Crucial next steps for the European Sustainability Reporting Standards

Ahead of the publication of the draft revised European Sustainability Reporting Standards, Mike O’Halloran outlines key recommendations for their effective simplification

The Corporate Sustainability Reporting Directive (CSRD) and its suite of reporting standards—the European Sustainability Reporting Standards (ESRS)—were transposed into Irish law in July 2024.

This transposition followed significant effort by many stakeholders at Irish and European level as the European Financial Reporting Advisory Group (EFRAG) developed the new suite of sustainability reporting standards for the European Commission.

Widely applicable to many entities across the European Union (EU), these new reporting requirements would result in many entities having to mandatorily report on their sustainability-related activities for the first time.

Ireland was not alone in transposing the CSRD, with many other EU Member States following suit, as required by virtue of their EU membership.

Initial pushback from stakeholders

Throughout the development of the CSRD and ESRS, concerns were raised by stakeholders regarding the difficulties preparers may encounter.

Concerns ranged from reporting entities’ ability to apply the standards, the appropriateness of the levels at which entities were required to report under the ESRS, the difficulty of applying concepts such as value chain and double materiality, and the timing of the initial application of the standards to certain entities.

While the intentions behind the introduction of the CSRD and ESRS were good—and built upon the ambitious targets the European Commission has set—it became evident that both, in their initial iterations, would potentially require amendment prior to their widespread adoption.

As the merits and pitfalls of the regulatory framework were being debated, a reduction in the burden of corporate reporting also became a priority of the European Commission.

Publications, such as the Draghi Report and the EU Competitiveness Compass, signified a realignment of EU priorities towards one which places greater focus on competitiveness and innovation for businesses.

With increased regulation regarded as one of the key blockers to these renewed priorities, the Draghi Report recommended a reduction in the reporting obligations placed on entities.

Omnibus proposals: a European response

In order to address the concerns raised by stakeholders, the Draghi Report recommendations and the new roadmap set out in the EU’s Competitiveness Compass, the European Commission released its Omnibus Proposals in February 2025.

Its aim is to simplify the administrative burden created by the CSRD and other Directives.

This includes a reduction in the number of entities that will report under the ESRS, a simplification of the standards, postponement of certain requirements and other measures.

Following the publication of the Omnibus, EFRAG received a mandate from the European Commission to provide technical advice for the adoption of a delegated act to revise and simplify the ESRS.

The deadline for the provision of this advice is 31 October 2025 and, in order to inform the process, EFRAG recently issued a questionnaire seeking feedback from stakeholders on the aspects of the standards that could be simplified.

Chartered Accountants Ireland, following consultation with members who are experts in sustainability reporting and assurance, participated in this survey.

The response outlined the Institute’s views on how the next iteration of the ESRS could be improved as well as some of the challenges faced by members who have prepared sustainability reports under the existing ESRS. In response, the Institute raised the following issues.

Implementation challenges

The Institute noted that the implementation of the ESRS has been challenging for members, both in practice and in industry.

The end product—the sustainability report—is often difficult to read, with many users struggling to find relevant information due to the volume of disclosures required.

As a result, stakeholders face challenges understanding what to do with the information prepared by the reporting entity. Other specific challenges encountered include:

• A lack of clarity regarding the materiality process and how conclusions were reached by reporting entities.

• A lack of comparability between different entities’ sustainability reports.

• A lack of clarity on whether the ESRS is a fair presentation framework or a compliance framework.

Institute recommendations

The Institute made the following recommendations to EFRAG as it commences the process of attempting to simplify the ESRS.

• EFRAG should amend its policies and procedures for the next iteration of the ESRS. Any future process should allow for an appropriate consultation period during which stakeholders can provide input before finalisation.

• The language used throughout the ESRS should be improved and clarity introduced where necessary. For example, the term “own operations” should be clarified so that it can be applied consistently. In addition, synonymous terms should be avoided in the standards when referring to similar matters (e.g. use of the term “employees” in some parts and use of the term “staff” elsewhere).

• A critical flaw within the standards, as currently drafted, is that they are written in a manner that requires the preparer to consult many different sources of information all at once to apply them correctly. This includes the standards, Application Requirements (AR), Implementation Guidance and FAQs. The Institute recommends that the standards be rewritten so that the ARs explain the requirements of the standard and do not carry the same weight as the standard. All relevant content introducing disclosures or reporting principles should be located only in the main body of the standard.

• A further flaw identified in relation to the structure of the standards is the lack of a clear hierarchy of which standards apply and in what order a user should apply them. Connected to this is the fact that the standards have no conceptual framework to follow. EFRAG should consider how this issue can be addressed.

• The 12 ESRS have been written in different styles and there is a lack consistency between some. The same style and format should be maintained throughout.

• EFRAG should use the experiences of first reporters to understand challenges encountered in using the ESRS, including what did and didn’t work.

• Non-critical datapoints should be deleted. In doing this, all mandatory and voluntary disclosures should be reviewed and assessed for their usefulness.

• Mandatory disclosure requirements should be clearly stated and should not be duplicated in different standards.

• Terms used in the ESRS should be comparable to similar terms used in other regulations setting out disclosure requirements. For example, the term “Sustainable Finance” used in the ESRS is currently not comparable to the same term used in the EU Taxonomy.

While the Institute welcomes the plans by the Commission and EFRAG to simplify the standards, we note the importance of retaining the stakeholder knowledge gained thus far on the ESRS structure and application.

Further, EFRAG should explore how it can leverage information already gained and use this collective knowledge to its advantage in guiding stakeholders on the application of the revised standards.

Interoperability and further alignment with the International Sustainability Standards Board’s IFRS S1 and S2 Standards are critical.

Given the global interconnectedness of sustainability reporting, it is imperative that the revised ESRS are closely aligned with the ISSB standards. Where possible, EFRAG should strive to achieve this.

What next for the ESRS?

EFRAG has an ambitious deadline of 31 October 2025 to deliver its technical advice to the Commission.

Before then, it must gather feedback and evidence from stakeholders, published reports and other sources, begin drafting the revised standards, publish the draft updated standards for public consultation and analyse feedback.

Within these series of steps, EFRAG has noted in its published work plan an expectation that it will publish draft standards by the end of July for public consultation.

Given the time constraints, it has also noted that it may hold a shorter-than-normal consultation period of between 30 and 45 days .

There is widespread concern that this timeline is too ambitious and will need to be reviewed as the process progresses. It is critical that adequate time is given to developing a set of standards that will be effective.

All this work will be carried out while the Omnibus proposals progress through the European legislative process.

Impacted stakeholders eagerly await the next iteration of Europe’s sustainability reporting standards to determine if the simplification envisaged by the Draghi Report is achieved.

Mike O’Halloran is Technical Manager at Chartered Accountants Ireland