-Actions-Targets-Metrics relationships).
3. Relationship between minimum disclosure requirements (formerly MDRs, now GDRs) and topical standards – removal of most of the detailed narrative requirements in the topical standards in favor of general requirements for policies, actions, targets, and metrics (GDRs), including for the G1 standard.
4. Understanding, clarity, and accessibility of the ESRS standards – shortened text, voluntary publications eliminated, language clarified, several concepts simplified, and several data points moved to a separate non-binding implementation guidance (NMIG) document intended as a guide for reference purposes only.
5. Cross-functional burden-reducing reliefs – new flexibilities and reliefs have been introduced, including the avoidance of undue costs or effort.
6. Enhanced interoperability with global reporting standards – particularly with the ISSB IFRS S1 & S2.

Patrick de Cambourg clarified that the number of data points in itself is important but should not be an obsession, as it depends on the context and how they are counted (publishing comparative data, for example, automatically doubles the number). The data point reduction methodology applied by EFRAG consisted in:

• Removing the least relevant data points, defined as those not necessary to achieve the objectives of the disclosure requirement (DR).
• A less prescriptive, or rules-based, approach, and a more principles-based approach (cf. rules-based standards, such as US GAAP, vs. principles-based standards).
• Removing narrative requirements for policies, actions and targets (PAT) from topical standards, in favor of general requirements for policies, actions, targets and metrics (GDR), including for the G1 standard.

EFRAG clarified that merging two data points was not counted as a reduction.

Some data points have also moved from voluntary to mandatory:

• Water – total withdrawals from own operations (E3)
• Total discharges from own operations (E3)
• Biodiversity transition plan summary, but only if a plan has already been made public (E4)
• Procurement team training on business conduct (G1)
• Confirmed business-related incidents (numbers and nature) (G1)

And four have been added:

• Declaration of compliance with ESRS 1 (ESRS 2 BP 1)
• Secondary microplastics (clarification) (E2)
• % or weight of materials considered critical and strategic (E5)
• % or weight of waste with unknown destination (E5)

The result of this work is a 68% reduction in the total number of data points, which includes a 100% reduction in voluntary data points and a 57% reduction in mandatory data points.

The discussions that followed this introduction were of high quality, and were impressed to hear how familiar these groups and large French companies are with the ESRS standards, how they have had detailed discussions with their auditors, and how thoroughly they had studied the implications of the proposed simplifications.

Listening to them, it struck us that the gap is widening between these first-wave companies (in countries that have successfully transposed the CSRD on time and in a compliant manner), and the second-wave companies and those that will be subject to voluntary compliance, on these highly strategic issues for Europe and its companies.

Waiting and not preparing will not be good for business! When second-wave companies enter the stage, these first-wave companies will be publishing their 4^th report.

Overall, the participants praised the proposed simplifications and the work carried out by EFRAG within very tight deadlines.

Here is a summary of some of the comments and discussions that followed.

On the Double Materiality Assessement (DMA)

Gross vs Net assessment

The discussions focused on the issue of gross versus net assessment. The general opinion was in favor of assessing gross IROs (sustainability impacts, risks, and opportunities), except for actual impacts where successfully implemented measures should be allowed to be taken into account.

However, the table in Appendix C of ESRS 1 could be too detailed and create confusion. EFRAG wanted to be precise because this is a difficult topic that has generated much debate.

Patrick de Cambourg clarified that it is important to maintain momentum in addressing impacts, that it is important to report on how the company has taken these impacts into account, and that this is rewarding for the company.

A large company added that it is important not to have to consider everything that could possibly happen in absolute terms, but to focus on what is relevant to the company. (On this point I add that it is for this same reason that the future financial effects have been renamed “anticipated” instead of “potential” already in the current ESRS.)

Frequency of the DMA

A request was made to further clarify the required frequency of DMAs.

Patrick de Cambourg clarified that a comprehensive DMA should likely take place every 3-5 years, with updates needed in the interim to account for any changing circumstances.

Positive impacts

A representative asked a question about reporting on the management of negative impacts, particularly when the measures implemented create additional positive value beyond simple corrective action.

Patrick de Cambourg explained that when the standards were developed, the primary focus was on managing value destruction first, but that it would undoubtedly also be necessary to focus on value creation.

We can move beyond managing the negative to creating additional positive value, especially in the social sphere. A sustainability statement should not be punitive, we must also address the positive when appropriate.

On the structure and clarity of the proposed standards

Incorporation by reference

There is a considerable reluctance regarding incorporation by reference, which is used primarily for strategy and governance aspects, and which can cloud the overall picture and compromise the readability of the report.

Patrick de Cambourg clarified that it is not widely used in France, but that Northern Europe is very supportive of it.

EFRAG reasoned as it does for financial statements, where incorporation by reference is rarely used. The ANC chairman also clarified that statements should be sufficient and “form a whole.”

Connectivity between financial and sustainability information

“Too complicated, we’re not mature enough, we’ve been told that a lot. So, we’ve reduced the connectivity between the sustainability statement and the financial statement.”

But Patrick de Cambourg also insisted that the line between the two must not be blurred, and that sustainability information should not be included in the financial statement. This is one of the objectives of the CSRD.

NMIG – Non Mandatory Implementation Guidance

Many detailed data points, particularly narrative ones, have been moved from the standard itself to a so-called “NMIG” document, with non-mandatory guidance.

EFRAG will propose that this document not be part of the ESRS delegated act, which would allow it to be maintained and updated as experience is gained.

On this point, companies have expressed concerns, stating that a guidance document quickly becomes almost mandatory in discussions with auditors, especially when it is published by EFRAG.

Won’t they become de facto mandatory? Ambiguities lead to lengthy discussions with auditors and different approaches between companies, which hinders comparability.

One representative proposed deleting the NMIG document altogether.

Patrick de Cambourg clarified that the hierarchy of standards must be respected: if it’s not in the document, it’s not mandatory.

But in a field as complex and pioneering as sustainability reporting, there needs to be direction and guidance. Questions will be asked. Interpretation should not be left to auditors. Not having guidance means pushing interpretation into the dark while we try to standardize and standardize. Creating a vacuum isn’t necessarily helpful to businesses.

On ESRS being a fair presentation framework

The less prescriptive, less rules-based approach of the proposed ESRS standards allows companies more flexibility, but relies on the exercise of judgment, which is the basis of the duty to provide a fair presentation of sustainability information.

This de facto increases the responsibility of companies, and by extension, of their auditors. Representatives expressed their concerns and said that companies are not reassured.

Patrick de Cambourg clarified that the responsibility for judgment already lies in ESRS Set 1 and the CSRD. Advancing common sense necessarily implies judgment.

Fair presentation is derived from the CSRD (particularly the qualitative characteristics). In reporting, there are only two types of frameworks: compliance or fair presentation—EFRAG has made explicit something that was already implicit.

One representative suggested that the principle of fair presentation might need to evolve to better integrate this new non-financial area of ​​application.

On the reliefs

Without undue cost or effort

How can we understand and apply this cross-cutting relief so that we all have the same interpretation? And where do we draw the line between the reliefs and faithful presentation?

Representatives also pointed out that the term “significant” is widely used in the standards, which deserves clarification to avoid endless discussions with auditors.

Patrick de Cambourg responded that the maturity of financial reporting has taken decades to develop, and that this is not yet the case for sustainability information.

The application of the relief will need to be judged on the basis of evidence; the goal is not to exonerate companies. And the link between the relief and the concept of faithful presentation will undoubtedly need to be better presented.

Anticipated financial effects from risks and opportunities

Opinions on the two options presented for reporting on anticipated financial effects (ESRS 2 SBM-3 and E1-11) were divided.

• Option 1 requires the disclosure of both qualitative and quantitative information, but allows for the exclusion of certain quantitative information under certain conditions. It is substantially aligned with the IFRS relief, but specifies that the company may use it when there is no reasonable and justifiable information from its business plans that can serve as a basis for calculating the anticipated long-term financial effects.
• Option 2 limits the requirement to qualitative information only and allows companies to choose to disclose qualitative information voluntarily, without having to meet any conditions.

Unsurprisingly, companies opted for Option 2, specifying that the information would not achieve the required quality and raises liability issues given the uncertainties of the future and confidentiality issues. Even if there are reliefs, “we’re sending the message that the company should be able to do it.”

Auditors and the financial market opted ​​for option 1. “We need to understand the company’s risks and opportunities, we need to have quantitative evidence on these issues, otherwise the markets will operate in the dark. And there are many reliefs, particularly the ‘without undue costs or effort’ relief. The anticipated financial effects are in any case essential for financial materiality and for connectivity with the financial statements.”

Patrick de Cambourg concluded that we know the difficulties, but views are divided. The requirement will push for maturity; we must push for maturity through effort. It is not good for the transparency and fluidity of the markets to leave this information to bilateral relations (between banks and companies, for example).

One representative proposed making information mandatory for climate-related issues, and optional for other issues.

On financial institutions

Patrick de Cambourg pointed out that the financial sector has very specific characteristics. In the absence of sector-specific standards—and there are sectors that really need them—it becomes “entity-specific,” requiring coordination within the sector, which is not always easy.

In particular, there were discussions around the issue of measuring GHG emissions in absolute terms or in terms of intensity.

One representative clarified that it is irrelevant for a bank to define reduction targets (linked to the value chain) in absolute terms “because it is precisely the high-emitting companies today that need the most investment—banks are intended to finance all economic sectors, including those in transition.”

It was added that the ECB—the central bank of European Union countries using the euro—measures in terms of intensity.

Intensity indicators have been removed from the proposed simplified ESRS standards.

Other comments on metrics

The metrics were not discussed in detail, but two comments were made at the end of the session:

• not having an adjusted indicator for the gender pay gap does not provide enough information
• and a minimum wage is not necessarily adequate.

Disclaimer

The content of this publication reflects CLEERIT’s current understanding. This information does not replace information provided by official, administrative, or governing authorities. The information contained in this publication is subject to change, correction, or addition without notice. While every effort has been made to ensure that the information contained in this publication is accurate and complete, inaccuracies may exist. CLEERIT accepts no liability for any loss or damage that may arise in connection with the use of the information contained in this publication.