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Revised ESRS 2.0 Unveiled: What Do Businesses Need to Know Now?

Dec 16, 2025 Revised ESRS 2.0 Unveiled: What Do Businesses Need to Know Now?

This blog was originally posted on 11th August 2025, and was updated on 16th December 2025. Further regulatory developments may have occurred after publication. To keep up-to-date with the latest compliance news, sign up to our newsletter.

AUTHORED BY HANNAH JANKNECHT, REGULATORY COMPLIANCE SPECIALIST, AND CÉLIA LE LIÈVRE, SENIOR REGULATORY COMPLIANCE SPECIALIST, COMPLIANCE & RISKS


Table of Contents

Introduction

On 3 December 2025, EFRAG forwarded the highly anticipated revised European Sustainability Reporting Standards (ESRS) to the European Commission as technical advice, followed by a public presentation of the standards on 4 December. 

The original ESRS, adopted in Regulation 2023/2772, have been in force since 2023. As part of the EU’s Omnibus Package I, EFRAG was however tasked in March 2025 with developing a simplified version of the ESRS, to be submitted to the Commission by 30 November 2025.

EFRAG pointed out that the revised standards are overall shorter, clearer, and easier to apply. They contain a 61% cut in required data points and a full elimination of voluntary disclosures, which have been moved to a separate guidance document. Further improvements include an emphasis on fair presentation, better readability through executive summaries and annexes, new application requirements, and additional reliefs (limited by the principle of fair presentation).

In his final remarks on 4 December, EFRAG’s chair Patrick de Cambourg stressed that, while sustainability is ultimately about securing the mid and long-term success of both companies and society, the real work must start today. Companies are well advised to avoid falling into the compliance trap by approaching CSRD reporting as a mere box‑ticking exercise, but it should rather be regarded as a strategic opportunity to strengthen businesses for the future. 

Simplification of ESRS 1 and 2 (Cross-Cutting Standards)

Anticipated Financial Effects (AFEs)

In the first revised standard issued in July 2025, EFRAG proposed two possible relief options for AFEs. Under Option 1, EFRAG considered removing the requirement to disclose quantitative information on AFEs altogether. Under Option 2, it suggested requiring both qualitative and quantitative disclosures while applying the IFRS exemption, which permits entities to omit quantitative information when the level of measurement uncertainty is so high that quantitative information about AFEs would not provide useful insights.  

Option 1 has been retained in the November draft revised standard (ESRS 2, paras. 27-29). Under this approach, reporting entities may provide only qualitative information (and not quantitative data) about AFEs in the following circumstances:

  • The effects are not separately identifiable; or 
  • The level of measurement uncertainty involved in estimating those effects is so high that the resulting quantitative information would not be useful;
  • The undertaking does not have the skills, capabilities or resources to provide that quantitative information.

While qualitative information about AFEs would remain mandatory in all cases, such disclosures are limited to what can be reasonably achieved without incurring undue cost or effort (please refer to section (d) below).  Note that all information about AFEs will be mandatory for wave one entities starting from the 2027 financial year, while quantitative disclosures will be required from the 2030 financial year.  

Transitional Reliefs

As noted above, EFRAG provides several transitional reliefs applicable to wave 1 companies in ESRS 1 (ESRS 1-10). 

The following information may be omitted for financial years prior to financial year 2027:

  • All the DRs of ESRS E4 Biodiversity and Ecosystems, ESRS S2 Workers in the Value Chain, ESRS S3 Affected Communities, and ESRS S4 Consumers and End-users
  • All information about anticipated financial effects, required in paragraph 27 of ESRS 2 General Disclosures and in ESRS E1-11, with the exception of ESRS E1-11 paragraph 38(a)(b) and 39 (a)(b)
  • ESRS S1-6, S1-7 for non-EEA countries, S1-10, S1-11, S1-12, S1-13 datapoints paragraph 40(d)(e) and non-employees datapoints, and S1-14 

In addition, the following information may be omitted for financial years prior to financial year 2030:

  • Quantitative information about anticipated financial effects, required in paragraph 27 of ESRS 2 General Disclosures and in ESRS E1-11, with the exception of ESRS E1-11 paragraph 38(a)(b) and 39 (a)(b)
  • Quantitative information related to substances of concern (SoC) prescribed by ESRS E2-5

During the preparation of the revised ESRS, EFRAG considered broadening these reliefs to include companies beyond the first wave, but ultimately decided to leave this decision to the European Commission.

Simplification of Double Materiality Assessments (DMA)

“Information Materiality” Filter

The concept of “materiality of information” has been refined to serve as a more effective filter, ensuring that only relevant information is conveyed to users of sustainability statements.  

Assessing whether an information is “material” is now clearly tied to the needs of users of sustainability statements and must be understood as information that could influence decision-making or information that is essential to understand the entity’s significant impacts, risks, opportunities (IROs), and how they are managed. As such, entities are not required to assess every possible IRO across all areas of their operations and value chain. They shall focus on areas where material IROs “are deemed likely to arise based on their strategy and business model, geographies, sectors, business relationships, nature of the activities, or other factors”.  What is more, the DMA can now be conducted using regional and/or sectoral data already available without requesting direct input from value chain actors. 

Top-down Approach to DMA

The process itself has been simplified by allowing entities to follow a top-down approach to materiality assessment. Under this approach, a reporting entity may assess the materiality of IROs for a specific topic (topic level) on the basis of an analysis of its strategy and business model without any further assessment. The top-down approach is designed to simplify the DMA process for entities with a solid understanding of their business model, strategy and relevant IROs within their industry. It enables entities to initiate their DMA at the topic level (top-down) rather than at the level of individual IRO (bottom-up approach) [ESRS 1, para. 27]. However, reporting entities may still apply a bottom-up approach, or combine both top-down and bottom-up methods for certain topics, where appropriate [AR 9 for paras 27 and 28].

“Gross Versus Net” Approach

The revised draft of ESRS 1 retains the “gross versus net” approach, allowing remediation, mitigation and prevention measures to be considered when assessing material impacts, subject to additional criteria.

To determine whether such measures should be taken into account in the DMA, three filters apply:

  • Actual negative impacts (i.e. those that originated in the previous reporting year and persist into the current reporting period) must be assessed as they manifest during the current year, considering only remediation or mitigation measures implemented in prior periods. Measures undertaken in the current reporting period cannot be considered.
  • Potential negative impacts (i.e. those that may occur in the future) should be assessed only in light of prevention and mitigation measures already implemented, and only if these measures can reasonably be expected to reduce the severity or likelihood of such impacts.
  • Additional decision-useful information: entities must provide information on impacts and related remediation or mitigation measures that remains relevant to users of sustainability statements, regardless of how effectively the undertaking manages these issues.

Frequency of DMA

Unlike the original draft standard, the periodicity of the DMA is now clearly defined in revised draft ESRS 1 (para. 35). Entities are required to review and update their DMA for each reporting period when significant changes occur that may affect the conclusions reached in the previous period. Such changes may relate to the undertaking’s activities, structure, business relationships, understanding of impacts, risks or opportunities, assessment methodologies or shifts in the external environment.

Finally, the revised standards provide further clarification on the level at which the materiality assessment should be conducted, specifically addressing the consideration of different geographies for both environmental and social topics. They also introduce additional guidance on identifying material geographies to support decisions on the appropriate level of aggregation or disaggregation for reporting purposes. This update aligns with the simplified architecture, as such content has now been removed from the topical standards.

Fair Presentation

Viewing disclosures through this “user lens” ensures that the outcomes of the DMA satisfy the fair presentation requirement, which is the cornerstone of the principle-based approach advocated by EFRAG. In line with the first draft standards issued in July, the final draft revised ESRS 1 places greater emphasis on the concept of fair representation to help companies communicate sustainability information more effectively in their statement statements.  

Fair presentation acts as a safeguard for the quality of sustainability reports. It steers reporting entities toward avoiding excessive detail and ensures that disclosures are filtered so only information relevant to users’ decision-making is communicated. 

Fair presentation means that sustainability reporting is not a simple compliance exercise: it requires entities to carry out a “quality check” to ensure information is relevant, comparable, verifiable, timely, understandable and fairly presented for all stakeholders. More precisely, fair presentation requires “complete, neutral and accurate depiction of its material IROs”. It also requires that the undertaking discloses additional entity-specific information when applying ESRS is not sufficient to enable users of sustainability statements to understand the undertaking’s material IROs and how the undertaking manages them.  

The above approach to fair presentation in ESRS 1 is now fully aligned with IFRS S1 (paragraphs 11–16) to facilitate interoperability. 

Undue Cost or Effort Relief

The “undue cost or effort” (UCE) relief mechanism has been expanded to the materiality assessment (for the identification of IROs), coverage of the value chain and to all metrics in the ESRS, including those related to the entity’s own operations.  In contrast to the original draft standards issued in July 2025, the revised draft of ESRS 1 now also applies the UCE principle to disclosures concerning both current and anticipated financial effects.

The UCE principle enables companies to use only “reasonable and supportable information” that is available to them at the time of reporting provided that acquiring it does not involve excessive cost or effort.  The revised ESRS clarifies that defining what qualifies as UCE is the responsibility of each undertaking, as this determination depends on its specific context and circumstances. Following feedback from reports, EFRAG has introduced specific criteria to help entities consider whether preparing a disclosure would entail undue cost or effort at the time of reporting (ESRS 1, AR 43  for para. 94). 

Importantly, this relief does not eliminate the obligation to disclose information. Rather, it recognises the data quality challenges associated with reporting certain metrics and permits entities to report on a partial scope, provided they also outline their plans to expand coverage and improve data quality in future reporting periods, in line with the principle of fair presentation.

For further insights into sustainability developments across the globe, check out our webinars-on-demand Asia’s ESG & Sustainability Landscape: Compliance Essentials for 2025 and ESG Regulatory Developments in the US.

Environmental Standards (ESRS E1 to E5)

The following changes have been made to the topical environmental standards:

ESRS E1 – Climate Change

Structure and Elimination of Redundancies

The revised exposure draft of ESRS E1 introduces several updates aimed at greater alignment, simplification and clarity. In the Strategy section, the transition plan (E1-1) is better aligned with IFRS S2 and presented as a more concise narrative, while disclosures on impacts, risks, and opportunities (E1-2 and E1-3) are restructured with clarified links between scenario analysis and climate resilience. Under Policies, Actions, and Targets, ESRS E1-4 and E1-5 have been reduced to avoid redundancy with ESRS 2. 

For metrics, the disclosure requirement on energy intensity has been removed (E1-7) and data points related to stranded assets and potential liabilities simplified (E1-11).

Transition Plans for Climate Change Mitigation (TPCCM)

Reporting entities must continue to prepare a Transition Plan for Climate Change Mitigation (TPCCM) outlining how their strategy and business model align with the transition to a sustainable economy (Disclosure Requirement E1-1). The TPCCM may be a stand‑alone document or part of a broader plan covering both mitigation and adaptation, but it must include all elements specified in paragraph 11 of ESRS E1. While the content remains largely unchanged, entities are now required to explain how potential locked‑in GHG emissions from key assets and products could hinder plan objectives and increase transition risks.

Entities without a transition plan must disclose this and indicate whether and, if so, when they expect to adopt one. They must also report on progress in implementing transition plans, explaining, rather than merely describing, quantitative and qualitative aspects such as resource deployment, actions taken, and achieved or expected GHG reductions. It should be noted that companies may determine that climate change is not material to their business. In such cases, they may omit all disclosures required under ESRS E1, including references to TPCCM, provided they clearly explain the rationale and basis for their non-materiality assessment.

Although the obligation for companies to prepare and implement climate transition plans has been explicitly removed from the CSDDD, uncertainty remains under the CSRD. Article 1(4) of the CSRD (amending Article 19a of the Accounting Directive) still requires undertakings to disclose a brief description of their business model and strategy, including their “plans” to ensure alignment with the transition to a sustainable economy, the limitation of global warming to 1.5°C (under the Paris Agreement) and the achievement of climate neutrality by 2050. This information must be reported in accordance with the European Sustainability Reporting Standards (ESRS). 

The above description of what “plans” under Article 1(4) of the CSRD shall cover is very much aligned with the content of TPCCM in ESRS E1. While the CSRD does not explicitly refer to “TPCCM” as defined under ESRS E1, it remains unclear whether TPCCMs fall within the scope of the “plans” referenced in Article 1(4) and must therefore be disclosed, even if ESRS E1 has not been assessed as material by the undertaking.

Boundary of GHG Emissions Reporting

In line with the original version of July, the revised draft ESRS E1 eliminates the current dual reporting boundary based on both financial and operational control (Chapter 5 of ESRS 1). Instead, it specifies that the starting point of the reporting boundary for GHG emissions corresponds to financial control as per the approach of the GHG Protocol Corporate Accounting and Reporting Standard (2004).

Additional disclosures of Scope 1 and Scope 2 emissions based on operational control are required only when the information reported under financial control is deemed insufficient to accurately reflect the emissions from operated assets outside the reporting boundary.  In simpler terms, the financial boundary only serves as a starting point. Disclosures of Scope 1 and 2 emissions from entities under the reporting entity’s operational control, such as joint ventures or associates, would be required when such information is necessary to understand the undertaking’s direct and indirect impacts on climate change (ESRS E1-8), in line with the principle of fair presentation.

Reporting on Scope 1 GHG Emissions

The reporting scope for Scope 1 emissions has been narrowed to include only those emissions covered by the EU ETS, excluding emissions regulated under other emissions trading schemes.

ESRS E2 – Pollution

E2-4 ​​Pollution of Air, Water and Soil

The amended standard explicitly includes both primary and secondary microplastics within the disclosure metrics of E2-4. Where microplastics are assessed as material, entities must provide quantitative data on the amount of primary microplastics manufactured or used in products, as well as those directly released into the environment. For secondary microplastics, only qualitative information is required.

To support entities in identifying material pollutant emissions, the revised standard now explicitly references the pollutants listed in Annex 2 of the European Pollutant Release and Transfer Register and the Industrial Emissions Portal Regulation (IEPR). When assessing the materiality of a specific pollutant, entities may also refer to the release thresholds defined in Annex II of the IEPR.

E2-5 Substances of Concern (SoC) and Substances of Very High Concern (SVHC)

E2-5 is designed to help users of sustainability statements understand the undertaking’s material IROs related to the manufacturing, trade, or use of SoCs and SVHCs.  The revised standard now sets differentiated reporting requirements for entities operating in the chemical sector (i.e. those engaged in manufacturing chemical substances) and for entities whose main activities involve producing non-chemical products.

Non-chemical undertakings are required to report only on SVHCs, disclosing:  

  • the total weight of SVHCs used in production processes and service delivery, and  
  • the total weight of SVHCs that they directly released into the environment.

Chemical undertakings must report broader metrics, including the total weight of both SoCs and, separately, SVHCs that are:  

  • Procured as substances on their own or in mixtures,  
  • Manufactured as substances on their own or in mixtures
  • Placed on the market as substances on their own or in mixtures; and  
  • Directly released into the environment (air, water, or soil), including unintentional releases from leaks or spills.

ESRS E3 – Water

  • Marine resources have been removed from ESRS E3 and are now addressed in ESRS E5 and E4. 
  • The scope of ‘water’ (quality, sources) has been clarified to include freshwater as well as other types of water from different sources such as surface water, groundwater, seawater, produced water and third-party water.
  • Datapoints in relation to ‘areas with water stress’ simplified under E3-1.
  • E3-1: Relevant water concepts (‘water stress’, ‘water scarcity’, water-related risks) clarified through methodological guidance, including on how to assess if an area is subject to water stress.
  • E3-4: Metrics on water withdrawal and water discharges have been made mandatory and supported by methodological guidance; while the metric on water intensity has been removed. 
  • E3-4: Methodological guidance on water metrics (calculation, units of measurement) included.

The above description of changes was retrieved from a fact sheet shared by EFRAG.

ESRS E4 – Biodiversity and Ecosystems

E4-1: The disclosure of biodiversity and ecosystem transition plans is now mandatory when the undertaking already has such a plan in place and has publicly disclosed its key features. 

Biodiversity transition plans can be integrated in broader plans addressing other issues such as climate change. Biodiversity transition plans shall contain information on targets, key actions, financial planning and governance as well as clear explanation of how the undertaking’s strategy and business model contributes to the global goal of halting or reversing biodiversity loss set out in the Kunming-Montreal Global Biodiversity Framework.

In addition to the above:

  • E4-2: Policy requirements simplified, maintaining specifications on traceability and coverage of sites in or near biodiversity sensitive areas.
  • E4-3: Actions requirements simplified, maintaining specifications on how biodiversity offsets are used as part of actions.
  • E4-4: Targets requirements simplified, maintaining specifications on how biodiversity offsets are used as part of target-setting. 
  • E4-5: Location-specific disclosures consolidated and streamlined in metrics section (previously provisions were placed in various E4 sections); requirement to disclose metrics, previously addressed through several mostly optional indicators, now consolidated into one generic paragraph.

The above description of changes was retrieved from a fact sheet shared by EFRAG.

ESRS E5 – Circular Economy

The interaction of ESRS E5 with other topical standards has been clarified. In addition, the following disclosure metrics have been amended:

E5-4  Resource Inflows

‘Key material’ is now defined as a concept (Annex II). Revised E5-4 requires companies to disclose the key materials used in their operations and replaces the previous breakdown between biological materials or technical materials. However, if the distinction between biological and technical materials is relevant to the undertaking’s material IROs, it must be described accordingly. Secondary resources must be reported either as total weight or as a percentage of the total material inflow.

E5-5 Resource Outflows (Disclosures on Products and Waste)

E5-5 now requires undertakings to disclose the proportion of waste from their own operations for which the final destination is unknown. The disclosure requirements on waste have been further clarified and differentiated by type – hazardous and non-hazardous – as well as by waste management operation, including reuse, recycling, other recovery processes, and incineration.

Similarly, product circularity disclosures have been expanded to cover the designed recyclability rate of products and their packaging. Information on expected durability and reparability remains required; however, these may be reported in either quantitative or qualitative form.

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Social Standards (ESRS S1 to S4)

EFRAG has furthermore implemented substantial changes to the Social Standards, resulting in a reduction of approximately 70 percent in data points.

During the public unveiling of the standards on 4 December 2025, an EFRAG spokesperson highlighted that disclosures relating to the companies’ own workforce are particularly sensitive for many organizations, and this issue attracted significant feedback during the consultation process. Consequently, the revision of the Social Standards places a strong emphasis on modifications to ESRS S1. Additionally, the amendments concerning living wage disclosures and the retention of the unadjusted gender pay gap were identified as the two most debated aspects during the preparation of the revised ESRS.

Key Changes

Key changes to the social standards include:

  • Human Rights Policy: The disclosure of a human rights policy is no longer required under the social standards, but this requirement has now been moved to ESRS 2 (General Requirements).
  • Revision of S1-5 (Characteristics of employees) and S1-7 (Collective bargaining coverage): The revised draft standard includes new thresholds for these disclosures, e.g. certain employee information must only be disclosed for countries in which the company has 50 or more employees and which are amongst the ten largest countries in terms of employee numbers.
  • S1-9 (Adequate wages): The draft standard introduces a revised adequate wages methodology for non‑EU countries. First, it changes the methodology from a hierarchy to a choice between the following two options:
    • the adequate minimum wage established by legislation or collective bargaining which provides a decent standard of living as confirmed by a calculation in line with the ILO principles on estimating a living wage; or 
    • any living wage estimate, including estimates produced by an institution mandated by the public authorities of the country where the workers are based, which takes into account the ILO principles on estimating a living wage. 
    • In addition, companies are required to disclose the benchmark they used for this calculation.
  • S1-13 (Health and safety metrics): The requirement to disclose fatalities due to ill health among non-employees or value chain workers has been removed, and the days lost calculation now excludes fatalities.
  • S1-15 (Remuneration Metrics): EFRAG decided to retain the unadjusted gender pay gap. However, a new AR was introduced to explain how the disclosure of an adjusted gender pay gap could provide additional entity-specific information.

In addition, some data points have been deleted from ESRS S1:

  • S1-1 on Health and Safety Policy: This has been deleted as an explicit requirement.
  • S1-8 (Diversity metrics): The age distribution disclosure has been removed. The requirement now only focuses on gender distribution. 
  • S1-10 (Social protection): This disclosure requirement aims to enable an understanding of whether the undertaking’s employees are covered by social protection against loss of income due to major life events. By removing retirement as a major life event, the listed events have been reduced to 4. The remaining are sickness, unemployment, employment injury and acquired disability and maternity leave (previously parental leave). 

Governance Standard (ESRS G1)

Among the 12 standards undergoing revision, standard G1 appears to have generated the least controversy.  

Key concerns raised under this standard included late payments to SMEs and the need for a clearer definition of anti-corruption and anti-bribery disclosures.   

The revised draft standard contains the following key changes:

  • G1-4 (Metrics related to corruption or bribery): The scope of convictions, fines and sanctions under G1-4 (Metrics related to incidents of corruption and bribery) has been refined. Undertakings are now required to disclose the total number of convictions and sanctions, including the total amount of fines that occurred during the reporting period.
  • G1-6 (Metrics related to payment practices): The disclosure requirement regarding the average time to pay an invoice has been removed. A new Application Requirement has been added for entity-specific disclosures on late payments to SMEs.

What’s Next?

During the public presentation of the standards on 4 December 2025, EFRAG’s board addressed several questions regarding the future development and application of the ESRS and related documents. These responses offer valuable guidance for reporting companies on what to monitor in the coming months.

When and How Are the ESRS 2.0 Going to be Finalized?

The draft standards have now been submitted to the EU Commission as technical advice, and it is up to the Commission to make adjustments and approve the drafts. A Commission spokesperson participating in EFRAG’s ESRS approval meeting on 25 November indicated the following timeline for the finalization of the standards:

  • Consultation with public institutions and member states: An internal consultation will be opened as soon as the Omnibus trilogue negotiations have concluded. The final trilogue meeting was held on 8 December, and the EU Parliament’s plenary is scheduled to vote on the final text on 16 December. 
  • Public consultation: A 1 month public comment period will open after the internal consultation concludes. This comment period is shortened due to the fact that EFRAG has already held an extensive consultation in August and September 2025. 
  • Aim to finalize ESRS 2.0 by mid 2026

When Are Companies Required to Apply the Revised Standards for the First Time?

The revised standards are set to become mandatory for application starting with the financial year beginning on or after 1 January 2027, with the final decision lying with the EU Commission. However, many participants at the conference on 4 December expressed support for the possibility of early adoption in 2026. One participant highlighted that, in addition to the CSRD, the EU Taxonomy is also currently under scrutiny, and any delays in finalizing these frameworks have significant negative impacts on companies. Companies, particularly large preparers, have emphasized the need for clarity on the timeline no later than mid-2026 to ensure adequate preparation. They also noted that any simplifications introduced after this will not be helpful, as companies will have already reported based on the original standards for an extended period of time. 

Will There Be Any Changes to the VSME Now That More Large Companies are Reporting on a Voluntary Basis?

EFRAG explained that the current Voluntary Standard for Small and Medium-sized Enterprises (VSME Standard) was developed primarily for companies with fewer than 250 employees, focusing on supporting cost reduction. However, it has not been tested for larger or more complex companies. The Omnibus proposal recommends that the European Commission should issue a delegated act addressing all companies that fall outside the scope of the CSRD but that are not classified as SMEs, potentially based on the existing VSME framework, but with modifications to suit this broader group.

Will There Be Updates to the ESRS Implementation Guidance (IG 1 – 3), XBRL Taxonomy, and Other Guidance Documents?

EFRAG confirmed it is preparing updates to the ESRS Implementation Guidance, including a revised IG 3 (List of Datapoints as an Excel Workbook). Originally planned for December 2025, the update has been postponed to Q1 2026 to allow for further discussions and ensure greater value. In addition, updates to the draft guidance on climate transition plans will be needed. With regard to XBRL taxonomy updates, EFRAG will wait until the ESRS are closer to finalization.

What is the New Technical Knowledge Hub and How Can Companies Register?

At the public unveiling of the revised draft ESRS on 4 December, EFRAG also launched its new ESRS Technical Knowledge Hub. The hub is designed to present all key materials related to ESRS in one place, including the adopted 2023 ESRS, the revised draft ESRS, the VSME standard, implementation guidance and supporting documents. In addition, the hub provides interactive linkage to related EU legislation and international standards. Interested parties can register here.  

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