The reduction in requirements under EU sustainability reporting standards may be welcome to many businesses, but Accountancy Europe and other experts have warned that the uncertainty prompted by adapting previously approved standards generates risk.
There has been a sea change in EU reporting on environmental, social and governance (ESG) factors. Once the poster child for mandatory, detailed, double materiality reporting, the EU has now scaled back its European Sustainability Reporting Standards (ESRS). The move follows a shift in priorities between the first and second European Commissions of president Ursula von der Leyen, with the EU executive now placing economic competitiveness ahead of environmental controls.
‘Companies that postpone action will be increasingly exposed’
Scaled back
The EU Commission struck a provisional deal with the EU Council of Ministers and the European Parliament on 9 December 2025 to increase the threshold for companies covered by the EU Corporate Sustainability Reporting Directive (CSRD) to a minimum of 1,000 employees and a net turnover exceeding €450m. Ministers and MEPs also removed listed SMEs and financial holding organisations from the directive’s scope.
The EU’s co-legislators also agreed to amend the Corporate Sustainability Due Diligence Directive (CS3D), raising implementation thresholds to 5,000 employees and net turnover of €1.5bn. The Council and Parliament also agreed to ease requirements on these larger companies to assess the sustainability impact of their value chains, so checks will be made only on ‘chains of activities where actual and potential adverse impacts are most likely to occur’. The deadline for member states’ transposition of CS3D into national law has also been delayed by a year to July 2029.
‘The changes will facilitate more meaningful disclosures in the long term’
Accounting federation Accountancy Europe says that ‘reassessing requirements is an important aspect of good lawmaking’, but regrets that the revisions come during the first year of the CSRD’s implementation. ‘This has brought legal uncertainty and additional burdens, undermining trust in EU legislation,’ it says and has called on member states to swiftly write the new requirements into national law once they have been formalised early this year. It adds: ‘Consistent implementation across the EU will be essential.’
A cut too far
Another concern is that the newly revised ESRS, released by the European Financial Reporting Action Group (EFRAG), while helpfully less granular than its initial standards, have been overly reduced in scope, given the real commercial need for sustainability information.
In a recent article, Accountancy Europe policy manager Iryna de Smedt writes: ‘Environmental degradation, resource scarcity, geopolitical and social tensions, and climate instability are forcing industries to absorb risks once treated as externalities. Supply chains break down, cost structures shift and insurance models struggle to keep pace. Companies that postpone action will be outpaced, outpriced and increasingly exposed.’
De Smedt accepts that ‘concerns about regulatory complexity are legitimate and valid’ and that complex sustainability reporting might ‘trigger compliance fatigue, reduce risk-taking, and stifle growth’. However, she argues: ‘This argument is short-sighted: environmental and social disruptions are already material financial threats, and delaying action does not pause the climate emergency.’
Not everybody agrees. Sakis Elisseou, CEO at accounting and business management firm NLE, backs the new rules. ‘The corporate sustainability requirements tend to add costs rather than genuinely drive companies to become more environmentally friendly,’ he says. ‘Imposing extra compliance costs on EU companies could ultimately lead to higher prices for consumers and reduced competitiveness for EU industries.’
‘The requirements were excessively burdensome’
Louise Gorman, assistant professor in finance at Trinity Business School in Dublin, agrees that the reliefs provided will be welcomed by most reporters. ‘There appeared to be a general recognition over the past years that the requirements of the ESRS were excessively burdensome,’ she says. She adds that while, ideally, no amendments would have been needed, changes to reporting standards will ‘facilitate more meaningful and reliable disclosures in the long term by enabling greater focus on a more specific set of datapoints’.
Gorman also welcomes the protection for companies with fewer than 1,000 employees from excessive data requests by larger partners seeking sustainability information about their value chain. These smaller companies now only have to hand over streamlined data identified in EFRAG’s voluntary standard for SMEs (VSME). That ‘brings much needed clarity and helps guide ESRS reporting undertakings in their expectations of what data they can expect from value chain parties,’ she points out, adding that both reporters and their assurance providers will also now have more time to gain experience of ESRS reporting.
Risk
On the downside, Gorman warns that the standards have been so reduced in scope they may fail to achieve the EU’s sustainability objectives. ‘The incentive for undertakings which would generally be regarded as large [ie 250 employees, €50m turnover, €25bn balance sheet value] to behave in a more environmentally and socially responsible manner is reduced.’
In the meantime, Gorman advises companies not to become complacent over internal controls. She also stresses that as sustainability information comes from multiple areas of the business, it is ‘fundamental that the accountant is not solely responsible for sustainability reporting and that controls are designed, implemented and reviewed with input from all relevant departments’.
‘It is important to bear in mind the risk of material misstatement’
There is also risk in the introduction of ‘top-down’ assessment of double materiality analyses rather than always delivering detailed bottom-up data for key material topics. ‘Because of the granularity associated with the latter approach, clients may realise greater ease and potentially greater strategic value from the top-down approach,’ Gorman says, citing areas such as a reduction in paperwork and measurement.
‘While this is attractive in a practical sense, it is important to bear in mind the risk of material misstatement,’ she warns. ‘The top-down approach may not result in as much evidence to provide to an external assurance provider. As such, accountants should remain cognisant of the merits of the bottom-up approach while using/advising on use of the top-down approach where appropriate.’
