EU Sustainability Reporting Reaches Another Milestone
EU sustainability reporting has reached another important milestone. On 3 July 2026, the European Commission adopted the revised European Sustainability Reporting Standards (ESRS) together with a new Voluntary Sustainability Reporting Standard (VS) for companies outside the scope of the Corporate Sustainability Reporting Directive (CSRD). Both delegated acts are now subject to scrutiny by the European Parliament and the Council and will not enter into force until they are published in the Official Journal of the European Union. Once the legislative process is completed, the revised ESRS will apply to financial years beginning on or after 1 January 2027, while companies may opt for early adoption for the 2026 financial year.
The Commission’s objective is clear: to reduce reporting burdens while ensuring that sustainability information remains useful for investors, banks, business partners, and other stakeholders. The revised ESRS are shorter and simpler, provide greater flexibility, streamline the materiality assessment process, and significantly reduce the number of mandatory data points. According to the Commission’s estimates, the simplification is substantial: mandatory disclosures could be reduced by more than 60%, while the overall volume of reported data could decrease by more than 70%, potentially resulting in significant cost savings for companies.
The key message, however, is not simply that fewer data points will have to be reported. Rather, the revisions seek to establish a new balance: how to simplify sustainability reporting without compromising the credibility, comparability, and decision-usefulness of sustainability information. This is particularly important from an investor perspective, where ESG data are used not only for communication purposes but also for risk assessment, company valuation, and capital allocation decisions.
Eurosif: A Step in the Right Direction, but Risks Remain
The European Sustainable Investment Forum (Eurosif) has broadly welcomed the fact that the final ESRS remain largely aligned with the draft published for consultation in May and preserve the framework’s key building blocks. These include the principle of double materiality, the requirement for fair and balanced reporting, and the core disclosure requirements relating to climate transition plans.
Eurosif particularly welcomes the European Commission’s decision to retain both qualitative and quantitative disclosures on anticipated financial effects. These disclosures are considered essential for enabling investors to understand how sustainability-related risks and opportunities may affect a company’s future financial performance. However, these requirements will be subject to an additional one-year phase-in period, delaying investors’ access to this critical information.
At the same time, Eurosif highlights several remaining concerns. According to the organisation, allowing companies to depart from the ESRS reporting structure could reduce comparability, even if the intention is to improve alignment with reporting formats under the International Sustainability Standards Board (ISSB) framework.
Another concern relates to the exemption for assets managed by financial institutions. While the final text narrows the exemption to assets managed on behalf of clients, Eurosif argues that it may still create a significant blind spot when assessing the sustainability performance of financial institutions.
The organisation also warns that the broad reporting reliefs could undermine the framework if they are not accompanied by appropriate safeguards. Without such safeguards, exemptions intended as exceptional measures could become standard practice, weakening both the credibility and the comparability of sustainability reporting.
Furthermore, Eurosif notes that the modification or removal of certain key data points—including those relating to biodiversity, secondary microplastics, and human rights incidents—may reduce the availability of decision-useful information for investors.
The organisation also raises concerns about the narrowly defined value chain cap associated with the new voluntary standard. While the cap is intended to reduce the reporting burden for smaller companies, Eurosif believes it could lead to information gaps and create implementation challenges for reporting companies. As a result, investors and other users of sustainability information may no longer receive all the data necessary for informed decision-making.
Overall, Eurosif’s assessment is balanced. It considers the final package to represent a positive step because it preserves the most important pillars underpinning the credibility of the ESRS. Nevertheless, it cautions that the extensive reporting reliefs and reduction in mandatory data points may reduce the availability, comparability, and reliability of certain sustainability information.
From VSME to VS: Why the New Voluntary Standard Matters
The second major development is the adoption of the new Voluntary Sustainability Reporting Standard (VS) for companies outside the scope of the CSRD employing up to 1,000 employees. The new standard builds on the former Voluntary Sustainability Reporting Standard for non-listed SMEs (VSME) but is now incorporated as an annex to a delegated regulation. Although the standard remains voluntary, its formal legal status is expected to make it a much stronger reference point in practice.
The purpose of the Voluntary Sustainability Reporting Standard (VS) is to enable smaller companies to respond to ESG information requests from banks, investors, large corporate customers, and procurement teams through a simpler, more proportionate, and more consistent reporting framework.
The standard consists of two modules: a Basic Module and a Comprehensive Module, the latter covering additional information typically requested by banks, investors, and large corporate business partners.
The main changes include:
- GHG intensity is no longer reported as a separate data point.
- Employee turnover has been moved from the Basic Module to the Comprehensive Module.
- Disclosure of the gender pay gap is required only where it is already mandated by EU or national legislation.
- Training hours no longer need to be reported separately by gender.
- Waste sent for recovery is now reported as a ratio rather than an absolute figure.
- The water stress-related disclosure shifts its focus from water abstraction towards water consumption.
One of the most significant practical features of the VS is the value chain cap, which limits the sustainability information that companies subject to the CSRD may request from value chain partners with up to 1,000 employees. For CSRD reporting purposes, such companies may not require more sustainability information than is covered by the voluntary standard. At the same time, the Commission makes it clear that the use of the VS remains entirely voluntary and that companies subject to the CSRD are not expected to request every possible data point automatically, but only the information that is genuinely necessary.
For companies within the scope of the CSRD, this means it will be advisable to review and, where necessary, revise their supplier ESG questionnaires. For companies outside the scope of the CSRD, the VS is likely to become the most practical common language—not as a new compliance obligation, but as a structured, proportionate, and widely recognised framework for responding to sustainability information requests.
Overall, both the revised ESRS and the new VS point in the same direction: less administrative burden, greater proportionality, while maintaining the expectation that sustainability information should remain credible and decision-useful. Eurosif’s assessment captures this balance well. In its view, the final package represents an important compromise between simplification and credibility. Whether that balance proves successful in practice, however, will ultimately depend on how the revised framework is implemented over the coming years.