The below document published recently by world’s biggest individual investor, NBIM, is a must read for any board member and top manager — as nature is moving up the investor agenda.

NBIM stresses that these expectations are based on their “beliefs about what contributes to long-term value creation and sound risk management”.

Norges Bank Investment Management (NBIM) — holding 2.3% of all listed European companies — is effectively redefining financial materiality

The document sets out how NBIM expects companies to manage environmental and social matters, including nature related impacts, dependencies, risks, and opportunities.

It is not soft guidance, NBIM writes. “It is a de facto global standard for nature‑related governance.”

It includes board‑level oversight requirements, policies, time‑bound targets and action plans, as well as engagement and potential divestment for non‑compliance.

“The degradation of land, freshwater systems, and marine environments all affect the long-term value of companies in our portfolio. The financial risks … are already apparent and are likely to increase over time.

Companies face risks when natural resources they depend on become scarce or degraded, and when their environmental impacts lead to regulatory action, legal liability, operational restrictions or reputational risks.

Evolving trends in consumer demands and availability of natural resources will also present opportunities as new markets are created.

We expect companies to address these topics in a manner meaningful to their business model and wish to support them in their efforts.

Our expectations are primarily directed at company boards.

Boards should understand the broader environmental and social consequences of company operations, taking into account the interests of relevant stakeholders.

They must set their own priorities and account for the associated outcomes.

Companies should pursue relevant opportunities and address significant risks.

They should report financially material information to investors, and broader impacts as appropriate.

Boards should effectively guide and review company management in these efforts.

Our expectations follow a logical implementation flow from strategic oversight to implementation.

The core expectations establish the foundational governance and strategic requirements that boards and senior management should address.”

—

An unparalleled reach across markets and sectors

NBIM manages Norway’s sovereign wealth fund, set up in the 1990s to invest revenues from the country’s oil and gas industry.

The fund, the largest of its kind in the world, currently has a value of just over $2 trillion.

It invests in more than 7,200 companies across 60 countries and has stakes in around 1.5% of the world’s publicly listed stocks with holdings including a 1.3% stake in Nvidia, a 1.2% stake in Apple and a 1.3% stake in Microsoft.

This gives NBIM unparalleled reach across markets and sectors.

Where to start to meet investor expectations?

By adopting the ESRS 2.0 reporting standards and associated governance processes.

If you have not yet participated in our ESRS 2.0 training, offered free of charge, you are welcome to get in touch: https://cleeritesg.com/index.php/how-can-we-help/

 

Sources :

https://www.nbim.no/en/responsible-investment/our-expectations/climate-and-nature/nature/

https://www.nbim.no/contentassets/5fce0e1e7e15449ca986ac1cd26d7e0f/nature-expectations-2026.pdf

🔎 What the financial and supervisory authorities expect from the revised ESRS

When the European Commission adopts the delegated acts on the ESRS, it must consider EFRAG’s draft (December 2025) and request the opinions of a wide range of EU bodies — including ESMA, EBA, EIOPA, the ECB, the European Environment Agency, the EU Agency for Fundamental Rights (FRA), the Committee of European Auditing Oversight Bodies and the Platform on Sustainable Finance.

Below is a short overview of the ECB, EBA, ESMA and EIOPA opinions — all of which shed light on the sustainability information that financial markets need, and the expectations placed on companies, banks and insurers.

You can download a more comprehensive summary here: Summary of ECB, EBA, ESMA and EIOPA opinions on simplified ESRS 05-03-2026

🔹 Digitisation and usability

ESMA emphasises that effective digital tagging is essential for the usability of sustainability information. Users must be able to identify and retrieve key data efficiently.

🔹 Concerns about cumulative reliefs

All authorities highlight that the accumulation of relief measures risks undermining the CSRD’s objective: creating a reliable, standardised data ecosystem that enables benchmarking, risk differentiation and comparability.

🔹 Permanent reliefs and distorted incentives

They warn that several permanent reliefs could create incentives for undertakings to omit relevant information or delay efforts to improve methodologies and data access. This would weaken the integrity and comparability of disclosures — and increase greenwashing risks.

🔹 Competitiveness and alignment with ISSB

In many areas, the new ESRS reliefs go beyond those in the IFRS ISSB standards, with potential negative consequences for EU companies’ competitiveness and access to global financial markets.

🔹 Reliefs must remain exceptional

The ECB recognises that companies may need initial flexibility while building data systems and estimation methods. But it stresses that reliefs must remain exceptional, not become the norm.

🔹 Progressive capability‑building

For the EBA, once impacts, risks and opportunities (IROs) are identified, undertakings should progressively equip themselves to provide the required ESRS information.

🔹 Avoiding long‑term data gaps

All authorities agree: it is essential to avoid indefinite data gaps and to maintain incentives for companies to start collecting data and improving coverage and quality.

🔹 Assurance implications

ESMA notes that permanent reliefs will require additional judgement from assurance providers and more documentation from preparers — potentially increasing the reporting burden.

👥 FRA’s perspective

In addition, the EU Agency for Fundamental Rights (FRA) issued an opinion focused on safeguards for people adversely affected by corporate activities. FRA warns that several changes may make severe or systemic human rights impacts less visible — especially those occurring deep in value chains or affecting marginalised groups.

FRA’s full opinion is particularly relevant for HR, sustainability and compliance professionals: https://fra.europa.eu/en/news/2026/fra-issues-legal-opinion-proposed-simplified-european-sustainability-reporting-standards

Link to the Omnibus I directive: Directive – EU – 2026/470 – EN – EUR-Lex

While ECB, EBA, ESMA and EIOPA focus in particular on cross-cutting and environmental standards, the European Union Agency for Fundamental Rights (FRA) opinion assesses whether the proposed simplifications of ESRS preserve essential safeguards for people adversely affected by corporate activities, and do not compromise the protection of human rights or the quality of disclosures.

FRA applies a risk-based human rights approach, grounded in the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises.

FRA’s full opinion is particularly relevant for HR and compliance professionals: https://fra.europa.eu/en/news/2026/fra-issues-legal-opinion-proposed-simplified-european-sustainability-reporting-standards

Here’s a short summary :

What changed / Why it matters for fundamental rights

• The recent simplification of the ESRS aimed to ease the reporting burden on companies, particularly smaller entities, while seeking to retain the essential safeguards that underpin effective sustainability disclosure.
• The sustained focus on a human rights risk-based framework aligned with the approach articulated in the UNGPs is welcome for its potential to enhance focus and practicality.
• However, a more streamlined regime also carries risks, including the possibility of inconsistent application or reduced transparency where companies interpret materiality too narrowly.
• The draft simplified ESRS introduce extensive reductions in mandatory data points, broaden the reliance on reliefs and phase ins, and increase the use of estimates and proxies in value chain reporting.
• Social metric reductions affect gender equality, non-employee transparency, work life balance, and occupational health and safety, while climate and pollution disclosures have become less prescriptive.
• These changes matter because they may render making severe or systemic human rights impacts less visible, particularly where they occur deep in value chains or affect marginalised groups.
• Moreover, simplifications in climate and pollution reporting may slow the detection of harms affecting fundamental rights to health, decent work, and a safe environment.

FRA are also apposed to relocating human rights policy disclosures to a single, cross-cutting item ( GDR-P), since it risks reducing human rights to generic statements. The GDR-P disclosures should require to remain explicitly disaggregated by rightsholder group (own workforce, value chain workers, affected communities and consumers), setting out group-specific commitments and the associated governance and due diligence approaches, rather than a single, undifferentiated policy statement.

In addition, FRA identifies three clusters of changes that could significantly weaken transparency on gender outcomes:

1️⃣ Gender pay gap (S1‑15)

The simplified ESRS would require companies to disclose only the unadjusted gender pay gap — a single aggregate figure showing the raw difference in average pay between men and women.

No adjusted analysis.

No breakdown by age, category, or country.

This falls short of both GRI and the Pay Transparency Directive, which requires deeper analysis and action when unexplained gaps exceed 5%.

Without granularity, companies may appear compliant while lacking the insight needed to detect discrimination or structural bias.

2️⃣ Removal of gender‑disaggregated data

Several mandatory gender breakdowns disappear in the simplified standards, including:

▪️ non‑guaranteed‑hours employees (S1‑5)

▪️ participation in performance and career development reviews, and average training hours (S1‑12)

▪️ uptake of family‑related leave (S1‑14)

These deletions reduce visibility into gender‑specific outcomes — especially for women in precarious roles or with limited access to development opportunities.

They also diverge from GRI requirements and weaken the ability to identify structural barriers.

3️⃣ From “parental leave” to “maternity leave” (S1‑10)

Replacing parental leave with maternity leave narrows the scope of social protection disclosures.

EU law — notably Directive (EU) 2019/1158 — promotes shared caregiving, granting each parent at least four months of parental leave.

By focusing only on maternity leave, the simplified ESRS risk reinforcing the stereotype that childcare is primarily a women’s responsibility, sidelining fathers and undermining gender equality objectives.

🔍 Why this matters

Taken together, these revisions reduce the ESRS’ ability to reveal gender disparities.

Without mandatory gender‑disaggregated data, companies will struggle to identify patterns such as:

▪️ women’s over‑representation in variable‑hour or part‑time roles,

▪️ unequal access to training and career development,

▪️ structural barriers affecting women differently across operations and value chains.

Intersectional inequalities — increasingly recognised in EU policy — also become harder to detect when disclosures are limited to aggregate figures.

💬 Final thought

Transparency is not a burden; it is a prerequisite for progress.

If we want to close gender gaps, our reporting standards must illuminate inequalities — not obscure them.

Let’s keep pushing for the data and the standards that make equality real.

The European Central Bank (ECB) has published its opinion on the draft simplified ESRS. As a long‑standing supporter of the EU’s sustainability reporting framework, it welcomes the simplification achieved, calling it “a good starting point” as reporting practices mature.

ECB focused on the standards most relevant to the ECB’s mandate: ESRS 1, ESRS 2, E1 (Climate Change) and E4 (Biodiversity and Ecosystems), essential for identifying, assessing and managing financial risks stemming from climate‑ and nature‑related physical and transition factors.

Over 90% of ECB‑supervised banks have identified these factors as material sources of financial risk.

Banks depend on reliable sustainability data to assess creditworthiness, price products and evaluate collateral.

The ECB stresses that the revised ESRS must ensure transparency, high‑quality information and comparability to support sound risk management, financial stability and effective capital allocation.

⭕ Reliefs, phase‑ins and exemptions

A key challenge is balancing simplification with the EU’s CSRD objectives.
The ECB warns that the permanent reliefs, phase‑ins and exemptions — many going beyond IFRS/ISSB — risk creating data gaps, reducing comparability and weakening interoperability with international standards.

This could undermine investor confidence and place EU companies at a competitive disadvantage globally.

The ECB recommends time‑limiting reliefs and removing the additional 3‑year phase‑in for anticipated financial effects (AFEs), which would delay the data until 2030.

ECB also notes that, following Omnibus I, the revised ESRS will apply only to Europe’s largest companies, which generally have the resources to meet these requirements.

⭕ Assurance standards

ECB staff stress the importance of swiftly adopting assurance standards, as these will be essential for improving the quality and comparability of disclosures under the revised ESRS.

⭕ VSME

ECB staff highlight concerns about using the VSME as the voluntary standard for companies outside the CSRD scope.

The VSME was designed for non‑listed SME companies with fewer than 250 employees, whose sustainability risks and complexity differ significantly from larger companies (with up to €450m turnover and/or 1 000 employees).

👉 The revised ESRS are a more suitable voluntary option, as they can flexibly accommodate companies of different sizes and complexities thanks to their materiality‑driven approach, and the ESRS are now more streamlined in terms of datapoints.

While ECB staff support voluntary reporting under the revised ESRS, they stress the need for guidance and safeguards to limit greenwashing risks.

Voluntary use must not allow cherry‑picking, which could enable companies to disclose only favorable information while obscuring material negative impacts or risks.

⭕Additional information for the financial sector

For credit institutions, most ESG risks, impacts and opportunities are concentrated in the downstream part of the value chain, as they are related to the activities of the clients that they fund.

ECB recommend the addition of guardrails so that the new DMA value chain flexibilities do not lead to the non-identification of material IROs which would ultimately compromise a fair presentation and lead to financial risks not being disclosed and managed by banks.

Regarding greenhouse gas emission reduction targets under ESRS E1-6: complementing the disclosure of a GHG intensity target with information on the associated absolute figure as per ESRS Set 1 is necessary to achieve a fair presentation, to enable a better understanding of the target and to avoid misleading users (given that intensity targets might show a decrease whereas in fact absolute emissions are expected to increase).

Exempting the financial sector from providing transparency on their emissions reduction commitments could give rise to systemic greenwashing risk and create opacity, possibly resulting in an underestimation of risks by investors and the misallocation of funds.

 

The link to full opinion: https://www.ecb.europa.eu/pub/pdf/other/ecb.staffopinion_europeansustainabilityreportingstandards202602.en.pdf

In simplified ESRS IRO management has taken center stage

On October 1st ESMA wrote that “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”.

And that the “logic of the overarching structure of the ESRS” is “the description of the IROs and of how they are managed through policies, actions and targets”.

From EFRAG’s basis for conclusions we learn that:

⭕ The connectivity between IROs and PATs has been clarified and emphasized

The objective of the sustainability statement, taken as whole, is to present fairly all the business’s sustainability-related material impacts, risks and opportunities (IROs) and how the business manages them through policies, actions, targets and metrics (PATMs), and thereby manages (or not) the related material sustainability topics.

The embedded logic of the ESRS therefore calls for identification of material IROs and disclosure of PATMs – or their absence – for the related sustainability topic.

Companies can now use a tabular format for presenting the material IROs and PATs and also specify the list of material topics for which there are no PATs.

ESRS no longer require disclosure of reasons for not having PATs or plans and timeline to implement them.

The text now also clarifies that the description of material IROs may be presented alongside information on PATM.

Value chain information presented in SBM-1 remains essential for understanding and linking IROs within a sustainability statement.

⭕ General Disclosure Requirements (GDR) for PATs

The overlaps that existed between MDRs (now GDRs) for PATs on the one hand, and topical mandatory datapoints, on the other, have been addressed with the following:

• “Minimum” Disclosure Requirements (MDR) have been renamed “General” Disclosure Requirements (GDR), reflecting the fact that they are the reference point for the required information to be disclosed for PATs across all topical Standards.
• There are no (or very limited) other PAT datapoints in the topical Standards.

⭕ Level of aggregation disclosures related to IRO management

ESRS now clarifies the possibility to disclose PATM information at different levels of aggregation, reflecting factors such as the nature of the IROs or the way the business manages them, as well as the level at which significant variations of material IROs arise.

A specification has been also added in case of adoption of PATs but only for certain aspects (of a topic).

⭕ AMF, the regulator of the French financial market, also wrote:

A common structural gap across policies, actions and targets (PAT) is their lack of explicit linkage to the material impacts, risks, and opportunities (IROs) identified through the materiality assessment.

While some companies articulate this alignment clearly, most disclosures remain siloed, preventing readers from understanding how corporate responses are tailored to material sustainability topics.

Embedding this IRO-to-response logic systematically across disclosures would enhance narrative coherence, reduce duplication, and reinforce alignment with the ESRS architecture.

Sources:

https://www.efrag.org/sites/default/files/media/document/2025-12/Draft_Amended_ESRS_Basis_for_Conclusions_2025_December.pdf

https://www.esma.europa.eu/sites/default/files/2025-10/ESMA32-846262651-5289_ESRS_revision_ESMA_response_to_EFRAG_consultation.pdf (paragraph 35 and 77)

Page 56 in https://www.amf-france.org/sites/institutionnel/files/private/2025-10/amf_study_csrd_reporting_the_way_forward_2025.pdf

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 >>>