Highlights

      As part of its Omnibus initiative, the European Commission asked EFRAG, the EU’s advisory body on corporate reporting, for advice on simplifying European Sustainability Reporting Standards (ESRS).

      EFRAG published its proposals on simplified ESRS in July 2025, inviting comments from stakeholders. With the public consultation now closed, we highlight below the KPMG response to some of EFRAG’s key proposals.

      Jan A. Müller

      Partner

      KPMG in Germany

      Despite the short time available, EFRAG has proposed significant changes while maintaining the key principles of ESRS reporting. Focus should now shift towards ironing out the remaining flaws and working with the International Sustainability Standards Board (ISSB) to achieve fully aligned standards.

      Jan A. Müller

      Chair, ESRS Working Group

      The KPMG response

      Our key recommendations for further enhancement include the following.

      diagram

      The revision process has been driven by the need to provide recommendations to the European Commission against a background of the Omnibus initiative.

      The accelerated timeline has created challenges: the proposals would introduce new or revised concepts that lack sufficient definition and guidance for consistent application. It is crucial that the standards remain clear and practical to support effective implementation.

      Further, companies preparing for their 2025 reporting may be looking to the proposals for application guidance. We therefore encourage EFRAG to clearly distinguish clarifications from other proposed changes.

      It was previously unclear whether ESRS was a fair presentation or a compliance framework. The proposals now emphasise that ESRS is a fair presentation framework, which requires a company to present fairly its material impacts on people and the environment, as well as its material sustainability-related risks and opportunities. The proposals also introduce a stronger focus on materiality to deliver more relevant and coherent disclosures.

      Overall, we welcome the proposed clarifications. However, it is important to distinguish fair presentation from materiality and to recognise that the fair presentation principle would not necessarily reduce companies’ reporting effort.

      We are highly supportive of the proposals to simplify the requirements relating to the double materiality assessment (DMA) process, allowing a top-down approach that provides preparers more flexibility. We also support introducing a clear materiality filter for all disclosures. These measures could address some of the concerns raised on the existing DMA process – e.g. claims that it is a burdensome, checklist-type assessment for preparers that could result in excessive detail, obscuring relevant information for users.

      The proposals would also introduce the requirement to provide information that is ‘necessary to understand’ for users of general-purpose sustainability statements, in addition to the information that is decision-useful for investors. We recommend that EFRAG provide further guidance on these concepts to avoid varied interpretations among companies.

      We recognise the increased alignment with international frameworks, particularly IFRS® Sustainability Disclosure Standards. However, areas of divergence remain: therefore, we continue to emphasise the need for collaboration with the ISSB to align the requirements where possible.

      Currently, ESRS apply a hybrid approach to measuring greenhouse gas (GHG) emissions: a combination of the financial control and operational control approaches. The proposals seek to simplify this hybrid approach but to stay true to the definition of the reporting entity and the newly emphasised principle of fair presentation. Under the proposals, companies would include additional disclosures or apply exemptions in certain situations when reporting on GHG emissions.

      We recommend that companies be required to define their organisational boundaries for GHG emissions in accordance with the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standards (2004) (GHGP), consistent with IFRS S2 Climate-related Disclosures. We believe that allowing companies to apply without modification either the operational control or the financial control approaches (i.e. following the GHGP) would better achieve EFRAG’s simplification objective.

      When a company applies ESRS for the first time, it can apply various transition reliefs. Despite this, companies have found the first year of reporting challenging. The proposals include a number of additional practical reliefs – e.g. eliminating the requirement to seek information directly from the value chain. This may reduce the reporting effort for companies, but could also reduce transparency and accountability. As reporting requirements are being streamlined, care should be taken to preserve the relevance of disclosures and to maintain compatibility with other frameworks. Achieving the right balance between useful information for users and feasibility for preparers is key.

      What happens next?

      EFRAG is due to submit the technical advice on its proposed ESRS revisions to the European Commission by 30 November 2025. The Commission will then begin its due process, which could involve a four-week public consultation. Although the timeline for adoption remains uncertain, the Commission plans to adopt the standards for FY27 (reporting in 2028), possibly allowing companies to apply them for FY26 (reporting in 2027).

      Until the Commission adopts the revised standards, existing ESRS continue to apply – i.e. companies preparing reports for the 2025 financial year will apply the current standards.

      Current and potential future preparers need to stay informed and prepare for transition by reviewing the proposed changes and assessing the potential impacts on their sustainability reporting.

      timeline

      The Commission’s aim is to adopt the delegated act in time for companies to apply the revised standards for FY27 (reporting in 2028), with a possible option to apply them for FY26 (reporting in 2027).