Ease For Indian Companies In Business With EU - The Amendments And Revisions To The European Sustainability Reporting Standards (ESRS)

I. Introduction:

The Corporate Sustainability Reporting Directive (CSRD), which became effective on 1^st January 2023, marked a significant milestone in advancing corporate sustainability transparency across the European Union. However, as implementation progressed, stakeholders increasingly called for the requirements to be streamlined and the reporting burden to be reduced.

The European Sustainability Reporting Standards, known as the ESRS, was developed under the CSRD and adopted a double materiality approach, asking companies to share how their actions affect both people and the environment, and on how sustainability issues create financial risks and opportunities. The ESRS 1 (General Requirements) establishes overarching reporting principles, while the ESRS 2 (General Disclosures) defines the core information that all companies must disclose.¹ The remaining standards and disclosure requirements are determined through a materiality assessment.

In November 2024, the European Commission announced its intention to revise three key pillars of the European Green Deal - the CSRD, the Corporate Sustainability Due Diligence Directive (CSDDD), and the Taxonomy Regulation through an Omnibus package, which was released in February 2025.

In the letter dated 27^th March 2025, the European Commission (EC) requested EFRAG to provide technical advice on simplifying the existing ESRS. On 31^st July 2025, EFRAG published the Exposure Drafts (EDs) outlining proposed revisions that will form its technical advice to the EC. The EDs were open for public comment until 29^th September 2025.

Timeline of Events:

II. Overview of European Sustainability Reporting Standards (ESRS)²:

III. Key Amendments and revisions to EFRS:

EFRAG identified the following levers that it used in developing its proposed revisions to the ESRS to achieve the simplification objectives identified in the proposal:

• Lever 1 - Simplifying the Double Materiality Assessment (DMA).
• Lever 2 - Improving the readability, conciseness, and integration of sustainability statements within overall corporate reporting.
• Lever 3 - Making key adjustments to the relationship between GDRs and topical specifications.
• Lever 4 - Enhancing the understandability, clarity, and accessibility of the standards.
• Lever 5 - Proposing additional reliefs to reduce the reporting burden on entities.
• Lever 6 - Strengthening the interoperability of the standards with other global sustainability reporting frameworks.

IV. Detailed Requirements for Disclosure^:3

A. ESRS 1 - General Requirements

• "Fair presentation" introduced as a principles-based, overarching approach.
• Guidance on the "gross vs net" when assessing the materiality of an impact.
• Broad use of the "undue cost or effort" principle.
• Relief for metrics without time limit; forward-looking quantitative information on financial effects; acquisitions; and to exclude non-material activities from calculations.
• More flexible disclosure approach for strategy, value chain, business model and governance (option to use appendices for granular information).
• Clearer distinction between its own operations and the value chain reporting.
• All voluntary disclosures deleted and standards' language simplified.
• Materiality assessment process simplified with new 'practical considerations' section in ESRS 1 Chapter 3 and no data points required outside the scope of information materiality.
• Removed systematic preference for direct data in value chain metrics.
• Flexible reporting: by topic or by specific impacts/risks/opportunities as managed internally.
• Resilience assessment now limited to risks only, with qualitative disclosure only.
• No sector-specific definition of the value chain for financial institutions are provided yet.
• Treatment of commercially sensitive information under discussion.

B. ESRS 2 - General Disclosures

• BP-1 simplified with direct reference to ESRS 1 via the "comply or explain" principle.
• Governance - less granularity in narrative requirements and consolidation of GOV-1 and GOV-2.
• Less granularity in SBM, where, in SBM-1, has reduced detail on business model & value chain; SBM-2, has stakeholder-engagement-driven strategy changes removed and SBM-3, focus on IROS interacting with strategy and business model and resilience analysis, now restricted to qualitative information on risks interacting with strategy and business model.
• IRO-2 now covers DMA outcomes and general IRO description, while IRO-1 focuses on DMA process description.
• MDRs relabelled as GDRs (Policies, Actions, Metrics, Targets) to simplify disclosure requirements.
• GDRs on Policies, Actions, Metrics and Targets simplified by deleting potential duplications with topical standards and a number of data points.
• On SBM-3, two options for anticipated financial effects disclosure:
  • Option 1: Quantitative with reliefs for current and anticipated financial effects; qualitative if quantification is not possible considering the reliefs, stronger ISSB interoperability between the two options.
  • Option 2: Qualitative disclosures are mandatory, while quantitative disclosures are voluntary, showing weaker alignment with the ISSB for quantitative data but offering greater protection for sensitive information.

C. Environment (E1 - E5)

ESRS E1 - Climate Change

• Major simplifications across 11 DRs; E1-4 to E1-6 aligned with ESRS 2 (no redundancies).
• E1-7 - Deleted revenue-based energy intensity metric.
• E1-8 - GHG emissions aligned with GHG Protocol; simplified biogenic emissions provisions.
• E1-9 - Carbon credits & GHG removals, no longer referenced to net zero targets.
• E1-11 - Anticipated financial effects simplified; optional splits for financial institutions.

ESRS E2 - Pollution

• E2-4 - Replaced E-PRTR references with general pollutant reporting; microplastics now clearly split into primary/secondary categories.
• E2-5 -Targeted scope⁴: substances of concern only for chemical manufacturers/importers; substances with a very high concern apply to chemical manufacturers/importers & users; threshold added.

ESRS E3 – Water

• E3-4 Metrics -Water withdrawals and discharges now mandatory (previously voluntary); revenue-based water intensity metric removed.
• Focus narrowed to water-related impacts, risks, dependencies; marine water use still in scope; standard simplified to 4 DRs.

ESRS E4 – Biodiversity and Ecosystems

• E4-1 - Transition plan for biodiversity and ecosystems mandatory only if plan exists and is publicly available.
• Removed biodiversity/ecosystem resilience requirements.
• Consolidated metrics into one generic requirement for all material E4 topics; companies free to choose relevant metrics.

ESRS E5 – Resource Use and the Circular Economy

• E5-4 - New data point: % of key raw materials that are critical/strategic per Critical Raw Materials Act.
• E5-5 - New data point: % of waste with unknown final destination.
• E5-4 - Scope clarified to "key materials".

D. Social (S1–S4)⁵

Across all Social Standards (S1–S4)

• Through a principle-based approach, the disclosures have been significantly simplified, with ESRS S1 reduced to one DR and ESRS S2 - S4 to four DRs each.
• Human right policy disclosures centralised in ESRS 2 GDR-P rather than in the Social standards (S1-S4 DR1).
• Simplification and merger of previous DR 2 and 3 into one disclosure.
• These relate to stakeholder engagement, channels to raise concerns/grievance mechanism and approach to remedy.

ESRS S1 - Own Workforce

• S1-5 Characteristics of employees - Reduced granularity in breakdowns. To change top 10 for the ten largest countries.
• Also applicable to S1-7.
• In the case of S1-5 and S1-7 preparers have the option of using a standardised tabular format or narrative text for their disclosures.
• S1-6 Characteristics of non-employees (self-employed or people provided by undertakings primarily engaged in employment activities) - reduced to one essential data point and clarification of when these people are material added via Application Requirements.
• S1-7: Collective bargaining coverage and social dialogue, the disclosure now uses the same "significant" threshold as S1-5, focusing on 50 or more employees in the top 10 countries.
• S1-9: Adequate wages - the non-EU hierarchy has been revised following the ILO ministerial agreement in February 2024. This DR will undergo a targeted field test to validate its effectiveness.
• S1-12: Skills development and Training - gender breakdowns removed.
• S1-13: Health and safety fatalities due to ill health among non-employees or value chain workers excluded; clarification on what counts as work-related injury/illness has been added.
• S1-14: Work-life balance - now only reports solely on eligibility to family-related leave (not those that took the family-related leave).
• S1-15: Remuneration - removal of the voluntary data point on gender pay gap, adjusted for employee category and breakdown by country.
• S1-16: Incidents of discrimination and other human rights incidents - Only the SFDR PAI (Principal Adverse Impacts) data points and connectivity-related data points are retained for reporting purposes.
• Clarification of scope - The standard specifies which human rights issues should be considered and introduces a substantiated test to determine what qualifies as a reportable incident.

E. Governance (G1)

• G1-1 to G1-3 now follows the PAT (Policies, Actions, Targets) approach.

G1-1 - Policies related to the Business Conduct

• Maintains SFDR indicators on anti-corruption & whistle-blower protections.
• Clarifies concept of "functions-at-risk".

G1-2 - Actions related to the Business Conduct

• Maintains key data points on suppliers' relationship and prevention of corruption and bribery.
• Consolidates all training disclosures under this disclosure requirement.

G1-3 - Targets related to the Business Conduct

• Introduction of measurable, time-bound, outcome-oriented qualitative or quantitative targets related to the business conduct or subtopics.

G1-4 - Metrics related to incidents of Corruption & Bribery

• Retain the SFDR indicator on convictions and fines, include one provision addressing confirmed incidents and provide new guidance on scope, applicable legal thresholds and definitions to ensure consistent application.

G1-5 - Metrics Related To Political Influence & Lobbying Activities

• Clarification of political influence and lobbying and reduction of mandatory and voluntary data points.

G1-6 - Metrics Related To Payment Practices

• Simplified by eliminating metric on average time to pay an invoice.

V. Other observations include:

A. Simplified Double Materiality Assessment (DMA) :

• While the fundamentals of the Double Materiality Assessment (DMA) have not changed (entities must still undertake impact and financial materiality assessments), EFRAG has clarified that undertakings are expected to take a pragmatic and streamlined approach.
• This is designed to reduce the resource burden (time and expense) of the DMA and respond to criticisms of the DMA assurance process.
• The changes introduce greater flexibility in how a Double Materiality Assessment (DMA) is conducted, allowing entities to leverage existing business knowledge and materiality insights. This also facilitates more effective discussions with assurers.
• Entities are encouraged to concentrate on areas where material impacts, risks, and opportunities (IROs) are most likely to arise, rather than attempting to evaluate every possible scenario.
• When materiality conclusions can be reasonably inferred from the entity's business model, value chain, peer analysis, or strategic priorities, the revised ESRS allow that further detailed assessment may not be required.
• The list of topics in ESRS 1, AR 16 has been structurally simplified. While most topics remain, the list now serves as an illustrative guide of potentially material topics rather than a strict, mandatory checklist.
• For IROs, entities are expected to use reasonable and supportable information to estimate severity, likelihood, and magnitude.
• The revised ESRS clarify that quantitative metrics or scoring are not always required; in many cases, qualitative information may be sufficient for disclosures.
• Entities are not required to assess or score every aspect of severity for impacts, nor is it necessary to analyse every time horizon for all IROs, except where such analysis is needed to determine materiality.
• EFRAG explicitly rejected making positive impact or opportunity disclosures optional. Therefore, the assessment and disclosure of positive impacts and opportunities remain an integral part of the DMA process and reporting obligations.

B. Streamlining Material Disclosures :

• A new relief has been introduced to address undue costs and efforts, allowing entities to rely on reasonable and supportable information that is available without incurring excessive cost or effort. This relief applies specifically to the identification of material impacts, risks, and opportunities, the determination of the scope of an entity's value chain, and the preparation of information on metrics other than greenhouse gas (GHG) emissions.
• Fair presentation has been elevated to serve as a general filter, extending the materiality principle to all disclosed information, not just metrics. Entities now have the option to include an executive statement when presenting disclosures. Additionally, disclosures can be accompanied by appendices containing more detailed information and supplementary non-material information not required by the ESRS, provided such content is clearly identified.
• The "shall" disclosure requirements are now only mandatory when the corresponding information or data point is material. The overall structure of the ESRS has been revised, with mandatory and non-mandatory content clearly separated. To support this, a separate "Non-Mandatory Illustrative Guidance" has been proposed, consolidating selected non-mandatory content removed from the original ESRS along with content drawn from EFRAG Q&As. The legal status of this guidance, whether it will be included in the ESRS Delegated Act or published separately by EFRAG, will be confirmed by the Commission, with the EFRAG SRB currently favoring publication outside the delegated act.

C. Enhanced Interoperability with Global Standards :

• EFRAG emphasised that the ESRS is a "fair presentation" framework, with materiality of information as a general filter, similar to ISSB.
• The GHG emissions reporting boundary in ESRS E1 has been aligned more closely with the GHG Protocol, requiring only the financial control approach.
• A separate disclosure based on operational control is required where the financial control metric does not fully present IROs from operated assets outside the reporting entity's scope.
• Common wording with IFRS has been aligned for certain provisions, including the ESRS E1 provisions on transition plans, scenario analysis, resilience, internal carbon pricing, scope 3 measurement, and anticipated financial effects (opportunities).
• Broader concepts in ESRS 1, such as disclosing information to enable users to understand judgements made or ensuring that the level of aggregation/disaggregation does not obscure material information, have also been aligned.
• Areas of continued misalignment exist, for example, EFRAG rejected incorporating the ISSB relief allowing for the omission of Scope 3 GHG emissions where impracticable.
• The introduction of the "undue costs and efforts" relief has been given an expanded scope in the ESRS, which has attracted some early criticism.
• Language alignment includes adopting the same language used in IFRS S1 and IFRS S2 where possible.
• Sector guidance includes reference to the industry content in IFRS Sustainability Disclosure Standards, the SASB standards, and the GRI sector standards as sources of guidance for identifying entity-specific information.
• The GHG Protocol and IFRS Sustainability Disclosure Standards allow the use of either a financial control or an operational control approach (as well as the equity share approach), stating that the ESRS's requirement for financial control may not achieve full interoperability.

D. New Reliefs :

• A new relief for metrics permits the exclusion of activities from calculations if they are not expected to significantly drive the IRO.
• For environmental metrics other than climate change, non-operated joint ventures can be excluded.
• When reliable direct or estimated data are unavailable, undertakings may report metrics based on a partial scope of calculation.
• Even under the partial scope relief, the undertaking must provide a disclosure and describe the actions planned to improve calculation coverage in future periods.
• This partial scope relief applies to both the undertaking's own operations and its value chain.
• For acquisitions or disposals, entities may defer reporting for acquired assets until the following reporting period.
• Entities may remove assets from scope mid-year for the entire reporting period, except in cases of significant events.

VI. Global Reporting Initiative (GRI) Recommendations to Strengthen ESRS Impact Focus and Alignment:

• Align the definition of impact materiality with the GRI Standards to remove ambiguity for companies and stakeholders, reflecting GRI's widely recognized definition that material topics are an organization's most significant impacts.
• Enhance interoperability with global standards by using GRI's established and multi-stakeholder-validated standards as the basis for determining which mandatory impact data points should be retained.
• Address gaps created by the reduced ESRS coverage by expanding references to GRI, including both Topic and Sector Standards as reliable sources of disclosure on impacts, ensuring quality and consistent reporting.
• Reconsider the use of a net-based approach to impact assessment, as this could undermine impact reporting by allowing companies to obscure potential harm simply through mitigation efforts.⁶

Footnotes

1. Corporate sustainability reporting, EU, https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en .

2. ANNEX I to Commission Delegated Regulation (EU) 2023/2772 supplementing Directive 2013/34/EU of the European Parliament and of the Council as regards sustainability reporting standards, published in the Official Journal of the European Union on 22 December 2023 and including the corrigendum published on 18 April 2024, EFRAG, https://xbrl.efrag.org/e-esrs/esrs-set1-2023.html.

3. EFRAG Financial reporting Board, https://www.efrag.org/en/media/29445.

4. ESRS Revision: Progress Report as of 20 June 2025, EFRAG, https://www.efrag.org/sites/default/files/media/document/202506/draft_status_report_esrs_simplification_20_june_2025.pdf.

5. Simplified ESRS, EFRAG, https://www.efrag.org/sites/default/files/media/document/2025 09/ESRS%20Rewired_Inforgraphic_Pre-Final%20Updated.pdf.

6. Impact focus of the ESRS must be strengthened, 25 September 2025, GRI, https://www.globalreporting.org/news/news-center/impact-focus-of-the-esrs-must-be-strengthened/.

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