On 3 July 2026, the European Commission adopted the delegated act revising the European Sustainability Reporting Standards (ESRS). The revision fully replaces Annexes I and II of Commission Delegated Regulation (EU) 2023/2772 and introduces a significant simplification of the standards applicable to sustainability reporting.
The adopted text reduces the number of datapoints, reorganises the standards, reinforces the application of the principles of proportionality and reasonable and supportable information, and introduces new flexibilities regarding the value chain, financial effects, metrics and transitional provisions.
The revised ESRS will apply mandatorily to financial years starting on or after 1 January 2027. Companies already subject to sustainability reporting may choose to apply them early for financial years beginning in 2026 or continue using the previous standards while benefiting from certain flexibilities introduced by the revision.
Although the technical content has already been adopted by the European Commission, the delegated act must still complete the scrutiny procedure by the European Parliament and the Council before formally entering into force. We are therefore looking at the final version adopted by the Commission, but not yet at a regulation that has been published and is fully applicable in the Official Journal of the European Union. If no objections are raised, the delegated act is expected to enter into force in November 2026.
Why have the ESRS been revised?
The revision forms part of the Omnibus I simplification package and pursues several objectives:
- Remove datapoints considered less relevant.
- Prioritise quantitative information over narrative explanations wherever possible.
- Provide a clearer distinction between mandatory and voluntary requirements.
- Clarify the application of the materiality principle.
- Reduce the risk of companies disclosing unnecessary information.
- Improve consistency with other EU legislation.
- Strengthen interoperability with international reporting standards.
- Simplify the structure and drafting of the standards.
The technical advice developed by EFRAG (European Financial Reporting Advisory Group) reduced mandatory datapoints by 61% compared with the first set of ESRS. The European Commission used this work as the basis for the revision, while introducing additional changes in areas such as materiality, greenhouse gas emissions, transition plans, microplastics, pollutants, financial effects and transitional provisions.
Double materiality remains the cornerstone of sustainability reporting
Double materiality remains the core principle underpinning the ESRS. Companies are required to report on:
- Their material impacts on people and the environment.
- Sustainability-related risks and opportunities that could have material financial effects.
The revised standards define information as material where its omission, misstatement or obscuring could reasonably be expected to influence the decisions of the primary users of general-purpose financial reports or other users of sustainability statements.
One of the clearest changes is that the standards no longer state merely that companies are not required to disclose immaterial information. Instead, they expressly state that companies shall not disclose information required by a disclosure requirement or datapoint unless it is material, except in the specific cases where complementary information may be provided.
This reinforces the role of materiality as a genuine filter for determining the content of the sustainability statement.
The revision also clarifies that the double materiality assessment should not be viewed as an exercise that must be repeated from scratch every year. Companies are expected to assess whether significant changes have occurred—for example, in their activities, organisational structure, value chain or operating context—and update the assessment where necessary. In the absence of significant changes, the work carried out in previous reporting periods may serve as the basis for the update.
What information should be disclosed?
The revised ESRS 1 structures the determination of the information to be disclosed into two stages:
- Identify topics related to material impacts, risks and opportunities.
- Determine what material information should be disclosed for each of those topics.
Where a material impact, risk or opportunity relates only to a specific sub-topic, the undertaking is required to disclose only the material information relevant to that sub-topic. It is therefore not necessary to automatically report all the information required by the corresponding topical standard.
This means that materiality must be assessed at different levels:
Top-down approach
Undertakings may apply a top-down approach when carrying out the double materiality assessment.
This approach starts by analysing:
- The undertaking’s strategy.
- Its business model.
- The sectors in which it operates.
- The geographical areas where it operates.
- The characteristics of the upstream and downstream value chain.
Where this analysis leads to a clear conclusion that a topic or sub-topic is either material or not material, there is no need to assess every individual impact, risk and opportunity separately.
Where the conclusion is not clear, a more detailed assessment should be carried out.
Undertakings may also apply a bottom-up approach, based on the direct assessment of individual impacts, risks and opportunities, or combine both approaches depending on the topic being assessed.
This flexibility is intended to avoid overly burdensome double materiality assessments based on the systematic evaluation of every possible sustainability matter, even where many are clearly not relevant to the undertaking.
Clarification on what can be considered a positive impact
The revision clarifies that positive impacts must be assessed independently and cannot be used to offset negative impacts.
The following are not automatically considered positive impacts:
- Compliance with legal requirements.
- Measures taken to prevent the undertaking’s own negative impacts.
- Mitigation of a negative impact caused by the undertaking.
- Remediation of harm to which the undertaking is linked.
A positive impact may exist, for example, where a product or service helps reduce a negative impact caused by a third party, provided that the undertaking is not linked to that negative impact.
Fair presentation of the sustainability statement
The revision explicitly introduces the principle of fair presentation.
This means that the sustainability statement must provide a complete, neutral, accurate, comparable, verifiable and understandable representation of the undertaking’s material impacts, risks and opportunities, as well as how they are managed.
Importantly, fair presentation is assessed based on the sustainability statement as a whole, rather than on each individual piece of information in isolation. Therefore, using estimates, applying an exemption provided for under the ESRS or omitting information where permitted by the standards does not, in itself, prevent the report from achieving fair presentation.
What matters is that the undertaking explains transparently the decisions it has made, the reasons behind them and any resulting limitations.
In other words, the ESRS do not require every piece of information to be perfect or entirely precise. They require the sustainability statement, taken as a whole, to faithfully represent the undertaking’s material impacts, risks and opportunities, while clearly explaining any limitations.
The value chain focuses on information that is truly material
The value chain remains within the reporting boundary where it is necessary to understand the undertaking’s material impacts, risks and opportunities.
However, the revised ESRS clarify that the assessment should not become an exhaustive analysis of every actor in the value chain or every possible sustainability matter.
Undertakings should focus their efforts on those parts of the value chain where material impacts, risks or opportunities are reasonably likely to arise.
Where primary data are not available, estimates and other reasonable sources of information may be used, including sectoral data, publicly available information, regional averages, market data or information from comparable undertakings.
This clarification reinforces a more proportionate approach to the value chain, aligned with the revised application of double materiality.
Information available without undue cost or effort
The ESRS already allowed undertakings to use reasonable and supportable information available without undue cost or effort. However, the revision clarifies and further develops how this principle should be applied in practice.
In particular, it specifies that this principle may be applied to:
- The double materiality assessment.
- The collection of value chain information.
- The calculation of sustainability metrics.
- The estimation of financial effects.
It also clarifies that, when assessing whether obtaining information would involve undue cost or effort, undertakings should take into account their specific circumstances, including their size, available resources, technical capabilities, the complexity of their value chain, and the availability of data and digital tools.
The European Commission also emphasises that this flexibility should not be regarded as a permanent exemption. As information availability and organisational capabilities improve over time, undertakings are expected to progressively enhance the quality and coverage of the data they use.
Partial data and progressive coverage
One of the new features introduced by the revision is the explicit possibility of reporting certain metrics with partial coverage, where the undertaking only has reliable data for an objectively defined part of its operations or value chain.
In such cases, the undertaking must explain:
- Which part is covered by the metric.
- The main limitations.
- The actions being taken to expand coverage.
- The progress made since the previous reporting period.
This flexibility does not apply to gross Scope 1, Scope 2 and Scope 3 greenhouse gas emissions, which remain subject to the specific requirements of ESRS E1.
Coverage is expected to increase progressively over time, particularly with regard to the undertaking’s own operations.
Additional non-material information
Although the ESRS state that non-material information required by the standards should not be disclosed, undertakings may include additional information where it:
- Is required by other legislation.
- Derives from other reporting standards or frameworks.
- Responds to the specific needs of particular users.
Such information should:
- Be clearly identified as supplementary information.
- Be distinguished from information resulting from the materiality assessment.
- Provide a faithful representation.
- Not obscure or hinder the understanding of material information.
New transitional provisions (phase-ins)
The revision also enables a more gradual implementation of the new ESRS. Depending on when an undertaking starts reporting and its specific circumstances, certain requirements may be deferred during the first reporting years. These temporary exemptions apply, among other areas, to specific topical standards, certain disclosures on financial effects and selected metrics.
This will allow many undertakings to avoid reporting the full set of requirements from the very first reporting period, supporting a more progressive transition to the revised framework.
What should companies do now?
Although the revised ESRS will become mandatory for financial years starting on or after 1 January 2027, organisations can already begin preparing for the transition.
In particular, they should:
- Review their double materiality assessment, ensuring that the material topics identified remain valid and assessing how the revised application criteria may affect the analysis. Updating the assessment is also an opportunity to simplify the methodology, improve the traceability of decisions and use double materiality as a management tool, rather than solely as a reporting requirement.
- Compare the 2023 ESRS with the revised version, identifying which requirements have been removed, which have changed and which new flexibilities may be applied.
- Adapt information collection processes, prioritising information that is genuinely material and reviewing the approach taken to the value chain.
- Assess the benefits of early adoption in 2026, particularly where the simplifications introduced by the revised ESRS could facilitate the reporting process.
- Prepare for the 2027 transition by documenting methodological decisions and adapting internal systems to ensure consistent, traceable and verifiable sustainability reporting.
The revision of the ESRS requires organisations to review their double materiality methodology, adapt their information collection processes and apply the new flexibilities in a consistent and verifiable manner.
At Baisma, we help organisations adapt their double materiality assessments, reporting processes and information systems to the revised ESRS.
If your organisation is preparing for the application of the revised ESRS or needs support in adapting its reporting process, we would be pleased to help.
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