European Commission Proposes Revised ESRS and New Voluntary Sustainability Reporting Standard

Introduction

On May 6, 2026, the European Commission published, for consultation, two draft delegated regulations that give effect to the Omnibus I simplification package (Directive (EU) 2026/470). The first amends the existing European Sustainability Reporting Standards (ESRS) to simplify and streamline sustainability reporting. The second establishes a new voluntary standard for undertakings with no more than 1,000 employees, which will also serve as the statutory “value chain cap.”

As we discussed in our earlier alerts (EU Sustainability Omnibus I — “Detailed Omnibus” Adopted and EFRAG Issues Technical Advice on Simplified ESRS), the policy direction has been consistent: fewer companies in scope, later and lighter obligations, and explicit protections for smaller value chain counterparties. These draft delegated acts now translate that direction into specific reporting standards.

Both texts are drafts and have not been adopted or endorsed by the Commission. However, given the tight legislative timeline, we anticipate them to be very close to the final outcome.

Key Takeaways

• The revised ESRS reduces mandatory datapoints by 61%, with estimated cumulative cost savings of approximately EUR 3.7 billion over five years (EUR 4.7 billion including value chain effects).
• Double materiality remains central, but the process is streamlined: undertakings “shall not” report non-material information, and a “top-down” approach allows conclusions at topic level.
• ISSB interoperability is enhanced, including flexibility to use either the financial control or operational control approach for GHG reporting boundaries. However, certain ESRS-specific reliefs go beyond ISSB requirements, requiring careful gap analysis for dual-compliance reporters.
• A new voluntary standard for undertakings outside CSRD scope doubles as the statutory “value chain cap,” limiting the ESG information in-scope companies can require from smaller counterparties.
• The revised ESRS applies from financial year 2027, with voluntary early application for FY 2026.

Recommended Actions

In light of the developments discussed in this alert, companies should prioritize the following steps:

1. Participate in the consultation. The window closes within approximately four weeks. Companies with sector-specific concerns or views on the value chain cap should engage promptly.
2. Brief boards and audit committees on the revised framework and its implications for reporting strategy.
3. Map the 61% datapoint reduction against existing ESRS implementation workstreams to identify where effort can be redirected.
4. Reassess materiality processes in light of the more principles-based, top-down approach.
5. Review value chain data strategies, including supplier questionnaires and ESG clauses, against the value chain cap.
6. Conduct an ISSB gap analysis if subject to multiple reporting regimes.
7. Engage assurance providers on the revised standards’ impact on assurance scope and approach.

Revised ESRS: Key Changes

The Commission closely follows EFRAG’s technical advice, which we covered in our EFRAG alert, while making further targeted modifications to clarify provisions and grant additional flexibilities.

Materiality. The revised standards emphasize “decision-useful” information and introduce a “top‑down” approach, allowing materiality conclusions at topic level without requiring assessment of each individual impact, risk, or opportunity. The formulation is hardened: undertakings “shall not” report non-material information, replacing the previous “not required to” language. These changes should reduce the risk of over-reporting driven by cautious assurance interpretations.

Notable substantive changes include:

• GHG emissions: Undertakings may use either the financial control approach (reporting emissions from entities they consolidate financially) or the operational control approach (reporting emissions from operations they direct, regardless of ownership structure). Under the original ESRS, only the financial control approach was available. This flexibility aligns the ESRS with IFRS S2 and the GHG Protocol, reducing the burden on companies reporting under both EU and international frameworks.
• Anticipated financial effects: Recognized as involving estimates that can be updated without constituting a reporting “error.” Commercially prejudicial information may be omitted.
• Fair presentation: Clarified as applying to the overall sustainability statement, not each individual datapoint.
• CSDDD alignment: ESRS due diligence disclosures remain without prejudice to the CSDDD and do not impose conduct requirements.
• Microplastics: Disclosure is limited to primary microplastics (those intentionally produced and added to products, such as microbeads or glitter in cosmetics). The revised ESRS do not require reporting on secondary microplastics (those arising from the breakdown of larger plastic waste), on grounds of feasibility and proportionality.
• Human rights: Only “substantiated” instances reportable; only “ongoing” proceedings covered.

Transitional provisions distinguish between “wave-one undertakings” (reporting for financial years starting between January 1, 2024, and December 31, 2026) and “other undertakings” (starting on or after January 1, 2027). Wave-one undertakings are further divided into two tiers. Larger wave-one undertakings (exceeding EUR 450 million net turnover and 1,000 employees) may omit certain topical standards (E4, S2, S3, and S4) and phase in anticipated financial effects until specified dates but must report on other material topical standards from their first year. Smaller wave-one undertakings (not exceeding those thresholds) benefit from a broader relief: they may omit all topical standards until financial year 2027, reporting only on the cross-cutting standards (ESRS 1 and ESRS 2 General Disclosures) until that date. Both tiers share the same phase-ins for quantitative anticipated financial effects (until FY 2030) and other specified items. Other undertakings may omit E4/S2/S3/S4 for their first two reporting years. For background on the broader CSRD phasing and scope thresholds, see our Omnibus I alert.

Voluntary ESRS and Value Chain Cap

The voluntary standard provides undertakings outside CSRD scope with a simple, modular framework: a Basic Module (B1–B11) covering core ESG metrics and a Comprehensive Module (C1–C9) with additional disclosures likely to be requested by banks, investors, and corporate clients. Undertakings applying the voluntary standard are not obliged to seek assurance.

As we discussed in our Omnibus I alert, the Omnibus I Directive created a statutory value chain cap. The draft delegated act now specifies how the cap operates:

• In-scope companies may not require sustainability information from value-chain undertakings with no more than 1,000 employees beyond the “necessary” disclosures in the voluntary standard.
• Protected undertakings have a statutory right to refuse requests exceeding the cap, and reporting undertakings must inform them of this right.
• The cap applies only to information gathered for ESRS reporting purposes. Requests arising under other frameworks—including, potentially, CSDDD due diligence—are not affected.

Companies should review and revise supplier questionnaires, reassess contractual ESG data provisions, and map the interaction between ESRS value chain reporting and CSDDD obligations.

Timeline

Conclusion

The Commission’s proposals confirm a recalibration—not a retreat—from the EU’s sustainability reporting ambitions. The underlying framework remains intact, but the 61% datapoint reduction, the structured voluntary regime, and the value chain cap create a significantly more workable framework. Companies that treat these proposals as a reason to defer preparation risk being caught off guard by the tight implementation timeline.