Public statement from ESMA: ESRS supervision in the Omnibus environment

In view of the uncertainty caused by the simultaneous occurrence of the first ESRS application, an uneven transposition of the CSRD and the Omnibus proposals, the European Securities and Markets Authority (ESMA) issued a public statement on June 20 labelled “Navigating change together: ESRS supervision in the Omnibus environment”.

The statement confirms ESMA’s and national competent authorities’ (NCAs) commitment to promoting transparent sustainability reporting, including to mitigate greenwashing risk.

ESMA’s Guidelines for Enforcement of Sustainability Information (GLESI)

ESMA’s Guidelines for Enforcement of Sustainability Information (GLESI), applicable since January 2025, provide a common principles-based framework to conduct supervision of sustainability reporting in accordance with the CSRD and the ESRS.

GLESI will help enforcers discover potential infringements in the sustainability information, for example possible greenwashing issues.

ESMA acknowledges that the first years of ESRS application will imply a learning curve for all parties, necessitating an adjustment period to reach a common understanding of the new requirements.

Application of the GLESI during this phase will need to be proportionate and realistic, with an emphasis on support, dialogue, improvements, and, where necessary, enforcement actions.

It is important to apply the GLESI from the first year in which enforcers will examine sustainability statements drawn up under the ESRS to ensure a convergent enforcement approach from year 1.

The CSRD aims to make the status of sustainability information comparable to that of financial information. Practical experience with enforcing the ESRS will allow enforcers to refine their processes and resources.

Enforcers should react in a consistent manner if infringements of the sustainability information framework are detected.

It is generally expected that the sustainability statements of issuers selected through risk-based selection have a higher likelihood of containing infringements.

A risk-based selection should therefore be used for at least 50% of the issuers whose sustainability information enforcers examine.

Approaches to enforcing sustainability information

Enforcers should identify the most effective way to enforce sustainability information.

They can use four different approaches when they examine sustainability information, differing on two parameters:

  • whether the enforcer communicates with the issuer during the examination (interactive vs. desktop examination) and
  • whether the enforcer bases its examination on the entirety or a subset of the sustainability information (unlimited vs. focused examination).

The use of interactive unlimited examinations should be used for at least 33% of the examinations, or cover at least 10% of the total amount of issuers for this type of examination.

As infringements could, by definition, have an impact on the decisions made on the basis of sustainability information, it is important that the corrected information is published, unless impracticable, on a timely basis.

Whenever an infringement is detected, the enforcer should take at least one of the following actions:

  • require a reissuance of the sustainability statement,
  • require a corrective note, or
  • require a correction in the future sustainability statement with restatement of comparatives, where relevant.

Where an immaterial departure from the sustainability information framework is left intentionally uncorrected to achieve a particular presentation of the issuer, the enforcer should take appropriate action as if it was material.

Enforcers should report periodically on their enforcement activities at national level and provide ESMA with the necessary information for the reporting and coordination of the enforcement activities carried out at European level.

Eight Member States have currently not transposed the CSRD into national legislation: Austria, Cyprus, Germany, Luxembourg, Malta, Netherlands, Portugal, Spain.

For these Member States, national competent authorities’ (NCAs) approach to supervision of sustainability reporting will be to continue delivering on their supervisory mandate in accordance with current national law.

While these NCAs cannot formally declare compliance with the GLESI, they will apply comparable procedures in line with ESMA’s guidance on sustainability information.

The European Sustainability Reporting Working Group (SRWG)

In order to achieve a high level of harmonisation in enforcement, enforcers should discuss and share experience on the application and enforcement of the sustainability information framework during meetings of the Sustainability Reporting Working Group (SRWG).

The purpose of having such discussions in the SRWG is to enable European coordination of national enforcement activities and for this reason, all enforcers should send representatives to this group.

Download the full statement here: https://www.esma.europa.eu/sites/default/files/2025-06/ESMA32-992851010-2254_Statement_on_the_ESRS_supervision_in_the_Omnibus_environment.pdf

ESMA’s Guidelines for Enforcement of Sustainability Information (GLESI), applicable since January 2025 can be downloaded here: https://www.esma.europa.eu/sites/default/files/2023-12/ESMA32-992851010-1016_Consultation_Paper_on_Guidelines_on_Enforcement_of_Sustainability_Information.pdf

You are welcome to contact us if you are interested in streamlining your ESG strategy, governance and reporting processes and achieve full compliance with the ESRS: www.cleeritesg.com

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Progress report on ESRS simplification

Today, 19/6, EFRAG presented a progress report on ESRS simplification.

EFRAG stressed that they were impressed and grateful for the high level of engagement, with a large number of stakeholders responding to the consultations, in spite of the short timeline provided, and offering their input on critical levers and challenges related to datapoints. Over 16 000 feedback comments were analyzed by EFRAG, in addition to 110 hours of technical dialogue involving approx. 600 companies.

The following simplification levers have been identified, in short:

LEVER 1: Simplification of DMA (Double Materiality Assessment)

There is a crucial need to place the emphasis on the goal of the DMA, and reduce the overall complexity of the process and the extent of unnecessary scoring, to foster more streamlined reporting focused on relevant and decision-useful information.

Frequent comments concern a disproportionate effort compared to the result, and an excessive focus on process rather than outcome and the company’s strategic context.

Divergences in practice were observed as to whether negative impacts are assessed before or after mitigation, prevention and remediation actions, with important consequences in terms of comparability and relevance of information.

The following will be clarified:

  • The DMA is normally to start from the analysis of the business model to identify the most obvious material topics (‘top-down’ approach).
  • The expected level of evidence to support the conclusions must be reasonable and proportionate, in particular when it is obvious that a given topic is material for the sector, for peers and/or for the business model.
  • Introduction of a materiality filter for all datapoints, including the ESRS 2 datapoints.
  • The interaction between the identification of material impacts, risks and opportunities (‘IROs’) and the assessment of material topics and sub-topics.
  • ESRS 1, AR 16 as a point of reference, not a compliance check-list.
  • When only a sub-topic is material, the undertaking must limit the information reported to that sub-topic, without triggering the reporting of all the datapoints in the entire topical standard.
  • The definition of impacts and how mitigation, prevention and remediation actions are considered in assessing an impact for materiality (gross or net approach). What constitutes a positive impact was also not clear.
  • Whether the undertaking can include in its sustainability statement information about non-material matters (e.g. when requested by rating agencies); and if so, under which conditions.

LEVER 2: Introducing flexibility to avoid duplications and focus on what matters the most

The general feeling is that companies had difficulties in ‘telling their story’ with respect to sustainability topics and in sharing their views with their stakeholders, amongst other reasons, because the flexibilities that exist already in the standards were not clearly stated and, as such, have not been well understood by preparers and auditors.

It was unclear how to consider ‘may disclose’ datapoints in determining the materiality of information, leading to different conclusions.

The perception of sustainability reporting as a compliance exercise has developed, which is unfortunate since the ambition of the CSRD is to place sustainability reporting on a comparable status with financial reporting (i) by creating a repository of quality sustainability-related data and also (ii) by providing summarised information.

The following areas of flexibility will be clarified:

  • Providing the option to have an ‘executive summary’ at the beginning of the sustainability statement to offer a summarised view (the undertaking’s material topics, their relationship with the key aspects of its strategy and governance, its performance and its contemplated trajectory with respect to these topics…).
  • Providing the option to disclose the most granular information, such as detailed metrics, in dedicated sections or appendices.
  • Clarifying that presenting the EU Taxonomy-related information in a specific appendix is allowed.
  • Suggesting the provision of additional information on non-material matters in dedicated sections or appendices.
  • Discouraging fragmentation and/or repetition of information pertaining to the same topics.

LEVER 3: The relationship between Minimum Disclosure Requirements (MDR) and topical specifications

The generic MDRs in ESRS 2 provide detailed mandatory datapoints for PATs (policies, actions, targets). Topical standards also provide detailed mandatory datapoints that specify PATs for each topic.

The combination of the generic MDRs in ESRS 2, with these detailed mandatory topical specifications has been perceived as creating unnecessary duplication/repetition and a source of ambiguity.

Similar overlaps exist between ESRS 2 and topical standards in the areas of governance and strategy and in relation to the disclosure requirement IRO 1.

In addition, the datapoints in the narrative disclosures of PATs in the topical standards are considered too granular and for this reason not always informative, and have also been perceived as requiring a granular description at IRO level in all cases.

The following decisions are now considered:

  • Maintaining cross-cutting MDRs at the ESRS 2 level in terms of ‘shall’, under a revised/reduced number of datapoints.
  • Drastically reducing the mandatory PAT specifications (‘shall datapoints’) in the topical standards to the strictly essential ones.
  • Clarifying that PATs are only to be reported ‘if you have’ them (i.e., no behaviour mandated) and if related to materials matters.
  • Implemented policies would be focused on topics instead of individual IROs (with exceptions when the latter is the level adopted for managerial reasons).
  • Centralising around a single datapoint the list of material topics for which there are no PATs, without requiring the disclosure of reasons for not having them and offering an option to provide a timeline for implementing them.
  • Reinforcing flexibility and readability of streamlined disclosures by clarifying (i) that there should be no duplication of content on the same PATs in different parts of the sustainability statement, (ii) that a policy covering different topics should only be described once and (iii) that PATs can be limited to a sub-topic without triggering disclosures at the topical level.
  • Replicating the same approach also for the topical specifications of ESRS 2 (Appendix C of ESRS2).

LEVER 4: Improving the understandability, clarity and accessibility of the standards

  • Reducing significantly the category “voluntary disclosure”.
  • Amending the general structure of the Standards, separating clearly mandatory and non-mandatory content.
  • The paragraphs on mandatory guidance will be placed under the respective disclosure requirements to which they belong, while the non-mandatory content will be clearly separated from the former.

LEVER 5: Addressing other suggested burden-reduction reliefs

  • How to disclose sustainability information in cases of acquisitions or disposals.
  • The use of the ‘undue cost and effort’, with reliefs similar to IFRS S1 and S2.
  • Specific relief for metrics when necessary input is not available: A recurring concern is that preparers are forced to report non-relevant information when reliable input is unavailable for use in the estimation process. The formulation of the reliefs is currently under discussion, but they could allow reporting on a partial scope while providing transparency on assumptions, limitations and actions to increase data availability over time.
  • Considering the relevance of the datapoints that have a direct correspondence to other EU regulations.
  • Commercially sensitive information may be subject to debate at the level of Omnibus negotiations and should therefore be addressed at a later stage.

EFRAG is also considering extending the possibility of reporting qualitative information only for anticipated financial effects – when the level of estimation uncertainty is so high that the resulting information would not be useful – even after the end of the current phase-in transitional provisions.

While being critical for users, this disclosure is particularly challenging, as it entails reporting forward-looking and potentially sensitive information.

Source: https://www.efrag.org/sites/default/files/media/document/2025-06/draft_status_report_esrs_simplification_20_june_2025.pdf

IFRS Sustainability + GRI + TCFD = ESRS?

The European Sustainability Reporting Standards (ESRS), for use by all companies subject to the CSRD, are built on a double materiality approach, whereby impact materiality and financial materiality are equally important – the exception being negative impact on human rights which one could argue takes precedence.

ESRS (drafted by EFRAG, technical advisor to the European Commission) state that a company’s impact on people and the environment, and its financial effects from risks and opportunities, arising from its dependencies on resources and relationships, may be inter-related and interdependent.

A negative impact will likely materialize as a negative financial effect for the company, at least in the long term. But a company also faces sustainability related risks that are not necessarily related to its impacts – climate change being a good example.

The International Financial Reporting Standards on Sustainability (IFRS-sds), issued by ISSB, also recognize that the two perspectives are linked: “an entity’s ability to generate cash flows over the short, medium and long term is inextricably linked to the interactions between the entity and its stakeholders, society, the economy and the natural environment throughout the entity’s value chain. … Together, the entity and the resources and relationships throughout its value chain form an interdependent system in which the entity operates.” (S1, paragraph 2)

So, what are the main differences between the two standards – apart from IFRS-sdc only covering one topic (climate change) in stage one, compared to 10 ESG topics for ESRS?

And how do TCFD, SASB and GRI fit in the picture?

IFRS Sustainability by ISSB

The International Sustainability Standards Board (ISSB) was created by the IFRS Foundation in 2021 as a sister board to the International Accounting Standards Board (IASB), to address the needs of investors and the financial markets for sustainability information – in particular sustainability-related risks and opportunities that are becoming increasingly important for investment decisions.

ISSB’s main objective is to respond to the need for such information by issuing unified IFRS Sustainability standards (IFRS-sds), since a fragmented landscape of voluntary, sustainability-related standards and requirements add cost, complexity and risk to both companies and investors.

The aim is to help companies to report what is needed for investors across markets globally, to support investor decision-making and facilitate international comparability to attract capital.

ISSB has focused on ensuring transparency through the disclosure of the company’s sustainability related risks and opportunities, and related control systems – including who is in charge, how do they get relevant information and if they have the necessary skills to manage this information and its consequences for the company’s strategy and business model.

Materiality follows the same principle as the IFRS Accounting Standards definition of “material”: “could reasonably be expected to influence investor decisions”.

This is logical since the IFRS-sds stakeholder is “primary users of general-purpose financial reports in making decisions relating to providing resources to the entity” – meaning the investors.

Sue Lloyd (Vice Chair ISSB) explained that the IFRS-sds standards aim to help companies and their investors, identify “how sustainability can affect its prospects”, by focusing on “how it maintains its resources and relationships, how it manages its dependencies on them, and how its impacts on these resources and relationships give rise to sustainability related risks and opportunities for the company”.

The company’s impact on the environment and people therefore only becomes relevant (material) if likely to translate into financial effects for the company.

IFRS-sds does not require companies to disclose a specific climate transition pathway aligned with common objectives like net zero or the 1.5-degree scenario – although they indirectly encourage to do so.

As Sue Lloyd put it: “The role of ISSB is providing information to investors, not to tell companies how to do business, have transitions plans, etc”.

It is also important to note that while IFRS-sds aim to shed light on the resilience of the entity’s strategy and its business model with regards to sustainability-related risks, an entity need not provide quantitative information about the current or anticipated financial effects of a sustainability-related risk or opportunity if the entity determines that:

  • those effects are not separately identifiable
  • the level of measurement uncertainty involved in estimating those effects is so high that the resulting quantitative information would not be useful
  • the entity does not have the skills, capabilities or resources to provide that quantitative information (S1 paragraphs 38-39).

Since the first set of IFRS-sds only cover the topic climate change, it refers to the topical SASB standards (in step one), organized by industry, to help companies identify other topics that could potentially give rise to sustainability related material risks and opportunities, and related disclosures.

Sustainability Accounting Standards Board (SASB)  

The Sustainability Accounting Standards Board (SASB) was founded as a nonprofit organisation in 2011 to help businesses and investors develop a common language about the financial impacts of sustainability.

SASB Standards help companies disclose relevant sustainability information to their investors. They are industry-based as risks and opportunities likely to be “decision-useful” for investors vary by industry.

Available for 77 industries, SASB Standards aim to help identifying the sustainability-related risks and opportunities most likely to affect an entity’s cash flows, access to finance and cost of capital over the short, medium or long term and the disclosure topics and metrics that are most likely to be useful to investors.

From CDSB, IIRC and TCFD to SASB and ISSB

The Climate Disclosure Standards Board (CDSB), created in 2007, offered companies a framework for reporting environment and social information with the same rigour as financial information. The CDSB Framework formed a foundation for the Task Force for Climate-Related Financial Disclosures (TCFD) recommendations and sets out an approach for reporting environmental and social information in mainstream reports, such as annual reports, 10-K filing, or integrated reports.

The International Integrated Reporting Council (IIRC), a global coalition of regulators, investors, companies, standard setters, the accounting profession and NGOs, was formed in August 2010 with the aim to create a globally accepted framework for a process that results in communications by an organisation about value creation over time, as the next step in the evolution of corporate reporting.

The Financial Stability Board (FSB) created the Task Force on Climate-related Financial Disclosures (TCFD) in 2015 to improve and increase reporting of climate-related financial information.

Over the years, the corporate sustainability disclosure landscape became very complex. Many global businesses and investors called for simplification and clarity in this landscape.

In response, in November 2020 the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB) announced their intention to merge into the Value Reporting Foundation, which was officially formed in June 2021. By integrating two entities that were focused on enterprise value creation, the merger signaled significant progress towards simplification.

On 3 November 2021 at the COP26 climate conference the IFRS Foundation Trustees announced the consolidation of the Value Reporting Foundation (VRF) and the Climate Disclosure Standards Board (CDSB) into the IFRS Foundation, to support the work of the newly established International Sustainability Standards Board (ISSB).

As of August 2022, the International Sustainability Standards Board (ISSB) of the IFRS Foundation assumed responsibility for the SASB Standards. The ISSB has committed to maintain, enhance and evolve the SASB Standards and encourages preparers and investors to continue to use the SASB Standards.

In July 2023 the Financial Stability Board (FSB) announced that the work of the Task Force on Climate-related Financial Disclosures (TCFD) has been completed, with the ISSB Standards marking the ‘culmination of the work of the TCFD’. Having fulfilled its remit, TCFD disbanded in October 2023.

Companies applying IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures will meet the TCFD recommendations as the recommendations are fully incorporated into the ISSB Standards (and into ESRS). The FSB has asked the IFRS Foundation to take over the monitoring of the progress of companies’ climate-related disclosures.

Companies can continue to use the TCFD recommendations should they choose to do so, and some companies may still be required to use the TCFD recommendations. Using the recommendations can be a good entry point for companies as they move to use the ISSB Standards (or ESRS).

The IFRS-sds standards are voluntary and policy-agnostic

More than 20 jurisdictions have already decided to use or are taking steps to introduce ISSB’s IFRS Sustainability Standards (sds) in their legal or regulatory framework, including Australia, Brazil, Canada, Hong-Kong, Japan, Malaysia, Mexico, Singapore, South Korea and the UK. Together, these jurisdictions account for nearly 55% of global GDP, more than 40% of global market capitalisation and more than half of global greenhouse gas emissions.

IFRS-sds standards have also been endorsed by the International Organization of Securities Commissions (IOSCO), calling on its 130 member jurisdictions — capital markets authorities that regulate more than 95% of the world’s securities markets — to consider how they can incorporate the ISSB Standards into their respective regulatory frameworks.

However, supervisory authorities of EU Member States represent over 20% of IOSCO membership, and they will be subject to ESRS standards.

The UK has also committed to its own Transition Plan Taskforce (TPT) Disclosure Framework – “a key building block for delivering a net zero future” – in addition to the IFRS-sds requirements. The TPT builds on the work of the ISSB and supports compliance with IFRS S2.

Unified sustainability reporting practices are an important step towards “more resilient economics, serving people and life better”, as noted by ISSB Chair Emmanuel Faber.

Critics accuse the ISSB of “high-jacking” sustainability reporting by claiming the IFRS-sds standards to be a “global baseline”, while narrowly focusing on only one stakeholder (the investor), and neither addressing sustainability per se, nor the management and science-based alignment of sustainability-related issues.

The ESRS standards are forward-driven and support the European Green Deal

The aim of ESRS (Set 1) is more ambitious, and forward-driven. It’s not policy neutral. Together with CSRD, it supports the European Green Deal, a growth strategy for the 27 EU member states.

The EU standards are based on an initial draft prepared by the appointed technical adviser, the European Financial Reporting Advisory Group (EFRAG), following the adoption of the EU Corporate Sustainability Reporting Directive (CSRD), supplementing the directive 2013/34/EU on annual financial statements, consolidated financial statements and related reports.

CSRD now requires companies within its scope to report based on a double materiality approach in compliance with the European Sustainability Reporting Standards (ESRS), adopted by the European Commission as delegated acts.

The aim is not only to help companies to communicate (disclose) sustainability related information, but also to manage their sustainability performance more efficiently, and therefore to have better access to sustainable finance to support the implementation of the European Green Deal.

The European Green Deal represents a growth strategy that aims to “transform the Union into a fair and prosperous society, with a modern, resource-efficient and competitive economy where there are no net emissions of greenhouse gases in 2050 and where economic growth is decoupled from resource use”.

The implementation of the European Green Deal requires that “investors are offered clear, long-term signals to avoid stranded assets and to raise sustainable finance”.

CSRD therefore requires large companies, as well as third-country companies with significant activities in the EU, to disclose information on what they see as the risks and opportunities arising from social and environmental issues, and on the impact of their activities on people and the environment.

The definition of a “large” company is currently being reviewed as part of the Omnibus simplification package.

The aim is to help investors, civil society organisations, consumers and other stakeholders to evaluate the sustainability performance of companies, as part of the European Green Deal.

The aim of the European Green Deal is to improve the well-being and health of citizens and future generations by providing:

  • fresh air, clean water, healthy soil and biodiversity
  • renovated, energy efficient buildings
  • healthy and affordable food
  • more public transport
  • cleaner energy and cutting-edge clean technological innovation
  • longer lasting products that can be repaired, recycled and re-used
  • future-proof jobs and skills training for the transition
  • globally competitive and resilient industry

To achieve the goals, the ESRS address the needs of a large group of stakeholders:

  • Affected stakeholders: individuals or groups whose interests are affected or could be affected – positively or negatively – by the undertaking’s activities and its direct and indirect business relationships across its value chain (ESRS 1, sec 3.1 par 22 a)
  • Users of sustainability statements: primary users of general-purpose financial reporting (existing and potential investors, lenders and other creditors, including asset managers, credit institutions, insurance undertakings), and other users of sustainability statements, including the undertaking’s business partners, trade unions and social partners, civil society and non-governmental organisations, governments, analysts and academics. (ESRS 1, sec 3.1 par 22 b)
  • In addition, common stakeholders are: employees and other workers, suppliers, consumers, customers, end- users, local communities and persons in vulnerable situations, and public authorities, including regulators, supervisors and central banks. (ESRS 1, AR 6)
  • Nature may be considered as a silent stakeholder. In this case, ecological data and data on the conservation of species may support the undertaking’s materiality assessment. (ESRS 1, AR 7)

This multi-stakeholder approach is consistent with research findings in the fields of corporate strategy and strategy execution.

Companies face many different stakeholders and have to manage different – sometimes contradictory – perspectives to be successful, given the interdependent system in which they operate. This is also why the narrow focus on investors in IFRS-sds has been criticized.

When creating the ESRS, EFRAG (EU) built on – and also aimed to contribute to – internationally recognized existing reporting standards and guidelines, including TCFD, GRI, SASB, the International Integrated Reporting Council (IIRC), the Climate Disclosure Standards Board (CDSB) and CDP (formerly the Carbon Disclosure Project), while also taking into account other science-based guidelines, as well as existing EU regulation and international instruments for responsible business conduct.

TCFD, ESRS and IFRS-sds

The Task Force on Climate Related Financial Disclosures (TCFD) was established in 2015 by the Group of 20 (G20) and the Financial Stability Board (FSB), as a response to the failings of the 2015 Paris Agreement.

One of the most significant problems identified was the lack of transparency and international standards by which countries demonstrate or disclose that they are meeting their commitments.

To address the issues stemming from the 2015 Paris Agreement, the Task Force published recommendations designed to standardise worldwide climate-related disclosures that could “promote more informed investment… and in turn, enable stakeholders to understand better concentrations of carbon-related assets in the financial sectors.”

The TCFD climate-related disclosures provide information to investors about what companies are doing to mitigate the risks of climate change, as well as transparency on the way in which they are governed with relation to these matters.

Both EFRAG and ISSB have incorporated the TCFD climate-related disclosures, so there is no need to report on TCFD separately if you report according to ESRS or IFRS-sdc.

But both ESRS and IFRS-sds go beyond TCFD disclosures, so TCFD alone is no longer enough.

When comparing TCFD with ESRS it must also be noted that TCFD is on climate only and ESRS are covering also numerous other sustainability matters besides climate.

ESRS also include detailed minimum disclosure requirements (MDR) on Policies, Actions and Targets (PATs), designed to shed light on – and guide – impact, risk and opportunity MANAGEMENT, in addition to governance and control mechanisms.

These MDR on Policies, Actions and Targets are absent in both TCFD and IFRS-sds.

GRI, ESRS and IFRS-sds

The Global Reporting Initiative (GRI) was founded in Boston (USA) in 1997 following on from the public outcry over the environmental damage of the Exxon Valdez oil spill, eight years previously.

The aim was to create the first accountability mechanism to ensure companies adhere to responsible environmental conduct principles, which was then broadened to include social, economic and governance issues.

GRI became the world’s first globally accepted, voluntary, standards for sustainability reporting.

Over 10,000 companies from more than 100 countries use GRI. 78% of the world’s biggest 250 companies by revenue (the G250) and 68% of the top 100 businesses in 58 countries (5,800 companies known as the N100) have adopted the GRI Standards for reporting. (KPMG Survey, Oct 2022)

The ESRS have adopted the same definition for impact materiality as GRI and have leveraged GRI’s expertise.

As IFRS-sds, on the other hand, does not incorporate impact materiality, it “delegates” this task to GRI, stating that:

“The combination IFRS-sds, focused on meeting investor needs, alongside GRI standards, focused on broader stakeholder needs, as a package, can be an efficient reporting system to allow companies to report across their stakeholders”. (Sue Lloyd, Vice Chair ISSB)

ESRS interoperability

ESRS – IFRS-sds

EU/EFRAG and the ISSB have ensured a very high degree of interoperability between the two sets of standards. Companies that are required to report in accordance with ESRS will to a very large extent report the same information as companies that use the two ISSB standards IFRS S1 & S2.

Specific consideration has been given to the definition of financial materiality, particularly in ESRS 1 paragraph 48 of the Delegated Act. Material financial information under ESRS is now focused on the needs of primary users (investors), assuming that the needs of other stakeholders are satisfied either through impact materiality information or through the information needed by investors.

For financial materiality, an undertaking that applies ESRS is expected to be able to comply with the identification of the risks and opportunities to be disclosed under IFRS-sds (however, note that EFRAG’s proposed Materiality Assessment Implementation Guidance for public input on August 23 does not state the inverse to be true).

The ESRS follow the same structure as the ISSB (Governance—Strategy—Risk Management—Metrics & Targets), as first proposed by the Task Force on Climate related Financial Disclosures (TCFD), with the necessary adaptions to account for the double materiality principle and to secure an efficient interaction between the general disclosures and the various topics that the ESRS have to cover according to the CSRD.

ESRS – GRI

EU/EFRAG and GRI acknowledge that they have achieved a high level of interoperability between their respective standards in relation to impact reporting.

ESRS and GRI definitions, concepts and disclosures regarding impacts are therefore fully or, when full alignment was not possible due to the content of the CSRD legal mandate, closely aligned.

For impact materiality, an assessment performed under GRI constitutes a good basis for the assessment of impacts under ESRS.

International instruments (UN, OECD)

In an effort to enhance further alignment and convergence for companies in relation to due diligence expectations, ESRS also take account of the international instruments of the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises to the greatest extent possible, as required by the CSRD, without prejudice to the EU legislative processes regarding sustainability due diligence (the EU directive CSDDD).

ESRS – the most comprehensive one-stop-shop sustainability reporting standards

As such, ESRS are currently the most comprehensive one-stop-shop reporting standards for sustainability-related impacts, risks and opportunities – covering 10 topics, including more than 90 sub-topics to be assessed (ESRS 1, AR 16) and potentially material for a company and/or its many different stakeholders.

ESRS are also the only standards requiring assurance.

In addition, ESRS prescribe a scienced-based methodology to increase sustainability strategy execution success, a pre-requisite to improving actual sustainability performance: the activity-based Minimum Disclosure Requirements (MDR, sections 4.2 and 4 in ESRS 2) for Policies, Actions (including resources) and Targets (PATs).

As an example – and going well beyond IFRS S2 – ESRS E1 requires companies (in addition to ESRS 2 MDR-A) to detail climate change mitigation actions taken in the reporting year and planned for the future,

  • presented by decarbonisation lever (e.g., energy or material efficiency and consumption reduction, fuel switching, use of renewable energy, phase out or substitution of product and process) including the nature- based solutions
  • describing the outcome of the actions for climate change mitigation, including the achieved and expected GHG emission reductions
  • relating significant monetary amounts of CapEx and OpEx required to implement the actions taken or planned
  • stating whether the GHG emission reduction targets are science- based and compatible with limiting global warming to 1.5°C
  • stating which framework and methodology have been used to determine targets and what the underlying climate and policy scenarios are. 

Increasing your chances of succeeding

Reporting is necessary, but if we are looking to transform, reporting is only a means to an end, not the end.

Indeed, time and time again, research findings conclude that strategies only have a 30% chance of succeeding, due to insufficiencies in execution. And failing to build resilient and sustainable business models is not an option.

By applying the inclusive governance model described in the ESRS Minimum Disclosure Requirements, the success rate increases.

Already in the 90’s, the Harvard strategy expert, Michael Porter, described the essence of strategy as “deliberately choosing a different tailored set of activities to deliver a unique mix of value”, and defined strategy as “an activity system”. (Porter, 1996, p. 64, 69-70)

To succeed, companies need to make choices and allocate resources. Resources are “intermediate between activities and advantage”, reflecting “prior managerial choices” (Porter, 1991, p. 108-109).

Empirical research has also confirmed the importance of connecting strategy to day-to-day activities and resource allocation. In successfully executing companies, 77% effectively translate their strategy into operational mechanisms and monitor day-to-day progress (HBR, The Gap Between Strategy and Execution, 2017, p. 62).

So, when disclosing on ESG policies, actions, targets and metrics in accordance with ESRS Minimum Disclosure Requirements, it is important to keep in mind that doing this right will not only help companies with ESRS reporting. It will help them to successfully craft and execute strategies and increase overall performance.

Reporting is only a means to an end, not the end

While all standards concerned with sustainability are important steps in the right direction – if you really want to show the market and your stakeholders that you are serious about sustainability, ESRS is currently your best option.

With a multi-stakeholder approach, and an IRO-, policy-, target- and activity-based methodology, as well as information on key elements of the entity’s strategy that relate to or affect sustainability matters, ESRS provide increased transparency and reliability for management, stakeholders, investors and financial institutions.

If you are aiming for a good ESG rating and access to sustainable finance, now is the time to dig in.

Indeed, the Ellsberg paradox – a deviation from the model of rational choice – is a demonstration that a person “tends to prefer choices with quantifiable risks over those with unknown, incalculable risks”.

In other words, we are more likely to bet on an outcome with unfavorable odds, than on one where we do not know the odds at all.

This goes to show that ignorance of the future carries a cost today: ambiguity makes risks uninsurable, or at the very least expensive. The less insurers know about risks, the more capital they need to protect their balance-sheets against possible losses. The same reasoning is likely to be true also for investors.

ESRS is a major opportunity to build awareness, resilience, efficiency and sustainable growth opportunities.

So, with or without Omnibus, it’s important to keep in mind that reporting is only a means to an end, not the end.

Setting up the management and control systems needed to identify, govern and manage your sustainability-related impacts, risks and opportunities, is needed to future-proof your business and safe-guard your competitive advantage.

And you will need the support of a fit-for-purpose ESRS-ready sustainability strategy, governance & reporting software to guide you, save time, increase decision-usefulness and decrease your burden ➡ Cleerit ESG.

#getCSRDready, #CSRD, #ESRS, #ESG, #Strategy, #Governance, #SustainabilityReporting, #Digitalisation, #Cleerit

You are welcome to follow our page for more information and advice on CSRD & ESRS: https://www.linkedin.com/company/cleerit

ESMA’s key messages on how to improve future non-financial reports

On 5 April 2025 ESMA released a report with key messages on how to improve future non-financial reports, acknowledging a ”current learning phase of the sustainability reporting journey”.

It is based on findings from corporate reporting during 2024 (on FY 2023, prepared in accordance with the Accounting Directive, 2013/34/EU).

The report addresses listed companies in the EEA, auditors and other corporate reporting professionals, with the aim to promote transparency and accountability to the market.

ESMA examined 573 non-financial statements, whereof most (425) related to checking whether the information met the requirements of the Accounting Directive.

This led to enforcement actions related to content towards 121 issuers, causing an action rate of 28%, up from 23% in the previous year.

Most actions required the issuer to make a correction in a future non-financial statement.

22 enforcement actions were also taken, based on the examination of the 137 issuers in the sample, related to the recommendations derived from the 2023 European Common Enforcement Priorities (ECEP).

They were all in the form of requiring the issuer to correct the relevant matter in future non-financial statements.

Enforcement actions

Close to half of all actions related to Article 8 Taxonomy Regulation disclosures – or the lack thereof – followed by disclosures related to non-financial KPIs and description of policies and outcome of policies, due diligence and principal risks.

In particular, the level of specificity of disclosures related climate-related targets and emission reduction targets can be improved, especially in relation to the strategic dimension of the targets, the specific decarbonisation levers used and the financial resources necessary to fulfil the targets.

Overall, the review of the disclosures on targets confirms the importance of relying on sufficiently detailed disclosure rules focusing on minimum basic requirements to enable the comparability of disclosures and the assessment of the credibility of individual issuer’s commitments.

Other actions related to issues such as the reporting perimeter (lack of transparency on it or insufficient coverage of the reporting), reporting on environmental, social and governance (ESG), related governance issues and ESG ratings.

Key findings

Disclosures relating to Article 8 of the Taxonomy Regulation

ESMA refers to these disclosures as having a ”theoretical relevance as a tool to communicate the transition potential of a business”.

  • Difficulties were flagged with the application of the activity-based reporting set out in the taxonomy regime for integrated business models or for economic activities whose management is typically outsourced
  • Disclosures to explain the methodologies and the conclusions underlying the eligibility and alignment assessments as well as to explain the quantitative information in the reporting templates, most notably on the main taxonomy ratios, did not provide entirely satisfactory.
  • The disclosure of CapEx plans remained very limited with sometimes insufficient accompanying contextual information.

Disclosures of climate-related targets, actions and progress

An increased transparency in reporting on climate-related matters is now required, gaining further relevance in light of the forthcoming application  of the enhanced disclosure regime set out in the CSRD.

The Non-Financial Reporting Directive (NFRD) requirements are not specific as to the basic elements that disclosures on targets should contain.

  • Many times disclosures lacked basic elements, such as the scope of the target, the baseline value and base year, the underlying methodologies and assumptions and whether the target is based on scientific evidence.
  • Explanations of the relationship between the targets and their strategic dimension were often missing for a sizeable part of the sample.
  • Many disclosures lacked specificity, e.g., in relation to decarbonisation levers, the science-based nature of the targets and the absence of intermediate milestones.
  • The disclosure of financial resources necessary to support the achievement of the targets disclosed was often missing or lacking specificity, for example not providing specific breakdowns to assess the relationship between a specific target and the related investments.

Overall, the review of the disclosures on targets confirms the importance of relying on sufficiently detailed disclosure rules focusing on minimum basic requirements to enable the comparability of disclosures and the assessment of the credibility of individual issuer’s commitments.

Scope 3 emissions

Disclosures on Scope 3 greenhouse gas (GHG) emissions are part of the information that investors would consider as necessary input to sustainable investment decisions.

  • Shortcomings remain in terms of transparency on the exclusions from the scope 3 calculation and transparency on the use of estimates to calculate the emissions.
  • Only in a minority of cases were disclosures of the gross amounts of GHG emissions provided separately from the effect of carbon credits and other measures.
  • Comparative information on scope 3 emissions was in many cases not sufficient to get an understanding of the factors driving the evolution of the reported information.

The lacking or insufficient information will be required under the European Sustainability Reporting Standards (ESRS) which is expected to increase the comparability and overall quality of GHG emissions reporting.

Improve contextual information and explanations of relationships between targets, strategy and related investments

By using ESRS taxonomy-centric report templates and IRO-management models provided in Cleerit ESG, disclosures on contextual information, and explanations of the relationship between the targets, their strategic dimension and the related investments, will be improved – for the benefit of the market and management.

You are welcome to contact us if you want to know more about how leading market actors are enhancing their strategic sustainability governance and reporting > Book a presentation

Source: https://www.esma.europa.eu/sites/default/files/2025-04/ESMA32-193237008-8791_Report_on_2024_Corporate_reporting_enforcement_and_regulatory_activities.pdf

Fast-tracked work plan for the revision and simplification of the ESRS

Following the publication of the Omnibus proposals and in line with the European Commissioner Albuquerque’s request, the EFRAG Sustainability Reporting Board (SRB) has approved today its comprehensive and fast-tracked work plan to deliver its technical advice by 31 October 2025 for the revision and simplification of the European Sustainability Reporting Standards (ESRS).

EFRAG’s approach will build on the experience of first-wave companies that implemented ESRS for their 2024 financial year.

📅 Timeline and steps

April to mid-May 2025

Establishing a vision on actionable levers for substantial simplification (to be confirmed following the stakeholders’ feedback)

Gathering evidence from stakeholders, analysis of the issued reports and other sources – the public call for input is open until Tuesday 6 May

Second half of May to July 2025

Drafting and approving the Exposure Drafts amending ESRS

August and September 2025

Publishing the Exposure Drafts, receiving and analysing feedback (including via public consultation) from stakeholders

October 2025

Finalising and delivering the technical advice to the EC

The work plan is based on the Omnibus proposals as tabled by the EC and does not consider the consequences of changes that may stem from the legislative process. Should changes be made, the timetable and work plan might need to take account of them for the delivery of an appropriate technical advice.

EFRAG has initially identified actionable levers that will be further specified following the evidence gathering phase:

🌿 Revising the presentation and architecture, including the articulation of cross cutting and topical provisions.

🌿 Addressing the most challenging provisions, including the clarification of the application of the materiality principle, to ensure that only material information is required to be reported.

🌿 Evaluating general burden reduction reliefs for ESRS, to reduce the compliance efforts horizontally across disclosures. This may include reliefs for (i) reporting information about acquired businesses and disposals, (ii) certain confidential and possibly business sensitive information and (iii) metrics affected by estimation uncertainty and lack of data quality, including through a broader use of the “undue cost and effort” principle.

🌿 Substantially reducing the number of required datapoints (“shall”), and considering the relevance of disclosure requirements, if need be, with a (not exclusive) focus on narrative disclosures. This critical part of the burden reduction effort will include deletions and transfer of datapoints from a “mandatory” status to a “voluntary” status (“shall” transferred to “may” or to guidance/guidelines or to illustrative examples/educational material). The reduction of datapoints shall be considered from a burden reduction angle as well as from a numerical angle.

Read more here: https://www.efrag.org/sites/default/files/media/document/2025-04/EFRAG%20ESRS%20Revision%20Work%20Plan%20and%20Timeline%20submitted%20to%20the%20EC_25042025.pdf

ESRS metric S1.97.a “Gender wage gap” and gender equity metrics

The recognition of gender diversity, inclusion and pay equity as important dimensions of corporate sustainability performance is not only a matter of fairness, but also of economic analysis confirming that it drives growth, innovation and competitive advantage.

These indicators are also relevant to the UN Sustainable Development Goal 5 “Gender equality” and 10 “Reduced inequalities”.

They focus on measuring vertical inequality associated with the distribution of income, wealth and other economic resources among individuals, and horizontal inequality between social groups, differentiated, for example, by race, ethnicity and gender.

Traditional social relations and cultural norms may undermine gender equality within organizations, and there are increasing pressures not only to disclose but also to explain and address differences related to gender imbalance and pay gaps.

As regards gender diversity, there can be different ways of thinking about targets. One would be to assume that the appropriate target for gender balance should be determined by demographic balance, that is, 50-50.

Another would be to factor in persistent core issues – such as segmented labour markets, cultural bias and the gender division of labour associated with caregiving – underpinning gender inequality from a structural perspective.

Women’s paid work is often concentrated in low-paid, low-quality jobs, advancement and career structures remain constrained by cultural norms and bias, and they tend to spend around 2.5 times more time on unpaid care and domestic work than men (UN Women 2018).

Despite progress made over the years in achieving gender equality, many challenges remain to women’s equal enjoyment of human rights in all spheres. Women continue to experience multiple forms of discrimination, disadvantage and exclusion, and they are underrepresented in decision-making positions.

Among high-income countries, the widening of the gender pay gap is particularly evident at the upper end of the wage distribution, while in low- and middle-income countries this is more apparent at the low end of the distribution (ILO 2018).

The right to equal pay for equal work is one of the EU’s founding principles enshrined in Article 157 of the Treaty on the Functioning of the European Union. However, the practical implementation and enforcement of this principle remains a challenge. In 2021, according to the EU Commission the gender pay gap was still 12,7% in the EU, varying from 0.7 % in Luxembourg to 22.3% in Latvia.

In 2022, as part of the EU Gender Equality Strategy 2020-2025, the European Parliament formally adopted the new EU law on gender balance on corporate boards. By 2026, companies will need to have 40% of the underrepresented sex among non-executive directors or 33% among all directors by 30 June 2026.

This figure is situated between the minimum of the ‘critical mass’ of 30%, which has been found necessary in order to have a sustainable impact on board performance and full gender parity, 50%. (European Commission, 2012)

So, targets within the range of 30 to 50%, and the specific goal of 40%, seem to constitute current benchmarks for gender diversity.

With regard to the gender pay gap, there seems to be considerable agreement that parity is the ultimate goal. A possible benchmark could be the performance of companies or countries identified as leaders or top performers.

According to the OECD (2018), top-performing countries are those with gender pay gaps of less than 10%. The Equileap scorecard method, for example, which is used for identifying and ranking the best performers in terms of gender equality, singles out companies with a mean gender pay gap of 3% or less (Equileap 2018). Interestingly enough, mandatory reporting in Great Britain has revealed that 24% of employers have no gender pay gap, or one that favours women. (*Report published by the UN Research Institute for Social Development – UNRISD)

Parity is the obvious normative goal for the gender pay gap. And one could conclude that should the disparity exceed 3% it’s time to get really worried.

It’s also important not to mask the scale of disadvantage in one category. Data disaggregated by multiple hierarchical or occupational categories can reveal where disparities are located.

 

Gender equality in the workplace, and more generally, has since gained greater global attention due to the SDGs and specific SDG targets as well as new UN guidance published in 2019 on Gender Dimensions of the Guiding Principles on Business and Human Rights (supported by the Government of Sweden). You can access the document here: https://www.ohchr.org/sites/default/files/Documents/Issues/Business/BookletGenderDimensionsGuidingPrinciples.pdf

 

(*) Report: Sustainability Accounting. What can and should corporations be doing? Research and writing by Peter Utting with Kelly O’Neill. The United Nations Research Institute for Social Development (UNRISD)

Omnibus ‘stop-the-clock’ proposal & ESRS simplification

On April 3, the European Parliament voted – with 531 votes for, 69 against and 17 abstentions – voted to postpone:

🌿by two years the application of CSRD requirements for large 2nd wave companies and for listed SMEs (3rd wave), due to report in 2026 (on FY 2025) and 2027 (on FY 2026) respectively,

🌿by one year the 1st wave of application of CSDDD (to 26 July 2028).

To enter into force, the draft law now requires formal approval by the Council, which endorsed the same text on 26 March 2025.

Source:

https://www.europarl.europa.eu/news/en/press-room/20250331IPR27557/sustainability-and-due-diligence-meps-agree-to-delay-application-of-new-rules

On April 1, the European Parliament voted – with 427 votes for, 221 against and 14 abstentions – to fast-track its work on the ‘stop-the-clock’ proposal that is part of the ‘Omnibus I’ package.

The European Parliament will now decide on April 3 whether to postpone

🌿by two years the application of CSRD requirements for large 2nd wave companies and for listed SMEs (3rd wave), due to report in 2026 (on FY 2025) and 2027 (on FY 2026) respectively.

🌿by one year the 1st wave of application of CSDDD (to 26 July 2028).

On March 26 the Council, which brings together member states’ ministers, already endorsed the Commission proposal on delayed application. If MEPs endorse that text on Thursday, the draft rules would only need formal approval by the Council to enter into force.

In parallel, on March 28, EFRAG was officially tasked with providing technical advice, together with a cost-benefit analysis, to be considered by the Commission when proposing to adopt a delegated act to revise and simplify the existing European Sustainability Reporting Standards (ESRS).

The Commission aims to “alleviate unnecessary administrative burdens while still meeting the core policy objectives of the European Green Deal”.

🌿The objective is to simplify the structure and presentation of the standards, and to reduce the number of mandatory ESRS datapoints without undermining interoperability with global reporting standards and without prejudice to the materiality assessment of each undertaking.

🌿The revision will clarify provisions that are deemed unclear. It will improve consistency with other pieces of EU legislation.

🌿It will provide clearer instructions on how to apply the materiality principle, to ensure that undertakings only report material information, and to reduce the risk that assurance service providers inadvertently encourage undertakings to report information that is not necessary or dedicate excessive resources to the materiality assessment process.

🌿It will also be critically important to engage with companies that now have direct experience of implementing ESRS and with the users of sustainability statements to better understand which datapoints they consider most critical.

EFRAG has been asked to provide its technical advice by 31 October 2025. However, this date is subject to change depending on the pace and conclusion of negotiations between the co-legislators.

The aim is allow the Commission to adopt the corresponding delegated act in time for companies to apply the revised standards for reporting covering financial year 2027.

Sources:

https://www.europarl.europa.eu/news/en/press-room/20250331IPR27545/sustainability-and-due-diligence-meps-fast-track-vote-on-postponed-application

https://www.efrag.org/en/news-and-calendar/news/eu-commissioner-albuquerque-addresses-efrag-srb-on-esrs-simplification-mandate

#getCSRDready, #CSRD, #ESRS, #VSME

ESRS, VSME or nothing at all – that’s the question

Are you a 2nd wave CSRD in-scope company with less than 1000 employees, wondering what to do?

Some companies focus primarily on meeting reporting requirements, and now wonder where to concentrate their efforts, on ESRS or VSME? Or do nothing at all?

Other leading companies are already prepared and have discovered how structured sustainability reporting processes drive business value.

They use the ESRS standards as a tool to analyze their operations, identify risks and opportunities, and future-proof their business decisions and competitiveness.

The ESRS standards have been conceived to help you get future-ready.

That’s why they are based on your specific impacts, risks & business opportunities, and your plans to manage them.

VSME helps you share your sustainability information. It is an excellent choice for small companies to get started with a relevant and proportionate one-stop-shop report.

Your choice will be based on your specific circumstances, ambitions and possibilities.

⭕ Preparing with the ESRS standards – with a learning mind-set and based on your materiality assessment – is the best choice for you, if you

🌿 operate in a sector facing sustainability challenges (industry, real estate, transportation…) – chances are that demands from financial actors, business partners, customers and rating agencies will remain high for your company;

🌿 are more than 500 employees and up against listed 1st wave competitors – chances are that your competitors will come out on top if you are less prepared;

🌿 have already worked on your DMA – the difficult part is already done, and there are many phase-ins in ESRS, especially if you have less than 750 employees (no phase-ins exist in VSME – you will need to report on your own workforce from year one, for example).

⭕ If it’s your first time reporting on sustainability and you have not yet started your DMA,

🌿VSME is a good choice for 2025 – and a steppingstone to ESRS reporting should you choose to gear up in the future.

⭕ There is only one ‘wrong’ choice: to wait and do nothing at all.

The mega trend is a fact, and unless you choose to ignore the challenges of the future (already in motion), you need to get started – one way or the other.

If you wait, you will find yourself in the exact same position in two years, and chances are you will be way behind your competitors, and again struggling for time.

If you decide not to prepare, you are signaling to the market that you do not care about making sustainable business choices, or that you do not value transparency on these issues.  Either way, it will not be good for business.

⭕ Read more

👇 You can read more about a leading group that use ESRS to X-Ray and future-proof their business here >>>

And if you want to use our digital ESRS and VSME templates with built-in guidance 👉 you are welcome to contact us

#getCSRDready, #CSRD, #ESRS, #VSME

EUDR compliance – a guide to understanding deforestation due diligence obligations

ESRS E4, datapoints 24.d and 38.a, require companies to disclose adopted policies to address deforestation and relevant metrics.

EUDR, the EU Regulation on Deforestation-free Products (EU 2023/1115), introduces obligations relating to the placing or making available on the EU market, and exporting from the EU, of deforestation-related commodities and associated products.

The EU Commission has published a guide to help companies understand the level of due diligence required depending on the type of company, its position in the supply chain (first placing/downstream) and its size.

The document provides an overview of how the obligations apply illustrated through 11 supply chain scenarios.

You will find the document enclosed, and you can also download “EUDR compliance – a guide to understanding your position in beef, cocoa, coffee, palm oil, rubber, soy, and wood supply chains” here: https://data.europa.eu/doi/10.2779/4084343

In December 2024 the EU granted a 12-month additional phasing-in period, making the EUDR law applicable on 30 December 2025 for large and medium companies and 30 June 2026 for micro and small enterprises.

Traceability and transparency are at the heart of the system, to make the sustainability of supply chains a new standard.

Deforestation

Is defined as the conversion of forest to agricultural use, whether human-induced or not, which includes situations caused by natural disasters.

The assessment of whether the commodity has contributed to deforestation is conducted by looking backwards in time to see if the crop land was a ‘Forest’ at any time since the date specified in the Regulation (31 December 2020).

A forest that has experienced a fire and is then subsequently converted into agricultural land (after the cut-off date) would be considered deforestation under the Regulation.

In this specific case, an operator would be prohibited from sourcing commodities within the scope of the Regulation from that area (but not because of the forest fire).

Conversely, if the affected forest is allowed to regenerate, it would not be deemed deforestation, and an operator could source wood from that forest once it has regrown.

Forest degradation

Means structural changes to forest cover, taking the form of the conversion of:

🌿 primary forests or naturally regenerating forests into plantation forests or into other wooded land, or

🌿 primary forests into planted forests.

Wood products coming from such converted land cannot be placed on the market or exported.

Sustainable forest management systems can be employed and encouraged, provided they do not lead to a conversion that meets the degradation definition.

Which products are covered?

Palm oil, cattle, soy, coffee, cocoa, timber, rubber, and products derived from the listed commodities (such as beef, furniture, or chocolate)

See the full list of commodities in Annex I of the Regulation: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R1115&qid=1687867231461#d1e32-243-1

 

Source: https://green-business.ec.europa.eu/deforestation-regulation-implementation_en

 

Stay tuned for more CSRD, ESRS and VSME insights on our LinkedIn page >>

The Commission has today published legislative ‘Omnibus’ proposals

The Commission has today published legislative ‘Omnibus’ proposals with the aim to simplify CSRD, EU Green Taxonomy (art.8), CSDDD and CBAM.

A little less conversion, a little more action – not so sure…

As the EFRAG Sustainability Reporting Board pointed out in this morning’s meeting, it is a proposal to consider, it needs to be assessed, it takes time, there is a due process, so we “should not jump to conclusions”.

The European Parliament and Council must agree on the final version, which likely means negotiations and trade-offs.

The CSRD has already been transposed into national laws by the majority EU Member States.

This means that until the Omnibus is fully negotiated, approved, and transposed again, companies in these Member States are still legally be required to comply with CSRD.

There is no suspension or pause in the obligations, and no signal that national authorities will not continue to enforce it.

So, our recommendation, at this point in time, is to continue to prepare to meet CSRD obligations. Many companies are already reporting accordingly and this will set expectations.

CSRD is as much a strategic tool as it is a gold standard for sustainability reporting.

Double Materiality Assessment remains crucial for long-term resilience and strategic planning.

Today’s proposals may not bring immediate changes, but it’s a good time to focus on the strategic elements of CSRD and use the insights gained to date to guide your gap assessment in terms of governance, policies, actions, targets, and metrics.

Let’s not forget what the Commission said on November 15 last year:

  • The ESRS is a necessary part of the EU’s green deal, which is expected to strengthen the EU’s resilience and competitiveness, as well as reduce the risk of financial instability.
  • The new rules will have far-reaching consequences. New systems, expertise and processes are now needed.
  • Prepare in a proportionate and pragmatic way, with common sense and a learning attitude.
  • Do not report more information than is required. Use the phase-in provisions. Avoid ”overkill” – report only on material information.

Today’s Omnibus proposals are (in short):

CSRD

  • Exclude companies with less than 1,000 employees and less than either €50 million in turnover or a balance sheet total below €25 million from the scope of the CSRD, including listed companies currently included in 1st wave reporting.
  • Postpone by two years the entry into application for large 2nd wave companies and for listed SMEs (3rd wave), that are due to report in 2026 (on FY 2025) and 2027 (on FY 2026) respectively.
  • Remove the sector-specific ESRS (Set 2) requirement from CSRD.
  • Remove the requirement to go from a limited assurance to a reasonable assurance in 2028 from CSRD, to ensure no future increase in the cost of assurance.

EU Green Taxonomy

  • Make the reporting on the EU Green Taxonomy voluntary for companies with more than 1,000 employees and a turnover below €450 million.
  • Simplify the Green Taxonomy reporting templates and reduce data points by 70%.
  • Introduce a materiality threshold to make disclosure of alignment for companies with less 10% eligible activities not mandatory.
  • Introduce the option of reporting partial disclosure and Taxonomy-alignment.
  • Reduce the scope for mandatory reporting on operational expenditure and simplify certain ‘Do no significant harm’ (DNSH) criteria.
  • Adjust the Green Asset Ratio (GAR for banks).

CSDDD

  • Postpone by one year the 1st wave of application of CSDDD (to 26 July 2028), to give in-scope companies more time to prepare.
  • Require full due diligence with in-depth assessments of adverse impacts related to the value chain beyond direct business partner, only in cases where the company has plausible information suggesting that adverse impacts have arisen or may arise there.
  • Reduce the frequency of assessments and monitoring of partners from annual to 5 years (unless there are reasonable grounds to believe that the measures are no longer adequate or effective).
  • Remove the EU civil liability conditions from CSDDD while preserving victims’ right to full compensation for damage caused by non-compliance, and protecting companies against over-compensation, under the civil liability regimes of Member States.

VSME

  • For companies not in the scope of the CSRD and CSDDD, the voluntary reporting standard (VSME) developed by EFRAG will act as a shield by limiting the information that in-scope companies or banks can request.

CBAM

  • Introduce a new CBAM cumulative annual threshold of 50 tonnes per importer.
  • Simplify the rules on authorisation of CBAM declarants, emissions calculations, reporting requirements and financial liability.

The legislative proposals will now be submitted to the European Parliament and the Council for their consideration and adoption.

Corporate Sustainability Reporting Directive (CSRD)

  • Exclude all companies with less than 1,000 employees and less than either €50 million in turnover or a balance sheet total below €25 million from the scope of the CSRD, including listed companies currently included in 1st wave reporting.
    • This removes around 80% of companies from the scope of CSRD while focusing on the largest companies which are more likely to have the biggest impacts on people and the environment, according to the Commission.
  • Postpone by two years the entry into application for large 2nd wave companies and for listed SMEs (3rd wave), that are due to report in 2026 (on FY 2025) and 2027 (on FY 2026) respectively, in order to give time to the co-legislators to agree to the Commission’s proposed substantive changes.

European Sustainability Reporting Standards (ESRS)

  • Revise and simplify ESRS Set 1 with the aim of reducing the number of data points, clarifying provisions deemed unclear, improving consistency with other pieces of legislation.
  • Adopt the necessary delegated act at the latest six months after the entry into force of the proposed Omnibus Directive.
    • A review of ESRS Set 1 was already scheduled for 2029 in CSRD.
    • Taking into account the need for public consultation, in practice, this is likely to mean 3 financial years with the current standards: 2024, 2025 and 2026, as pointed out by French ANC.
  • Remove the sector-specific ESRS (Set 2) requirement from CSRD, to avoid an increase in the number of prescribed data points to report on, permanently putting sector-specific standards on hold.

Assurance / Auditing

  • Remove the requirement to go from a limited assurance to a reasonable assurance in 2028 from CSRD, to ensure no future increase in the cost of assurance.
  • Instead of an obligation for the Commission to adopt standards for sustainability assurance by 2026, the Commission will issue targeted assurance guidelines by 2026.

EU Green Taxonomy

  • CSRD in-scope companies are also automatically required to report certain indicators under article 8 of the EU Green Taxonomy Regulation.
    • By postponing the application of the CSRD reporting requirements for 2nd and 3rd wave companies, the proposal would therefore also automatically postpone the application date for the Taxonomy Regulation.
  • Create a derogation for companies with more than 1,000 employees and a turnover below €450 million by making the reporting of Taxonomy voluntary.
  • However, if these companies elect to claim economic activities aligned or partially aligned with the EU Taxonomy (meaning qualifying as environmentally sustainable under the Taxonomy Regulation), they would be required to disclose their turnover and CapEx KPIs. They could also choose, but would not be required to, disclose their OpEx KPI.
  • Simplify the reporting templates, leading to a reduction of data points by almost 70%.
  • Introduce a materiality threshold to make disclosure of alignment for companies with less 10% (meaning not exceeding 10% total turnover, CapEx, OpEx) eligible activities not mandatory.
  • Introduce the option of reporting partial disclosure and Taxonomy-alignment to foster transition finance.
  • Reduce the scope for mandatory reporting on operational expenditure and simplify certain ‘Do no significant harm’ (DNSH) criteria.
    • Introduce simplifications to the most complex “Do no Significant harm” (DNSH) criteria for pollution prevention and control related to the use and presence of chemicals that apply horizontally to all economic sectors under the EU Taxonomy – as a first step in revising and simplifying all such DNSH criteria.
  • Adjust the main Taxonomy-based key performance indicator for banks, the Green Asset Ratio (GAR).
    • Banks will be able to exclude from the denominator of the GAR exposures that relate to companies outside the future scope of the CSRD (i.e. companies with less than 1000 employees and €50m turnover).

Corporate Sustainability Due Diligence Directive (CSDDD)

  • Postpone by one year the transposition deadline for EU Member States (currently 26 July 2027) and the 1st wave of application by in-scope companies by one year (to 26 July 2028), to give them more time to prepare.
  • In the meantime, guidelines will be issued by the Commission in July 2026, allowing companies to build more on best practices and reduce their reliance on legal counselling and advisory services.
    • The current timeline is:
      • 2027: > 5 000 employees and > 1 500 M€ TO
      • 2028: > 3 000 employees and > 900 M€ TO
      • 2029: > 1 000 employees and > 450 M€ TO
    • The CSDDD is estimated to apply to approximately 6000 large EU companies, and some 900 non-EU companies.
    • Companies subject to both CSRD and CSDDD are not required by the CSDDD to report any information additional to what they are required to report under the CSRD.
  • Require full due diligence with in-depth assessments of adverse impacts related to the value chain beyond direct business partner, only in cases where the company has plausible information suggesting that adverse impacts have arisen or may arise there.
  • Require the in-scope company to seek contractual assurance from the direct business partner that it will ensure compliance with the company’s code of conduct (which is part of the due diligence  policy) through flow-down requirements.
  • Reduce the frequency of periodic assessments and monitoring of partners from annual to 5 years (unless there are reasonable grounds to believe that the measures are no longer adequate or effective).
  • Streamline the stakeholder engagement obligations to focus on stakeholders whose rights and interests are or could be directly affected by the products, services or operations of the company, its subsidiaries and its business partners, and that have a link to the specific stage of the due diligence process being carried out. The focus would also be specifically in the impact identification stage.
  • Remove the obligation to terminate the business relationship as a last resort measure. (However, under certain circumstances, suspension of the relationship still could be required.)
  • Remove the EU civil liability conditions while preserving victims’ right to full compensation for damage caused by non-compliance, and protecting companies against over-compensation, under the civil liability regimes of Member States.
    • Leaving national law to define whether its civil liability provisions override otherwise applicable rules of the third country where the harm occurs.
  • Align the requirements on the adoption of transition plans for climate mitigation with the CSRD, by deleting the requirement to put into effect a climate transition plan.
  • Further increase the harmonisation of due diligence requirements in EU Member States to ensure a level playing field across the EU.
  • Delete the review clause on inclusion of financial services in the scope of the due diligence directive.

VSME as a ‘value chain cap’ for CSRD and CSDDD

  • The CSRD requires companies to report value-chain information to the extent necessary for understanding their sustainability-related impacts, risks and opportunities.
  • The current value-chain cap in CSRD would be extended and strengthened. It would apply directly to the reporting company instead of being only a limit on what ESRS can specify (currently information in the LSME standard).
  • For companies not in the scope of the CSRD, the voluntary reporting standard (VSME) developed by EFRAG, to be adopted by delegated act, will act as a shield by limiting the information that CSRD in-scope companies or banks can request from companies in their value chains with fewer than 1,000 employees.
  • It will also limit the information that CSDDD in-scope companies may request from their SME and small midcap business partners (i.e. companies with not more than 500 employees) to the information specified in VSME – unless additional information is needed to carry out the mapping (for instance on impacts not covered by the standards) and if it is not possible to obtain that information in any other reasonable way.
  • The VSME would be adopted by the Commission as a Delegated Act.
  • In the meantime, to address market demand, the Commission intends to issue a recommendation on voluntary sustainability reporting as soon as possible, based on the VSME standard developed by EFRAG.

Carbon border adjustment mechanism (CBAM) for a fairer trade

  • Introduce a new CBAM cumulative annual threshold of 50 tonnes per importer, thus eliminating CBAM obligations for approximately 182,000 or 90% of importers, mostly SMEs, while still covering over 99% emissions in scope across four CBAM sectors (iron and steel, aluminium, cement, fertilisers).
  • Simplify the rules on authorisation of CBAM declarants, emissions calculations, reporting requirements and financial liability.

According to the Commission, “if adopted and implemented as set out today, the proposals are conservatively estimated to bring total savings in annual administrative costs of around €6.3 billion.

Next steps

The legislative proposals will now be submitted to the European Parliament and the Council for their consideration and adoption.

The changes on the CSRD, CSDDD, and CBAM will enter into force once the co-legislators have reached an agreement on the proposals and after publication in the EU Official Journal.

The draft Delegated Act amending the current delegated acts under the Taxonomy Regulation will be adopted after public feedback and will apply at the end of the scrutiny period by the European Parliament and the Council.

Sources:

https://ec.europa.eu/commission/presscorner/detail/en/ip_25_614

https://ec.europa.eu/commission/presscorner/detail/en/qanda_25_615

https://commission.europa.eu/publications/omnibus-i_en