The European Sustainability Reporting Standards (ESRS) have just undergone their first major overhaul. In July 2025, EFRAG released the amended exposure drafts, signaling a clear shift: less burden, more clarity, and better alignment with global frameworks.

If you’re trying to understand what this means—whether you’re reporting for the first time under CSRD or reassessing existing disclosures—this breakdown is for you.

Let’s unpack the biggest changes.

1. Double Materiality: Simpler Method, Sharper Outcomes

One of the most consequential updates in the 2025 ESRS Exposure Drafts is the reform of the Double Materiality Assessment (DMA) process. It’s where everything begins—materiality determines what gets disclosed, and the updated standards aim to reduce ambiguity while staying faithful to the CSRD’s intent.

Materiality assessments help determine the relevant “Impacts, Risks, and Opportunities” (IROs) that form the core of what gets reported in sustainability disclosures.

Three Major Shifts to Note:

1. DMA Starts from the Business Model
   • A new section on “practical considerations” encourages a top-down assessment starting from the company’s operations, strategy, and known sectoral impacts.
   • This replaces exhaustive, bottom-up scoring at the IRO level.
2. Materiality is About Decision-Usefulness
   • Companies are expected to disclose what’s relevant and faithfully representative—not just what’s asked.
   • EFRAG positions the ESRS as a fair presentation framework, aligning with ISSB and financial reporting principles.
3. Granularity is Not the Goal
   • Clear guidance now states that reporting should only cover relevant sub-topics, not entire standards.
   • A new NMIG annex (based on Q&A ID 177) helps map disclosures to sub-topics.

Bottom line: The DMA process is no longer a burdensome scoring exercise. It’s a structured way to focus reporting on what genuinely matters.

These changes are aimed at making the DMA exercise proportionate, relevant, and truly aligned with how companies manage sustainability—not a checklist-driven task.

2. A Simpler, Leaner Structure

The structure of ESRS has changed dramatically. EFRAG didn’t just tweak individual datapoints: they rethought how the entire system is built.

From “Shall” to Streamlined

All mandatory disclosures are now clearly listed in the main body of the standards. If something says “shall disclose,” it’s legally binding.

Meanwhile, optional content like “may disclose” is gone from the standards entirely. Instead, that kind of supportive material now lives in a separate document: the Non-Mandatory Illustrative Guidance (NMIG). NMIG is a reference document that offers optional examples and guidance to help companies implement ESRS, without creating additional compliance requirements.

For topical standards: 

Datapoint Type	2023 Count	2025 Count	Change
Mandatory (“shall”)	803	347	-56.80%
Voluntary (“may”)	270	0	-100%
Total	1,073	347	-67.70%

Narrative and semi-narrative datapoints were especially trimmed:

Datapoint Type	2023 Count	2025 Count	Change
“Shall” Narrative	572	185	-67.70%
“May” Narrative	220	0	-100%
Total Narrative	792	185	-76.60%

This alone will drastically improve readability, reduce repetition, and encourage more targeted reporting.

Language Cleanup for Global Alignment

Beyond structural changes, to reduce reporting complexities for global companies, EFRAG aligned key terms and definitions with the IFRS S1/S2 standards. This isn’t just semantics, it helps companies avoid duplicative efforts across CSRD and ISSB disclosures.

3. The ESRS Datapoint Reduction, Explained

One of the boldest moves in the July 2025 Amended ESRS Exposure Drafts is the massive reduction in mandatory and voluntary datapoints. This isn’t just about trimming fat—it’s about shifting the focus to what actually matters for decision-useful, high-integrity sustainability reporting.

What Changed? A Look at the Numbers 

Standard	Datapoint Reduction	Word Count Reduction
ESRS 2 (General)	49%	34%
ESRS E1 (Climate)	53%	65%
ESRS E3 (Water)	70%	82%
ESRS E4 (Biodiversity)	78%	Not Specified
ESRS E5 (Circular Economy)	60%	72%
Social Standards (S1–S4)	53%–64%	67%–79%
G1 (Business Conduct)	50%	51%

Did Anything Become Mandatory? Yes—But Not Much

Despite the general freeze on increasing obligations, six former “may disclose” datapoints were promoted to mandatory status. Each one had strong justification:

New Mandatory Datapoint	Why It Was Upgraded
Water withdrawals (E3)	Essential to complete water balance, already informally required
Water discharges (E3)	Complements withdrawals, improves clarity
Biodiversity transition plans (E4)	Decision-useful, applies only if such plans exist
Procurement training (G1)	Consolidates deleted training datapoints, improves supplier management transparency
Corruption incidents – nature and number (G1)	Provides basic integrity metric, replaces weak narrative
Fossil fuel energy use disaggregation (E1)	Extended to all sectors due to definitional issues with “high climate impact sectors”

Four New Datapoints—But With a Purpose

Similarly, EFRAG introduced four entirely new “shall disclose” datapoints, not as new burdens, but to make reporting clearer and more actionable.

New Datapoint	Why It Matters
BP-1: Confirm ESRS 1 principles used (ESRS 2)	Consolidates prior disclosures into a single, clear statement
Secondary microplastics disclosure (E2)	Previously buried in a general paragraph; this clarifies intent
% of critical/strategic raw materials (E5)	Aligns with EU regulations like the Critical Raw Materials Act
%/weight of waste with unknown destination (E5)	Helps assess circularity and waste traceability accurately

You Can Disclose Limitations (If Needed)

Struggling to get reliable data? New guidance allows companies to disclose limitations openly and describe improvement plans. This comes as a relief to many organizations that had to rely on estimations where primary data was hard to collect or even unavailable. 

4. Revisions to Other Key Disclosures

SFDR PAIs: Leaner but Still Covered

EFRAG reviewed datapoints tied to the Sustainable Finance Disclosure Regulation (SFDR), particularly the Principal Adverse Impact (PAI) indicators.

Some redundant or derivable datapoints were removed, such as:

• Certain marine-related disclosures (E3)
  
• Days lost from fatalities (S1-13)
  
• Duplicates in human rights policy content (now unified under ESRS 2)
  

But the substance remains. EFRAG confirmed that SFDR alignment is still strong—and more relevant.

Benchmark Regulation: Cleaner Integration

EFRAG also removed datapoints that didn’t add value for benchmarks aligned with the EU’s Paris goals.

Original Disclosure	Change	Why
Exclusion from Paris-Aligned Benchmarks (E1-1)	Deleted	Low relevance, high burden
Total GHG Emissions (E1-6)	Removed	Easily derivable
GHG Intensity (E1-6)	Removed	Easily derivable

What’s left is either retained or aligned better with IFRS S2.

The Value Chain Cap Is Now VSME-Based

No, you don’t need to chase small suppliers for data they’re not required to provide. EFRAG has aligned the cap with the Voluntary SME Standard (VSME), replacing the earlier LSME threshold.

What this means:

• You’re not required to collect primary data for value chain disclosures unless it’s available and material.
• PAT disclosures only apply if the undertaking has adopted them.
• Most environmental metrics use estimates or entity-specific info anyway.
  

Clarified Boundaries: GHGs, Leasing, and Control

EFRAG cleaned up one of the messiest parts of the original ESRS: what’s in scope when reporting on emissions and operational control.

Issue	Clarified Rule
GHG boundary	Aligned with GHG Protocol (financial control)
Operational control	Still required if more representative
Own operations	Defined as what’s typically in the consolidated financial perimeter
Leasing	Responsibility lies with the lessee (user), not owner
Employee pension plans	Explicitly part of the value chain
Investment properties	Count as downstream impacts if leased

This closes the “who owns vs. who uses” confusion.

5. What This All Means: Key Takeaways

EFRAG’s July 2025 revisions mark a major inflection point in global sustainability reporting. As the Omnibus package finds its way through the legislatory maze, companies expected to be in-scope can perceive immediate value in the simplified ESRS, while also preparing for some challenges.

What gets better: The Silver Linings

Reduced Compliance Costs and Administrative Burden

The most immediate impact for businesses is the potential reduction in compliance costs. By slashing mandatory datapoints by 57%, EFRAG aims to lessen the resource-intensive data collection and reporting processes. This is especially beneficial for companies with complex value chains, which previously faced challenges with the ESRS’ granularity.

Enhanced Focus on Strategic Reporting

The shift toward principles-based reporting encourages companies to prioritize strategically important information over exhaustive disclosures. For businesses, this flexibility is an opportunity to gain a competitive advantage by presenting clear, impactful sustainability narratives that resonate with investors and customers.

Reduced Burden on Value Chain Partners

Large companies with complex value chain struggled to collect granular sustainability data from upstream and downstream actors. EFRAG’s work on voluntary sustainability reporting standards for SMEs (VSMEs) provides an alternative for smaller companies not covered by the CSRD. These standards, while non-binding, align with ESRS principles but are tailored for proportionality and simplicity.

Alignment with Global Standards

The emphasis on interoperability with IFRS S1/S2 and GRI standards reduces the risk of duplicative reporting for multinational companies operating in multiple jurisdictions. For instance, aligning GHG emissions boundaries with consolidated financial statements (as proposed for ESRS E1) simplifies calculations for companies already complying with IFRS standards.

What’s still challenging: The Dark Spots

Fast-tracked Consultation Process

The short consultation period (originally 30-45 days, extended to 60 days) has raised concerns among stakeholders about whether sufficient time exists to fully assess the revisions. Inadequate consultation could lead to unforeseen compliance challenges if the final standards are not well-aligned with business realities.

Navigating Reporting Uncertainty

Companies preparing for 2025 reporting cycles may face uncertainty as exposure drafts are finalized and adopted as a delegated act within six months of the Omnibus package’s entry into force. With CSRD applicability criteria still undecided, companies may have little time to digest the revisions and recalibrate their reporting strategy.

Simplification At The Cost of Depth?

ESRS simplification may ease reporting for sectors struggling with complex disclosures but could also reduce the depth of sector-specific insights if critical datapoints are cut. Businesses in high-impact sectors (e.g., energy, manufacturing) may need to carefully assess whether simplified standards still meet stakeholder demands for transparency.

What You Can do: Taking Charge

• Engage in the Consultation Process: Participate in the public consultation (July–September 2025) to ensure the final ESRS reflects practical business needs.
• Adopt a Strategic Approach: Use the simplified standards to integrate sustainability into core business strategies, focusing on material IROs.
• Leverage Technology: Invest in digital tools to streamline data collection and reporting, especially for aligning with the ESRS digital taxonomy.
• Monitor Global Standards: Stay informed about IFRS and GRI developments to ensure compliance with both EU and international requirements.
• Prepare for Transition: Begin aligning internal processes with draft exposure drafts to mitigate risks from the tight implementation timeline.

Ready to simplify your CSRD reporting and stay ahead of regulatory changes? Get a free consultation with our sustainability experts—we’ll help you assess your current state, map out what’s changing, and build a smart, efficient path to compliance.