Filip Gregor / Jul 2026
Image: Shutterstock
EU business lobbies, politicians and think tanks have spent the past year arguing about whether companies report too much about their environmental and social impact. But these arguments miss the bigger picture: whether company reports can be trusted in the first place.
That's the fundamental logic on which sustainability reporting relies – companies giving investors reliable information so that sustainable finance can work, and so they can be held to high standards of genuine transparency and accountability. Now this very logic has been undermined.
Where Simplification Delivers
As part of the “Omnibus” simplification drive, the Commission has now formally adopted the revised European Sustainability Reporting Standards (ESRS) as a Delegated Regulation. Assuming the European Parliament and Council don't object in the next two months, this is the version that will apply to the approximately 10 000 companies in scope from 2027, and replace the original standards already applied by first-wave reporters from 2024.
Judged purely as a simplification exercise, the outcome is a genuine achievement. The Commission largely followed the technical advice of EFRAG, the EU's standard-setter, producing a framework that is more than twice as short as the original, less prescriptive, and much easier to apply. The new standards are more explicitly built around fair presentation as a guiding principle, helping companies to produce shorter, but more meaningful and decision-useful reports.
Two more positives of this contested process is that the final standards upheld double materiality - the requirement for companies to disclose both their material impacts on people and the planet, and the financial risks derived from them including the quantification of anticipated financial effects, despite strong pressure. The EU Commission successfully resisted attempts to limit disclosures to financial risks only, in line with the International Sustainability Standards Board (ISSB), which would have deprived investors of objective data on impacts and undermined their ability to make their own assessments. The executive body also withstood a last-minute push to split impact and financial materiality into two disconnected reporting tracks, that would have forced double reporting by companies and made it harder for users to understand the data. Likewise, it retained the requirement to quantify anticipated financial effects, a centre piece of financial materiality under the ISSB, though with a phase-in clause delaying it until 2030.
Where the Commission Overruled EFRAG
But there's a second story in this Delegated Act that risks going unseen. On several points on which the Commission overrode expert advice from EFRAG, it consistently chose in favour of less transparency, even if it did not bring any reduction of burden.
The most significant change concerns the most important climate data needed from companies: greenhouse gas emissions (GHG). EFRAG’s proposal was aligned with the direction of the GHG Protocol's own technical working group, specifying that organisational boundaries for GHG calculation should be based on financial control, with clear rules for when operational control should apply instead. This gives companies flexibility while retaining enough rigour to prevent cherry-picking whichever accounting boundary makes their footprint look smallest. The Commission kept the flexibility but scrapped the discipline: companies can now choose between financial control, operational control, or equity share, with no criteria governing the choice.
Further examples include giving companies nearly unrestricted flexibility to determine which human rights incidents to report on, or completely scrapping disclosures on microplastics from the break-down of products.
But what is missed in the current Brussels debate is the effect on the quality of the data. The whole public debate has focused entirely on reducing an arbitrary number of datapoints or yet again challenging the connection between sustainability impacts and financial risks - this is a mistake. Having spent hundreds of hours on EFRAG's Sustainability Reporting Board debating exactly these issues, I don't think that's where the real issue is.
Lying beneath it all is the much more important problem of the comparability and integrity of data, on which investors and other users rely. For companies, it is a matter of a level playing field. The fact is that under the guise of simplification, the EU Commission has opened the door for companies to present the data in a way that flatters them.
Not the Certainty Businesses Asked For
There's a further irony here. A group of European industrial CEOs – including ABB, Danfoss and Schneider Electric – argued recently that decarbonisation and competitiveness reinforce each other, and that what businesses actually need from Brussels is consistency on direction and ambition, not another round of unravelling sustainability policy. In that regard, this Delegated Act sends a mixed signal. It delivers meaningful simplification that will improve sustainability data and make reporting easier. But it also includes tweaks that have less to do with reducing burden than with shielding companies from disclosing sustainability information - information that some firms would prefer investors and society not to see.
That doesn’t mean the substance has been gutted: the standards, even diluted, retain their core integrity, and companies applying them in good faith will still produce far more decision-useful reports than before. But that’s precisely the major consequence of the Omnibus simplification exercise: not all companies will choose to approach reporting in good faith. And in the context of the urgent need to transition Europe to a competitive, decarbonised economy, relying on good faith may not be good enough.
Research on CSRD implementation, legal analyses and emerging good practices can be found here.
