ESRS Simplified Standards 2026: What Companies Must Do Now

Why This Matters

The original ESRS framework, while comprehensive, imposed significant compliance costs—particularly on mid-cap companies with limited sustainability teams. A 2025 Deloitte survey found that 67% of companies spent over 500 staff hours on their first ESRS report, with external assurance adding €50,000–€200,000 in costs. The simplified standards address these concerns without undermining the EU's sustainability objectives.

Crucially, the simplification is not a rollback. Double materiality remains central. Climate disclosures (ESRS E1) are still mandatory for all in-scope companies. The changes focus on eliminating redundant datapoints, simplifying sector-agnostic disclosures, and introducing proportionality mechanisms for smaller companies.

What Changed: Key Simplifications

1. Reduced Disclosure Requirements

• Social disclosures (ESRS S1–S4): Reduced from 180 to 95 datapoints. Workforce disclosures consolidated; own workforce (S1) remains mandatory, but value chain worker disclosures (S2) now follow a "comply or explain" approach for companies under 1,000 employees.
• Biodiversity (ESRS E4): Simplified impact metrics. Companies no longer required to disclose species-level data unless operating in high-impact sectors (agriculture, forestry, mining, construction).
• Water and marine resources (ESRS E3): Streamlined to focus on water consumption in water-stressed areas rather than full watershed analysis.
• Resource use and circular economy (ESRS E5): Eliminated redundant circularity KPIs; focus shifted to total waste generation and recycling rates.

2. Proportionality for Mid-Cap Companies

Companies with 250–999 employees (Phase 2 of CSRD) can now apply proportionality:

• Optional disclosure of anticipated financial effects from climate risks (ESRS E1) if quantitative assessment is not feasible
• Simplified value chain reporting—estimates accepted where primary data unavailable
• Reduced granularity in social metrics (e.g., aggregate diversity ratios rather than breakdown by 10+ categories)

3. Sector-Specific Standards Delayed

The 11 sector-specific ESRS originally planned for 2026 have been delayed to 2027. Until then, companies apply sector-agnostic standards with voluntary sector-specific disclosures encouraged but not mandated.

4. Digital Reporting Simplified

ESEF (European Single Electronic Format) tagging requirements have been relaxed for the first two reporting cycles. Companies may submit simplified XBRL taxonomies with reduced tag density while EFRAG finalizes the full digital taxonomy.

What Did NOT Change

• Double materiality assessment: Still required. Companies must evaluate both impact materiality and financial materiality.
• Climate disclosures (ESRS E1): Fully mandatory. GHG Protocol alignment, Scope 1/2/3 reporting, and climate transition plans remain unchanged.
• Assurance requirements: Limited assurance required from first report; reasonable assurance phased in by 2028.
• Value chain scope: Upstream and downstream value chain emissions must still be reported, though with simplified estimation methods permitted.

Business Implications

For Large Companies (Phase 1, >1,000 employees)

Minimal change. Full ESRS disclosure requirements remain. The main benefit is reduced value chain granularity for non-climate topics and simplified digital reporting in years 1–2. Budget for compliance should remain at €100,000–€300,000 annually including assurance.

For Mid-Cap Companies (Phase 2, 250–999 employees)

Significant relief. The 40% reduction in datapoints translates to roughly 200–300 fewer staff hours per report. Proportionality options allow phased implementation of value chain reporting. Estimated compliance cost: €40,000–€120,000 annually.

For Investors and Analysts

Data comparability may degrade slightly in the short term as companies exercise proportionality options differently. Climate data remains fully comparable. EFRAG has committed to publishing implementation guidance by Q3 2026 to standardize proportionality application.

Recommended Actions

1. Assess your phase: Confirm whether your company falls under Phase 1 (reports due 2026) or Phase 2 (reports due 2027).
2. Map simplified requirements: Download EFRAG's simplified ESRS datapoint list and cross-reference against your current data collection processes.
3. Update materiality assessment: Re-run your double materiality assessment using the revised criteria. Topics previously material may no longer be; new topics may emerge.
4. Train your team: The changes affect data owners across finance, HR, procurement, and operations. Schedule training by Q3 2026.
5. Engage your auditor: Discuss proportionality options and assurance scope. Early alignment prevents restatements.
6. Review software/tools: Ensure your ESG reporting platform supports the simplified taxonomy and reduced datapoint set.

FAQ

Do the simplified ESRS apply to all CSRD companies?

Yes, all companies subject to CSRD may apply the simplified standards. Large companies (Phase 1) see minimal change; mid-cap companies (Phase 2) benefit most from proportionality options.

Is double materiality still required?

Yes. Double materiality remains the cornerstone of ESRS. The simplification reduces the volume of disclosures, not the principle of materiality assessment.

What happens to sector-specific standards?

Delayed to 2027. Until then, companies apply sector-agnostic standards. Voluntary sector disclosures are encouraged but not mandated.

Can we use estimates for Scope 3?

Yes, but with conditions. Simplified ESRS permits estimation methods where primary supplier data is unavailable, provided the methodology is documented and conservative. This applies primarily to Phase 2 companies exercising proportionality.

How does this affect assurance?

Assurance requirements are unchanged. Limited assurance is mandatory from the first report; reasonable assurance is phased in by 2028. Auditors will verify that proportionality options are applied correctly.