backThis February the EU streamlined its Corporate Sustainability Reporting Directive (“CSRD”).1Based on the EU Accounting Directive 2013/34/EU and the Corporate Sustainability Reporting Directive (EU) 2022/2464, the Commission adopted the Delegated Regulation (EU) 2023/2772 which set the European Sustainability Reporting Standards “ESRS”. On February 24, 2026, effective March 2026, the EU adopted the Omnibus I simplification package (Directive (EU) 2026/4704), Article 2 of which amended Directive 2013/34/EU. To implement the revised CSRD, the EU Commission on July 3 published revised European Sustainability Reporting Standards (“ESRS”).2Commission Delegated Regulation of 3.7.2026 amending Delegated Regulation (EU) 2023/2772 as regards the simplification of certain sustainability reporting standards. They simplify reporting for large EU firms, while shielding smaller firms from data requests in excess of new voluntary reporting standards.3Commission Delegated Regulation of 3.7.2026 supplementing Directive 2013/34/EU of the European Parliament and of the Council by establishing sustainability reporting standards for voluntary use by undertakings protected by the value chain cap. Large EU companies should review the revised ESRS to analyze what they must report, while smaller EU firms should review them to analyze what they need not report. The revised standards have been submitted to the European Parliament and Council for scrutiny and are expected to be applied once the two‑month scrutiny period, which can be extended by a further two months, has ended. Meanwhile, a draft set of similar simplifications for non-EU firms with significant EU business is now open for public comment until October 31, 2026.
EU Firms:
The revised ESRS simplify the sustainability reporting requirements for EU firms with more than €450 million in net annual turnover and an average of more than 1,000 employees during the preceding financial year.
Firms below these thresholds, many of which were previously required to report, are no longer required to do so. They are also now shielded from data demands by larger firms. They may not be required to provide data in excess of a new set of voluntary reporting standards.
The EU Commission may in future revise these size thresholds notably to take account of inflation and to review whether the overall scope of reporting remains appropriate.
Reporting Topics:
Topics covered include general disclosures such as the firm’s business model, sustainability risks and opportunities; climate change; pollution; water; biodiversity and ecosystems; resource use and circular economy; own workforce; workers in the value chain; affected communities; consumers and end-users; and business conduct.
The ESRS require firms to provide both qualitative disclosures and quantitative metrics and targets on material sustainability matters.
Streamlined Reporting:
The revised ESRS reduce the number of mandatory reporting data points by over 60%, thus reducing reporting costs. Firms are allowed more flexibility in assessing materiality and in the level of disaggregation. The fair presentation principle now applies only to the report as a whole rather than to individual data points. The new ESRS also expand the grounds for non-reporting of information seriously prejudicial to a firm’s commercial position, permit firms to limit reporting of information which would require undue cost or effort to obtain, and allow firms to defer reporting of anticipated financial effects.
Climate Change:
In-scope companies must report their mitigation efforts to ensure their compatibility with limiting global warming to 1.5°C in line with the Paris Agreement and the objectives of the European Climate Law,4Regulation (EU) 2021/1119. including climate neutrality by 2050. Reports must include a company’s transition plan, its greenhouse gas (“GhG”) emission reduction targets, and the key actions and funding needed to reach those targets. Gross scope 3 emissions and reduction targets must be reported. For financial institutions, this includes financed emissions from investments and other financial services, subject to specific methodological rules and certain transitional reliefs for some financed-emissions disclosures. Energy consumption must be reported by source. Carbon credits must be reported but may not be counted as means to achieve targets or to report only net emissions.
Control:
Firms may report GhG emissions generated within corporate boundaries based either on financial control (over entities they consolidate in financial reports) or operational control (over entities whose operating decisions they direct, regardless of ownership structure). Under the original 2023 ESRS, the reporting boundary for GHG emissions was in practice based on the financial consolidation perimeter, with operational control not offered as a general alternative. This new flexibility aligns ESRS more closely with global standards and reduces the burden on companies that report under both frameworks.
Voluntary Standards:
EU firms which do not meet the net turnover thresholds for mandatory ESRS reporting and did not have more than 1,000 employees on average during the preceding financial year may choose to report under a new Voluntary Sustainability Reporting Standard for SMEs (“VSME”). This provides SMEs a uniform framework to respond, for example, to questions from financial institutions and in-scope business partners. At the same time, the voluntary standards are a shield: SMEs may not be required to report information beyond the voluntary standards.
Employment and Workforce:
ESRS S1 (Own Workforce) requires in-scope firms to report on working conditions, equal treatment and opportunities, and other work-related rights, including health and safety, work-life balance, and adequate wages. Reporting under ESRS S1 must be consistent, coherent, and clearly linked with reporting under ESRS S2 (workers in the value chain). These requirements intersect with several EU employment law frameworks, including the EU Pay Transparency Directive,5Directive (EU) 2023/970. and with national implementing legislation. However, most EU Member States have not yet fully transposed this Directive into national law, creating uncertainty. In addition, companies subject to the Corporate Sustainability Due Diligence Directive (“CSDDD”)6 Directive (EU) 2022/2464, as amended by Article 3 of Directive (EU) 2026/4704. must integrate human rights and environmental due diligence into their operations, subsidiaries, and business partner relationships, which include labour and working-conditions impacts reportable under ESRS S1 and S2.
The revised ESRS remove or narrow certain S1 metrics, including some diversity and life event data points. S1 human rights and discrimination reporting is limited to only substantiated and verified incidents. The prior “severe human rights incidents” concept is removed. The adequate wages metric now references the EU Minimum Wage Directive7Directive (EU) 2022/2041. within the EU and ILO guidance outside the EU, and removes wage-related disclosures for non-employee workers.
Legal Issues for EU Companies:
Many legal issues arise under the new ESRS. For example:
- whether a firm must report at all and, if so,
- whether it must report on an individual or consolidated basis,
- whether a firm has the requisite degree of control over a joint venture or other entity to trigger reporting requirements,
- how to coordinate ESRS reporting with reporting under other EU Directives, such as the EU Pay Transparency Directive (see above),
- whether reported corporate governance, and due diligence on sustainability (including human rights and labour standards in a firm’s own workforce and value chain as discussed above), meet EU CSDDD standards,
- how firms should act in the face of delays in national implementing legislation (“transposition”) of the new EU standards, and
- how to interpret ambiguities in applying many of the new standards (e.g., whether reporting certain information would be “seriously prejudicial” to a firm, or whether a firm’s efforts to obtain certain data would require “undue” cost).
Timeline for EU Companies:
In-scope firms which have not previously reported under CSRD and ESRS must report for the first time in 2028 for financial year 2027. In-scope firms which previously reported under CSRD and ESRS (Wave 1) continue their annual reporting obligations, with the next reports due in 2026 and 2027 for financial years 2025 and 2026 respectively, provided they remain above the revised scoping thresholds.
Non-EU Parent Companies:
The revised CSRD applies to non-EU firms with more than €450 million in net annual turnover in the EU in each of the last two financial years and with at least one EU subsidiary or branch with net turnover of more than €200 million in the last financial year. Estimates are that 1,200 non-EU firms may now be in-scope (as opposed to roughly 10,000 non-EU firms previously), mainly in the United States (350-450 firms), the United Kingdom (150-200), and Switzerland and Japan (100-150 each).
However, the revised ESRS do not apply to these firms. Instead, the European Financial Reporting Advisory Group (“EFRAG”) published an “Exposure Draft ESRS for Certain Non-EU Undertakings in Accordance with Article 40a of the Accounting Directive” on July 23, 2026, and invited public comment until October 31.8https://www.efrag.org/en/esrs-for-certain-noneu-undertakings-in-accordance-with-article-40a-of-the-accounting-directive. It covers the same reporting topics (but not all the same metrics) as the ESRS, focusing however on impact materiality (as distinct from financial materiality). It also allows in-scope, non-EU firms to adopt a “mixed approach” by requiring reporting only on EU-related impacts for all topics other than climate – which should make the reporting obligations significantly less burdensome. EFRAG expects to present a draft in early 2027 to the EU Commission, which is expected to adopt the new standards in 2027. Once adopted, the ESRS for Non-EU Undertakings are currently expected to require initial reports in 2029 for FY 2028.
Public Consultation for Non-EU Companies:
The window for public comment on the EFRAG “Exposure Draft ESRS for Certain Non-EU Undertakings in Accordance with Article 40a of the Accounting Directive” remains open through October 31, 2026. EFRAG seeks feedback on four key topics: (1) deletions and additions compared with ESRS, including the removal of risks, opportunities, resilience and dependencies, (2) how to treat EU legal references in a global reporting framework, (3) whether to require climate information to be reported at the global group level while limiting disclosures on other sustainability topics to EU-related impacts, and (4) interoperability with jurisdictional standards based on International Financial Reporting Standards (“IFRS”) Sustainability Disclosure Standards.9Ibid.
Recommendations:
- Large EU companies should review the new ESRS to analyze what they must report.
- Smaller EU companies should review the ESRS to analyze both what they must report and what they need not report.
- Timely Preparation: Even in its recently simplified form, the revised ESRS require extensive reporting with a degree of specificity and auditability beyond those required under other global sustainability reporting frameworks on which many EU (and non-EU) firms rely. With ESRS reports due in 2026, 2027 or 2028, depending on an in-scope EU firm’s prior ESRS reporting status, EU firms may need to develop or update data protocols, data gathering, and associated software in 2026, and train personnel to deploy them. Firms are well advised to consult counsel before expensive changes are made or delays incurred.
- Non-EU firms, especially those with more than €450 million in net annual turnover in the EU in each of the last two financial years and with at least one EU subsidiary or branch with net turnover of more than €200 million in the last financial year, should consider whether to submit comments to EFRAG during the current public consultation period which closes October 31, 2026.