The European Securities and Markets Authority (Esma) has reacted with concern to proposals for permanent relief from reporting requirements, proposed by Efrag in its technical advice on revised European Sustainability Reporting Standards (ESRS).
Efrag is a private entity to which the European Commission gave the role of proposing relevant technical standards. It operates on two pillars: influencing IFRS accounting reporting standards, and influencing the ESRS.
Esma was asked by the EC on 16 December 2025 to provide an opinion on the EFRAG technical advice, which was published on 3 December 2025. It is this response from Esma that highlights its concerns.
Its response starts by warning: “Esma’s most substantial concern with the draft revised ESRS relates to the package of permanent reliefs it offers preparers, as these reliefs cause issues in relation to high quality disclosure of material information (criterion 1), consistent application (criterion 2) and interoperability with the IFRS sustainability standards (criterion 4).”
“Esma finds that the draft revised ESRS are only partly capable of meeting the objective of being conducive to investor protection and of not undermining financial stability due to important issues in a limited number of areas.”
The response highlights the call to put a time limit on the proposed permanent reliefs across areas including:
- ‘Undue cost or effort’ relief for metrics (#11)
- Partial reporting of metrics when full scope of metrics is only available with undue cost or effort (#9)
- Omission of quantitative info on anticipated financial effects when undertaking lacks skills / capabilities / resources (#14)
- Exclusion of joint operations from environmental metrics (#10)
- The time-limit could usefully be aligned with the deadline for several other transitional provisions; FY2029.
Esma comments include: “…the reliefs should be intended as rather exceptional measures and not undermine the ultimate objective of promoting disclosure of material sustainability information of high quality, nor should they risk encouraging opportunistic behaviour. ESMA is concerned that the reliefs in the draft revised ESRS threaten these goals due to their number, range and permanence.”
It goes on to state: “More in general, Esma notes that the package of permanent reliefs will require examination by an undertaking’s assurance provider. By increasing the level of judgement in the definition of the scope and content of the reporting, these reliefs are likely to require additional processes and documentation by preparers to justify their adoption (criterion 2), thus risking increasing the overall reporting burden. From the supervisory perspective, these time-unlimited reliefs are likely to constitute a recurring area of scrutiny. Due to a lack of clarity in the eligibility conditions for applying some of those reliefs, the supervisory assessment will become more challenging, thus hindering the consistent application of the ESRS across the Union.”
Climate crisis
Noting the link to reporting requirements driven by the Paris Agreement and climate law, ESMA also highlights conflicting objectives in the proposed technical standards.
“Esma notes that one aspect of the draft revised E1-1 disclosure requirement which could entail divergence in practice relates to the notion of compatibility with limiting global warming to 1.5°C in line with the Paris Agreement and the objectives of the European Climate Law. ESMA recommends that the Commission provide or reference a definition of compatibility. Clarity should also be brought to how compatibility should be understood when used in relation to the strategy and business model (par. 10 and AR 1) and in relation to the GHG emission reduction targets (par. AR 2a), and on how these two items interact.”
“Esma recommends further clarifying the ambition characteristics of the transition plans for climate change mitigation to be disclosed under E1-1.”
“Regarding the exemption granted to financial institutions for the disclosure of the absolute values corresponding to their scope 3 intensity targets (par. AR 13 for par. 23 of draft revised ESRS E1), Esma suggests clarifying the drafting of the expected disclosures (especially par. AR 13b) regarding the disclosure of the related absolute financed emissions corresponding to the scope of the target), to maximise comparability.”
Other points noted in Esma’s response cover areas including digital reporting; interoperability with international standards; structure, terminology and general concepts; and around the proposed disclosure requirements.
Esma concludes that it “welcomes that the draft revised ESRS delivered by Efrag contain many substantial improvements from the perspective of simplification and burden reduction. However, based on the assessment of the four criteria set out in Esma’s assessment framework, ESMA finds that the draft revised ESRS are only partly capable of meeting the objective of being conducive to investor protection and of not undermining financial stability due to important issues in a limited number of areas.”
The full Esma ppinion can be read here.
