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For public interest companies with more than 500 employees ("Wave 1 companies"), 2025 marks the first reporting year under the Corporate Sustainability Reporting Directive ("CSRD"). As a result, these companies are applying the European Sustainability Reporting Standards (ESRS) for the first time. The European Commission has been working on streamlining these requirements through what is known as the Omnibus legislative package. This includes proposed amendments to simplify the CSRD, delay some reporting obligations, and refine the ESRS for future years.
Despite this, the European Securities and Markets Authority ("ESMA"), has made its position clear. Companies reporting for 2025 must use the existing standards that are already in force. Draft revisions or proposed changes cannot be used as a basis for reporting until they are formally adopted. In this period of transition, ESMA's enforcement priorities issued on the 14th of October 2025, serve as a guide to what matters most: conducting a strong materiality assessment and producing a well-structured sustainability statement.
Materiality is the foundation of sustainability reporting. Under the ESRS, companies must apply the principle of double materiality. This means assessing both how sustainability issues affect the company's financial performance and how the company's activities affect society and the environment. This dual approach ensures that disclosures are meaningful for investors, regulators, and the public. ESMA expects issuers to demonstrate how their materiality assessment is tailored to their specific business activities, operating environments, and risk profiles.
High-quality reporting begins with explaining the basis for determining material topics. This includes the data sources used, the parts of the business or geographical areas covered, and the assumptions made in deciding what is material. Companies should also explain how they defined thresholds or criteria for deciding whether an issue is qualified as material.
ESMA also expects issuers to consider gross impacts before considering any mitigation or remediation efforts. This ensures that the significance of an issue is assessed as it truly stands, not after management actions are factored in. Stakeholder engagement is another key element. Companies should explain which groups of stakeholders were consulted and how their perspectives influenced the outcome of the assessment. These disclosures should be specific enough to show that the process was grounded in the company's real context, rather than theoretical.
When presenting the results of the materiality assessment, ESMA recommends that companies make them easy to understand and navigate. The disclosures in ESRS 2, particularly those that summarize the company's material impacts, risks and opportunities, should act as entry points for readers. These summaries should give a clear view of how the identified issues relate to the business model and strategy, and where each is addressed in the report.
Once a topic is identified as material, the company should then explain how it is managed. That means setting out any policies, actions, targets, and performance indicators that relate to it. This logical flow from identification to management is central to ESRS reporting. When describing material issues, clarity is key. Each issue should include its time horizon and specify whether it arises from the company's operations or from its value chain. Where topics are interrelated, that connection should be explained so that readers can see how different sustainability challenges influence one another. Companies should use consistent ESRS terminology to improve comparability and avoid confusion.
The second priority identified by ESMA is the scope and structure of the sustainability statement. Scope refers to what the statement covers, and structure refers to how the information is presented. Both are essential to achieving clarity and consistency. In terms of scope, the sustainability statement should cover the same entities and business units as the financial statements. If the financial report is consolidated for a group, then the sustainability report must reflect that same consolidation. This ensures that stakeholders are seeing a consistent picture. If the scope of sustainability targets or baselines has changed since the previous year, this must be explained clearly to maintain continuity and credibility.
Structure matters just as much. ESMA reminds companies that reports should be easy to read and navigate. The ESRS framework is built around four sections which should guide presentation. Companies can use cross-references to avoid repetition, but the information should not become fragmented or hard to follow. One practical way to improve usability is to reference the relevant ESRS disclosure codes alongside each section. This makes it clear which requirements are being addressed and will also align with upcoming digital tagging obligations. ESMA further stresses the importance of connecting sustainability information to financial reporting since this reinforces consistency between financial and non-financial disclosures and strengthens the credibility of the report.
ESMA's 2025 priorities set a clear direction for companies in the first year of CSRD reporting. Focus on materiality, ensure transparency in the process, and present information in a way that is structured and coherent. These principles will not only help meet regulatory expectations but also build trust with investors and the public. As sustainability reporting becomes an integral part of corporate transparency, companies that approach it with precision and clarity will stand out.
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