EFRAG’s revised ESRS: promising steps toward simplified reporting, with room for improvement

EFRAG’s revised and simplified Exposure Drafts of the European Sustainability Reporting Standards (ESRS) aims to ease the reporting burden under the CSRD by reducing required datapoints and offering more flexibility. However, its proposed introductions inevitably raise the question: can scaled-back reporting still support the EU’s environmental and social ambitions?

With the 60-day public consultation on EFRAG’s proposed revisions now closed, Nordic Sustainability has reviewed the drafts and identified both promising advancements and areas for continued improvement. We welcome many of the proposed changes, which offer clearer guidance, more streamlined disclosures and greater opportunities for companies to communicate strategically about their impacts, risks and opportunities.

At the same time, we see revisions that risk undermining transparency, comparability, and accountability in reporting. To foster a stronger balance between reducing the reporting burden and maintaining the integrity and usefulness of the standards, we propose modifications to ensure that the ESRS continues to enable companies to work strategically with their impacts, risks and opportunities.

Promising advancements

Clearer guidance on positive impacts

The revised ESRS Exposure Drafts now provide more explicit guidance on how to identify positive impacts, ensuring reported positive impacts are not simply the result of addressing a company’s own negative impacts or meeting regulatory requirements. This clarification strengthens the credibility of reporting with a stronger focus on meaningful contribution, not just corrective or required action.

Streamlined structure and simplified language

Repetitive elements, such as overlapping disclosure requirements for Policies, Actions and Targets (PATs) have been removed, reducing duplication and improving overall clarity.

A major improvement is also the clearer distinction between what is mandatory and what is optional. Voluntary datapoints and additional guidance have been moved to a new Non-Mandatory Implementation Guidance section, allowing companies to see immediately which disclosures are required, and which are supplementary.

Greater flexibility in reporting

EFRAG has proposed new features to enhance readability and accessibility of sustainability reports. Companies will have the option to include appendices and an executive summary, making it easier to present key information in a concise and accessible way. This could help organisations communicate more effectively, potentially reducing the need for separate communication pieces or standalone reports to highlight progress made during the reporting year.

The draft also introduces greater flexibility in how companies can structure their disclosures, particularly around PATs. Companies can now choose to report PATs by topic or by Impacts, Risks and Opportunities (IRO), recognizing that many organisations do not maintain IRO-specific policies and would otherwise have been required the same information across multiple sections.

Areas for continued improvement

While these improvements are welcome, some aspects of the revised drafts could benefit from additional clarity or safeguards to maintain the strategic usefulness and comparability of disclosures. 

Embedding sustainability in risk management

Quantifying financial effects is inherently uncertain. Yet, the proposed relief risks discouraging companies from embedding sustainability into risk management and financial planning. Over time, this could heighten exposure to transition and reputational risks, leading companies to not work as effectively in addressing key IROs.

Strengthening transition reporting for financial institutions

For financial institutions, the draft suggests that absolute GHG emissions may not need to be disclosed if intensity targets are set. We disagree. The new SBTi guidance for financial institutions mandates absolute long-term targets (with near-term intensity targets acceptable). CSRD should mirror this approach. In addition, engagement metrics, showing what share of the portfolio has been actively addressed, and annual disclosure of absolute reductions would provide stakeholders with a far clearer view of transition progress.

If absolute targets are left out of CSRD, institutions may face the burden of revisiting and reworking disclosures if they choose to set SBTs (science-based targets) to reach net-zero. More importantly, setting a long-term absolute target also holds strategic value for financial institutions, allowing them to define a credible pathway for their portfolios and demonstrating to stakeholders that their financing strategy is aligned with a 1.5°C trajectory.

Preserving comparability in Double Materiality Assessments

The proposed “gross vs. net-rule” in Double Materiality Assessments (DMA) allows companies to discount negative impacts once mitigation is applied, even if minimal. This creates an uneven playing field: firms making small, symbolic interventions can claim reduced exposure, while those investing in continuous and substantive mitigation must still disclose gross impacts.

The result is distorted comparability, weakened transparency, and a disincentive for continued investment in impact reduction. For investors, it narrows the view of risk and undermines the credibility of disclosures. For companies, this can skew the outcome of the DMA and, worse, lead to missed strategic decisions when detailed data is overlooked.

Encouraging full data coverage

Allowing companies to disclose only partial data at the outset is a pragmatic compromise. But without clear incentives to expand coverage, there is a risk that incomplete disclosures become entrenched. This weakens transparency and makes comparability across companies difficult, running counter to CSRD’s core aims.

As data is the foundation of good decisions, companies risk prioritizing short-term fixes over accurate strategic planning, missing medium- to long-term market opportunities. Without clearer incentives from the ESRS to expand coverage, companies risk weakening their competitive positioning and gradually erode external stakeholder trust.

Clarifying links between IROs and strategy

Companies have taken widely different approaches to reporting under SBM-3 (Material impacts, risks and opportunities and their interaction with strategy and business model) leaving disclosures inconsistent and fragmented. Clearer requirements and structured guidance are needed to help companies turn ESG challenges into drivers of value creation. Those that fail to show how IROs interact with their business model risk missing this opportunity.

Our 3-step approach links sustainability IROs to business model transformation and strategic decision-making

Our approach for linking strategy and sustainability:

1. Identify material IROs and analyse the business model and commercial strategy
2. Assess key sustainability drivers and evaluate leverage points
3. Model resilience scenarios and assess financial effects

This high-level framework would raise reporting demands but would also help companies demonstrate the resilience of their strategy in the face of sustainability challenges.

Maintaining a mandatory baseline for climate and social disclosures

In the first ESRS draft, climate (E1) and social (S1) were mandatory standards, reflecting their importance as baseline disclosures across all companies. Removing the mandatory baseline risks major gaps in reporting. Without mandatory climate and social disclosures, comparability is lost, stakeholders lack a consistent starting point, and trust is eroded.

At a minimum, any omission of E1, S1, or G1 should follow the same stringent requirements already in place for E1 in ESRS 1 §32: a detailed explanation of why the issue is considered non-material, along with a forward-looking analysis of conditions that could make it material in the future.

Aligning social disclosures with adequate wage principles 

The draft’s reliance in S1-9 on legal minimum wages outside the EU risks misleading disclosures. Minimum wage rarely equals adequate wage. This creates a two-tier system between EU and non-EU workers, where disclosures suggest parity that does not exist.

We recommend requiring wages outside the EU to be measured either:

1. Against legal minimum wages only if authorities can show alignment with EU or ILO principles for adequate wages; or
2. Against independent living wage estimates that meet ILO standards.

This would prevent discriminatory reporting practices and improve comparability across jurisdictions.

Enhancing nature-related disclosures

Biodiversity requires a more sophisticated approach and disclosure of dependencies. We recommend adopting the TNFD’s LEAP approach to guide materiality assessments on nature related disclosures (E2-E5), ensuring companies disclose not only impacts but also dependencies on nature.

Disclosures should cover DIROs (Dependencies, Impacts, Risks, Opportunities) rather than IROs alone. Crucially, companies should continue to provide quantitative information on anticipated financial effects. Without this, biodiversity disclosures risk being qualitative at best, leaving investors with limited insight into how ecological risks and dependencies affect business value.

Conclusion

Simplifying CSRD reporting can make this process more accessible for companies, but only if core principles of comparability, transparency and accountability remain intact. Short-term simplifications may make reporting easier, but if they weaken the underlying insights, companies risk losing opportunities to turn ESG topics into real strategic value.

When companies start working strategically with ESG, otherwise overlooked opportunities begin to emerge. From low-carbon product innovation and circular business models to greater investment readiness when raising capital, stronger brand trust and the ability to attract and retain the next generation of talented employees.

Investors and stakeholders need high-quality data to compare results and form a clear picture. With a few thoughtful adjustments, the standards can both ease the reporting process and provide the strategic insights companies and stakeholders need to manage their impacts, risks, and opportunities effectively.

For more insights on navigating European sustainability regulations

Want to stay ahead of evolving ESRS requirements? Reach out to Reporting & Policy Team Lead Benjamin Brinch at bbr@nordicsustainability.com to get the latest insights on how your company can prepare and adapt.