EU adopts simplified ESRS and sustainability reporting standard for voluntary use 

On 3 July 2026, the European Commission adopted two delegated regulations, which are now subject to European Parliament and Council scrutiny.

• The first delegated regulation and accompanying annexes revise Delegated Regulation (EU) 2023/2772, which introduced the European Sustainability Reporting Standards (ESRS) for undertakings that remain within scope of mandatory sustainability reporting after Omnibus I.
• The second establishes a voluntary sustainability reporting standard (annexes) for undertakings outside the Corporate Sustainability Reporting Directive (CSRD) regime, particularly those protected by the value chain cap.

The package combines a substantive simplification of the mandatory ESRS with a proportionate framework for undertakings outside mandatory Corporate Sustainability Reporting Directive (CSRD) regime, including smaller value chain companies that will be protected by a value chain cap and that receive sustainability information requests from financiers, customers, and other counterparties.

What you need to know

• The revised ESRS will replace the existing reporting standards for financial years beginning on or after 1 January 2027, although undertakings within the CSRD's scope may choose to apply the revised standards for financial year 2026 or use specified reliefs while continuing to apply the existing standards.
• The revised ESRS shorten and clarify the standards, introduce additional reliefs and phase-ins, reduce mandatory datapoints by 61% and total datapoints by more than 70%, simplify materiality assessment and improve interoperability with international standards and EU legislation.
• The Voluntary Standard is intended for undertakings that are not subject to mandatory CSRD reporting and that do not exceed an average of 1,000 employees during the preceding financial year.
• The Voluntary Standard also establishes the value chain cap: for CSRD reporting purposes. As a result of the cap, reporting undertakings may not require protected undertakings in their value chains to provide sustainability information beyond the datapoints specified in Annex II to the Voluntary Standard, and protected undertakings have a statutory right to decline requests that exceed the Voluntary Standard.

Background: The EU's sustainability reporting reset

The adoption of the delegated regulations revising the mandatory ESRS and establishing the Voluntary Standard follows a May 2026 consultation on the draft mandatory and voluntary standards (see European Commission consults on revised ESRS and sustainability reporting standard for voluntary use). Both regulations recalibrate the EU sustainability reporting framework and are central deliverables of the Omnibus I simplification package, which amended the Accounting Directive (Directive 2013/34/EU) to narrow the CSRD reporting population, simplify sustainability reporting requirements and introduce a value chain cap for smaller undertakings (see EU sustainability reporting Omnibus reaches destination as Content Directive agreed).

The revised ESRS are intended to reduce the reporting burden for the largest undertakings that remain within scope, while preserving relevant disclosures on material sustainability impacts, risks and opportunities. The Voluntary Standard addresses the “trickle-down” effect of sustainability information requests on smaller suppliers, customers and business partners that are not themselves subject to mandatory CSRD reporting.

What has changed in the mandatory ESRS?

The revised ESRS apply to all undertakings subject to sustainability reporting requirements under Articles 19a and 29a of the Accounting Directive (2013/34/EU), as amended by the Omnibus I Directive, for financial years beginning on or after 1 January 2027. The most visible change is quantitative. According to the European Commission (European Commission press release), the revised ESRS cut mandatory datapoints by over 60% and total datapoints by more than 70% with expected reporting cost reductions of more than 30% per company.

As proposed in the consultation draft, the adopted text makes clearer that prescribed information should not be disclosed if it is not material, except in limited circumstances; this is a notable change in emphasis and is designed to reduce over-reporting and excessive materiality assessments so that reporting focuses on areas where material impacts, risks or opportunities are likely to arise. The text also clarifies the fair presentation concept, which should be considered at the level of the sustainability statement as a whole rather than individual datapoints.

Other system-wide amendments are directed at feasibility and proportionality. The revised ESRS give undertakings more flexibility over aggregation and disaggregation, allow greater reliance on reasonable and supportable information available without undue cost or effort, and confirm wider use of estimates and proxies for value-chain data. The revised ESRS continue to require upstream and downstream value chain information where necessary to understand material impacts, risks and opportunities, but they make clear that this does not require information on every actor in the value chain and that undertakings may use estimates, sector-average data, sample analyses, market and peer data, spend-based data or other proxies where appropriate.

The revised ESRS introduce the ability to omit seriously prejudicial commercial information, trade secrets, classified information and other protected information. They also allow companies, in limited cases, to leave out highly sensitive or legally protected information, such as trade secrets, classified information, or information that would seriously harm their business, and they also keep targeted exemptions for example for activities that do not have a major effect on what the metric is meant to measure, and some joint operations that the undertaking does not control when calculating certain environmental metrics, including metrics on pollution, water, biodiversity, ecosystems, and circular economy.

Climate and environmental reporting have been adjusted in targeted ways. For greenhouse gas emissions, the revised ESRS align more closely with global sustainability reporting standards by allowing an undertaking to use either the financial control approach or the operational control approach when defining its reporting boundary. Key features of climate transition plans shall be disclosed, where such plans exists, including GHG reduction targets, decarbonisation levers, investments and funding, governance approval. The disclosure is framed around showing compatibility with the 1.5°C Paris target. Where a disclosed transition plan refers to targets that are not compatible with 1.5°C Paris objective, the undertaking must explain this, including how its target values compare with reference values and how it has considered future developments. If an undertaking has no such plan, it must disclosed that fact and state whether, and when, it expects to adopt one.

Reporting on microplastic pollution is limited to primary microplastics and should be based on a managerial assessment that considers the undertaking’s activities and sector.

How the Voluntary Standard works

The Voluntary Standard is intended to be used by undertakings that are not subject to mandatory sustainability reporting under Articles 19a and 29a of the Accounting Directive and that do not exceed an average of 1,000 employees during the preceding financial year. It is voluntary and does not impose legal reporting obligations in the way that ESRS do for undertakings within mandatory CSRD reporting. Its policy function is to provide a single, proportionate and standardised framework that can replace fragmented ESG questionnaires from banks, investors and larger customers.

The Voluntary Standard has two modules. The basic module is designed for use by micro undertakings (e.g. companies with 10 employees or fewer) and is a minimum requirement for other undertakings applying the Voluntary Standard. It covers general information, sustainability-related practices and policies, environmental metrics, workforce metrics and basic governance information.

The comprehensive module adds disclosures likely to be requested by banks, investors and larger corporate counterparties, including business model and strategy, climate targets and transition information, climate risks, additional workforce information, human rights policies, revenues from specified activities and governance body gender diversity. Applying the basic module is a prerequisite for applying the comprehensive module. An undertaking must state whether it has used the basic module only or both modules.

The Voluntary Standard is much simpler than ESRS in several respects. It does not require a full ESRS-style materiality assessment and instead uses an “if applicable” principle for certain disclosures so that the specified information is reported only where the relevant circumstances apply. It also requires proportionate disclosures and micro-undertaking can choose whether to make the more challenging disclosures.

The Voluntary Standard introduces the value chain cap which prohibits undertakings in-scope of CSRD from requiring information beyond the datapoints specified in Annex II to the Voluntary Standard from value chain partners that are not themselves in-scope of the CSRD. Such protected undertakings have a statutory right to refuse requests that exceed those limits, and Annex II distinguishes between the cap applicable to undertakings with 10 employees or fewer and the cap applicable to undertakings with more than 10 employees, giving the smallest undertakings additional protection from trickle-down data demands.

The value chain cap does not prevent protected undertakings from providing additional information voluntarily, and it does not affect requests needed to comply with obligations stemming from other Union or national law, subject to the conditions set out in those regimes. It also applies only to information gathering for the purpose of sustainability reporting under the Accounting Directive. This means companies should distinguish between CSRD-driven information requests, other regulatory requests, contractual audit or compliance rights, and ordinary commercial information sharing.

Implications for companies

Companies that remain within scope of mandatory CSRD reporting should reassess their reporting architecture against the revised ESRS. This exercise is not just to understand which datapoints no longer need to be reported. It requires a fresh look at double materiality methodologies, value chain data gathering, the use of estimates and proxies, procedures that should be followed to allow certain data to be omitted, consideration of what reporting is needed as regards anticipated financial effects and choices around greenhouse gas reporting boundaries and climate transition disclosures.

In-scope undertakings that are required to report in financial year 2026 should decide whether to apply the revised ESRS early or continue with the existing ESRS while using specified reliefs. If an undertaking applies either route for financial years beginning between 1 January 2026 and 31 December 2026, it must clearly state in its sustainability statement which version of the ESRS it has applied. This decision should be coordinated with the audit committee, finance, sustainability, legal, internal controls and assurance providers because it affects comparability, systems changes, assurance planning and stakeholder messaging.

Groups should revisit their double materiality assessment methodology. The revised ESRS permit a more proportionate top-down approach, but companies will need to record the strategy, business model, sector, geography and value chain factors used to reach materiality conclusions.

Companies should review their value chain data request protocols. In-scope companies will need to identify when a supplier, customer or other business partner is protected by the value chain cap (as a small or micro undertaking) and ensure that CSRD-related requests do not require information beyond the datapoints listed in Annex II to the Voluntary Standard. Procurement, supplier assurance, sustainability and legal teams should also build escalation processes for requests that go beyond the cap where the information is sought for a purpose other than CSRD sustainability reporting.

Companies outside the scope of the CSRD should assess whether using the Voluntary Standard would reduce the burden of responding to multiple ESG questionnaires.

For smaller companies, the immediate practical question is whether the Voluntary Standard becomes the market baseline for responding to banks, investors and large customers' sustainability information requests. Undertakings that adopt it should decide whether reporting using the basic module is sufficient or whether the disclosures under the comprehensive module are also needed to satisfy value chain partners. Companies with 10 employees or fewer should pay particular attention to the datapoints that they can choose to omit and to the value chain cap that applies to them.

Timeline

The delegated regulations are subject to a two-month scrutiny period by the European Parliament and the Council, which may be extended by a further two months, before final implementation. The revised ESRS will enter into force on the date specified in the regulation, which is no earlier than four months and one week after adoption, and will apply to financial years beginning on or after 1 January 2027.

The Voluntary Standard will enter into force on the third day after publication of the regulation in the EU Official Journal, while the value chain cap applies from financial years beginning on or after 1 January 2027.

Authors: Claus Zimmermann, Partner, Global Head of International Trade; Becky Clissmann, Counsel; Giovanna Ventura, Senior Regulatory Affairs Adviser