Fewer ESRS Data Points Do Not Mean Fewer Compliance Risks

When ESMA reviewed 91 sustainability reports published under the first cycle of ESRS Set 1, the results exposed a problem that data point reduction will not fix. Forty percent of the reviewed companies failed to meet the disclosure objective of IRO-1, the requirement to describe how their materiality assessment was conducted. These companies did not lack data. They produced boilerplate language lifted from ESRS 1 or EFRAG's implementation guidance without explaining how their own management had actually made materiality decisions. Two issuers in the sample received qualified assurance opinions. In a regime that contained over 1,000 data points, the failures came down to judgment, documentation, and how well companies had built their internal processes.

Fewer data points won't fix that. They'll make it worse.

The simplified ESRS cut mandatory data points by 61% and remove all voluntary disclosures, reducing the total from roughly 1,073 to around 320. But this compression concentrates regulatory exposure rather than reducing it. Every remaining data point now carries higher assurance scrutiny and a greater materiality burden, with less room to compensate for weak disclosures with volume. Companies that treat the Omnibus simplification as a reason to scale back their reporting infrastructure are building the exact gaps that enforcers have flagged in the first reporting cycle.

The shift from volume compliance to judgment quality

The EFRAG technical advice submitted to the European Commission on December 3, 2025 goes beyond deleting data points. It restructures how companies engage with the standards. Minimum Disclosure Requirements have been renamed General Disclosure Requirements and relocated to ESRS 2, which eliminates the topical overlap that created confusion during the first reporting cycle. Strategy, governance, and metrics disclosures that were previously embedded in each topical standard (E1 through G1) have been consolidated into general disclosures. That consolidation removes the duplication that allowed companies to treat individual topical standards as self-contained checklists.

Under the original ESRS, a company reporting on climate could work through E1 as a relatively self-contained module. Under the simplified framework, the same company must now ensure that its E1 disclosures connect to the general disclosure requirements in ESRS 2, that its materiality rationale for climate is consistent with how materiality is presented across all topics, and that its transition plan narrative aligns with a fair presentation principle that did not previously exist in the standards. The fair presentation principle, now aligned with IFRS S1, requires that the sustainability statement present a faithful representation of the company's impacts, risks, and opportunities. Assurance providers will test this as a substantive standard, and companies should expect it to carry real weight in enforcement.

For Wave 1 reporters already producing ESRS-aligned statements, the quick-fix delegated act adopted on July 11, 2025 holds their reporting obligations stable through FY2026, while the simplified ESRS will apply from FY2027 onward, with optional early adoption for FY2026. The European Commission must adopt the revised ESRS via delegated act no later than six months after the Omnibus Content Directive (EU) 2026/470 entered into force on March 18, 2026, with a legal deadline of September 18, 2026. Wave 2 companies, now reporting for the first time in 2028 for FY2027, will likely report directly under the simplified framework. (Our Reporting Deadline Tracker maps all cross-jurisdictional deadlines across 10 jurisdictions, including the revised CSRD wave timelines, California SB 253, and UK SRS.)

What each standard loses and what that means operationally

The reductions vary by standard. The operational implications depend on which standard governs your most material topics.

ESRS E1 (Climate Change) saw a 53% reduction in data points. The energy intensity metric has been removed from the energy disclosure requirement. Total GHG emissions and GHG intensity metrics have been dropped. The transition plan disclosure (E1-1) has been restructured as a more concise narrative aligned with IFRS S2, and the climate resilience and scenario analysis requirements (E1-2 and E1-3) have been reorganized with clarified links between them. Anticipated financial effects remain within E1 (unlike the other environmental standards, where they were removed), but with fewer data points. The GHG boundary methodology has been updated to align with financial control as the starting point, consistent with the GHG Protocol. Companies with complex joint venture structures should expect this boundary change to affect their reported emissions figures.

Inside the organization, climate teams can no longer rely on granular line-item data requirements to justify the scope of their data collection. If a company drops its energy intensity tracking because the standard no longer mandates it, but an assurance provider determines that energy intensity is necessary for a fair presentation of the company's climate profile, the company has an assurance gap.

The "undue cost or effort" relief, now expanded to cover all metrics including own-operations data, does not eliminate this risk. It requires the company to document why the cost is undue and what actions it is taking to improve coverage, which is itself a disclosure that assurance providers will test.

ESRS E4 (Biodiversity and Ecosystems) had the largest reduction at 77.8%. Combined with extended phase-in provisions, this is the standard most likely to be deprioritized. But companies must still confirm whether each topic is material even when using phase-in relief. Dropping biodiversity without a documented rationale addressing sector and geographic exposure will be visible to enforcers. The ESMA fact-finding report flagged cases where companies failed to explain their entity-specific materiality reasoning.

ESRS E2 (Pollution) was reduced by 61% in data points. The reference to E-PRTR thresholds has been removed from mandatory requirements, giving companies flexibility in choosing pollution measurement methodologies. A new secondary microplastics disclosure was introduced, aligned with the REACH Regulation. Anticipated financial effects have been removed from E2 and centralized in ESRS 2. Chemicals and manufacturing companies will feel the E-PRTR removal most: the company must now justify which methodology it chose rather than applying a prescribed threshold.

ESRS S1 (Own Workforce) remains the most detailed social standard, because EFRAG's consultation feedback indicated that workforce disclosures are particularly sensitive. The adequate wage disclosure was one of the most debated elements. A new threshold for S1-5 (Characteristics of Employees) and S1-7 (Collective Bargaining Coverage) now applies to the "top 10 countries by headcount," replacing earlier requirements that covered all jurisdictions. The unadjusted gender pay gap was retained. Human rights policy disclosure has moved from the social standards to ESRS 2.

Multinationals will need to configure their HR data architecture to identify and track the correct country cohorts. Companies that had built systems to report on all operating jurisdictions can narrow their scope; companies that had not yet built systems should not design for a narrower scope than the standard requires, because the "fair presentation" principle could still demand coverage beyond the top 10 if omission would misrepresent the workforce profile.

If you are mapping which standards and data points apply to your organization under the simplified ESRS, our free Regulatory Readiness Assessment scores your current preparedness across GHG measurement, data systems, governance, and framework-specific requirements and generates a prioritized action plan with deadlines.

Fewer materiality decisions, higher scrutiny per decision

The simplified ESRS introduces a top-down materiality assessment approach. Companies can now start at a strategic level, examining their business model and sector before drilling into specific topics, rather than conducting the exhaustive bottom-up analysis that the original ESRS prescribed. The previous mandatory list of topics has been removed. Companies report only on material sub-topics. Materiality documentation can be carried forward between reporting periods unless significant changes occur.

In practice, the top-down approach concentrates regulatory risk into fewer decisions. Under the original framework, a company reporting on 8 out of 10 topics had volume to absorb weak individual disclosures. Under the simplified framework, each materiality determination carries more weight because there are fewer decisions to evaluate. Enforcers reviewing a sustainability statement with 5 material topics will scrutinize why the other topics were excluded with more intensity than they would in a framework that expected broader coverage.

The ESMA fact-finding report documented this dynamic. About 70% of companies provided information on input parameters like data sources and assumptions, but many reproduced generic language from EFRAG's Implementation Guidance IG1 rather than explaining entity-specific reasoning.

The materiality assessment can no longer be a standalone exercise run by the sustainability team. Under the simplified ESRS, it is the filter that determines every downstream disclosure. The board or audit committee that signs off on the sustainability statement is implicitly endorsing the materiality conclusions. Materiality sign-off should include documented input from legal, risk, operations, and finance, with references to specific business model elements and geographic exposures rather than sector averages.

Uneven enforcement creates cross-border compliance gaps

Enforcement of ESRS reporting is uneven in ways that the simplified standards do not resolve. Germany, the EU's largest economy, has still not transposed the CSRD into national law as of early 2026, despite the European Commission having initiated infringement proceedings for missing the July 2024 deadline. German companies cannot yet register sustainability auditors in the professional register because the legislative framework has not been adopted. A German multinational with subsidiaries in France (where the CSRD was transposed in December 2023 via Ordinance 2023-1142) faces different enforcement regimes for different parts of the same group.

France's AMF adopted what it described as a "pragmatic and understanding approach" to supervising sustainability information in 2025 and chose not to apply ESMA's new GLESI enforcement guidelines, citing uneven CSRD transposition across the EU. Cross-border companies face more risk from this enforcement asymmetry than from the data point count itself. The danger is that companies build their reporting systems to the lowest common denominator of enforcement rather than to the standard that their most aggressive regulator will apply.

A decision framework for mapping simplified ESRS requirements

The question for compliance leaders: how do you rebuild your reporting architecture for a regime where fewer mandatory requirements increase the burden of judgment on each remaining disclosure? The following framework structures the mapping exercise around five connected decision points.

Start by reclassifying your existing data point inventories against the simplified standard before deciding what to drop. Some data points removed from mandatory ESRS may still be required under ISSB S1 or S2, California SB 253, or the UK's forthcoming Sustainability Reporting Standards. EFRAG has explicitly warned that some ESRS reliefs go beyond what is available under the ISSB Standards, meaning companies claiming dual compliance cannot rely on ESRS-specific flexibilities. Cross-jurisdictional mapping should precede any data retirement decisions. "Decision-grade" means: the data has an identified regulatory or stakeholder demand, a documented collection methodology, and a defined review process.

The materiality documentation needs redesigning to survive enforcement testing. Documentation should include the specific business model elements considered, the geographic and value chain boundaries applied, the thresholds used, and the rationale for each exclusion. "The documentation should withstand a national enforcer's request to explain why a specific topic was excluded, supported by evidence rather than assertion.

Before relying on the 'undue cost or effort' relief, determine its connection with fair presentation. The expanded UCE relief applies to all metrics, including own-operations data. But it does not override fair presentation. If a company claims UCE to exclude a metric necessary for fair presentation, the two provisions conflict. UCE documentation should specify what data collection was attempted, what cost was deemed undue, what alternative was used, and what the company will do to improve coverage in subsequent periods. This documentation should be reviewed by the audit committee before finalization.

Internal controls need to match the consolidated disclosure architecture. Policies, actions, and targets have been consolidated into ESRS 2, which makes the general disclosures section the place where consistency is tested. A company's E1 transition plan, S1 workforce policies, and G1 governance disclosures must be consistent with the general disclosure narrative. Finance, legal, HR, operations, and sustainability must review the general disclosures section as a unit, not as fragments produced by different teams.

Finally, prepare your assurance engagement. The original ESRS gave assurance providers a wide set of data points to sample across. With only 320 remaining, each will receive proportionally more testing. Discuss with your assurance providers which data points are likely to be tested, what evidence will be required, and whether your internal controls are designed to produce that evidence. Assurance engagement scope should be agreed before the reporting period, not after the sustainability statement is drafted.

What happens if companies get this wrong

Enforcement consequences are already taking shape. ESMA's 2025 European Common Enforcement Priorities retained the same two priorities from the prior year: materiality considerations and scope and structure of the sustainability statement.

National enforcers are actively examining sustainability statements using the GLESI framework. In Germany, penalties under the existing financial reporting enforcement framework include fines of up to EUR 10 million, 5% of total annual turnover, or twice the profits gained or losses avoided; these penalty levels are expected to carry over or increase once the CSRD is transposed. France's AMF can impose administrative fines up to EUR 100 million under its market abuse enforcement powers, which could apply to materially misleading sustainability disclosures that affect investor decisions. CSRD-specific penalties for directors in France include fines up to EUR 75,000 and imprisonment for up to five years for obstructing sustainability auditors.

Beyond regulatory penalties, SFDR Principal Adverse Indicator reporting by asset managers depends on ESRS-aligned data from portfolio companies. A company with poorly documented materiality exclusions creates gaps in its investors' own regulatory disclosures, driving either direct data demands or portfolio reallocation.

The two-year window before FY2027 reporting is the period when companies either build the documentation and controls that survive enforcement, or lock in the gaps that enforcers have already told you they're looking for...

The analysis above surfaces a consistent operational gap: the distance between understanding which ESRS data points apply and having the internal architecture, data collection processes, materiality documentation, and assurance readiness to report them at a level that satisfies enforcement scrutiny. Closing that gap requires mapping simplified ESRS requirements against cross-jurisdictional obligations, redesigning internal controls for the consolidated disclosure structure, and stress-testing materiality documentation before the reporting period begins.

Gasilov Group's ESRS Compliance Mapping engagement starts with a cross-jurisdictional data point inventory that identifies every disclosure required under the simplified ESRS, ISSB, SB 253, and applicable national frameworks. From there, we build the materiality documentation, internal control design, and assurance preparation your team needs before FY2027 reporting begins. Contact us to schedule a scoping call.

Schedule ESRS Mapping Consultation

Arif Gasilov, Partner, Climate & Environmental Reporting

Leads CSRD and ESRS alignment, double materiality assessments, emissions baselining, and climate risk mapping, with experience across corporate and public sector sustainability engagements in North America and Europe. Meet Our Team ->

Frequently Asked Questions (FAQ):

How does the simplified ESRS affect companies already reporting under ESRS Set 1 for FY2024 and FY2025?

Wave 1 companies continue reporting under the current ESRS Set 1 through FY2026, with additional flexibility provided by the quick-fix delegated act adopted on July 11, 2025. The simplified ESRS applies from FY2027 onward, though the European Commission may permit voluntary early application for FY2026. Wave 1 reporters should use the intervening period to conduct a gap analysis between their current disclosures and the simplified framework, particularly around the restructured general disclosure requirements and the new fair presentation principle, which will require changes to how narrative disclosures are structured even if the underlying data remains the same.

Can a company drop data collection for a data point that was removed from the simplified ESRS?

Not without first checking whether the same data point is required under another framework that applies to the company. The ISSB Standards, California SB 253, the UK's forthcoming Sustainability Reporting Standards, and SFDR Principal Adverse Indicator requirements may all require data points that the simplified ESRS no longer mandates. The fair presentation principle in the simplified ESRS 1 also requires that the sustainability statement not omit information necessary for a faithful representation, even if no specific data point requires it. Companies should maintain data collection capacity for any metric that may be needed for fair presentation until the assurance engagement confirms it can be retired.

What is the practical difference between the original materiality approach and the new top-down approach?

Under the original framework, companies ran a detailed bottom-up assessment that required companies to evaluate every sub-sub-topic in the standards against a defined list of sustainability matters. The simplified framework removes the mandatory list of topics and the sub-sub-topic level, allowing companies to start with their business model and sector profile and identify material topics from there. The practical difference is that companies have more discretion but also more documentation burden. The original approach provided a degree of cover because it was exhaustive. With the top-down method, every exclusion decision must be independently justified with entity-specific evidence, because there is no prescribed list to fall back on.

Will sector-specific ESRS still be developed?

The Omnibus agreement removed the requirement for sector-specific ESRS standards. The European Commission may issue non-binding sector guidance in the future, but there is no current legislative mandate to develop or adopt sector-specific standards. Companies in high-impact sectors like extractives, financial services, or agriculture will need to rely on entity-specific disclosures under the general framework to capture sector-relevant information. Without sector standards, the materiality assessment becomes more important for identifying sector-specific risks, and the fair presentation principle carries more weight in ensuring those risks are adequately disclosed.

How should companies prepare for the delegated act if the final simplified ESRS could differ from EFRAG's technical advice?

The European Commission can modify EFRAG's text when preparing the delegated act, though extensive modifications are unlikely given the tight timeline and the depth of EFRAG's consultation process. Companies should build their systems based on EFRAG's December 2025 technical advice as the most reliable available indicator of the final requirements, while monitoring the Commission's public consultation on the delegated act expected in the first half of 2026. The areas most likely to see Commission adjustments are where ESRS phase-ins and reliefs interact with the revised CSRD scope, particularly for companies near the 1,000-employee threshold, and where interoperability with the ISSB Standards requires fine-tuning to avoid creating dual-compliance conflicts.