1 · From Vision to Revision
Revised ESRS 2024 – When the European Sustainability Reporting Standards (ESRS) first appeared in 2023, Brussels celebrated them as the missing link between financial and non-financial truth. They were intended to make sustainability reporting as rigorous as IFRS – and, in doing so, to shift capital toward sustainable business models. Europe was to be the first continent where transparency itself became an industrial policy.
That early vision was bold. The architects at EFRAG (before the ESRS update) imagined a vast edifice – a cathedral of transparency – where every company, large or small, could map its impacts, risks and opportunities across climate, people and governance. Yet cathedrals take decades to build. Within months of publication, the echo of implementation problems drowned out the hymn of ambition. Preparers counted more than a thousand datapoints; subsidiaries begged for relief; auditors warned of chaos. By late 2023 the Commission faced an uncomfortable truth:
if nothing changed, the first reporting cycle would collapse under its own weight.
The 2024/2025 revision was Europe’s act of pragmatism. Rather than tear down the cathedral, the Commission remodelled it into a structure people could actually inhabit – an office building with working lifts and clear emergency exits.
The revised ESRS keep the same foundation but replace marble with steel: clearer materiality logic, fewer compulsory metrics, phased application, and stronger alignment with global frameworks such as IFRS S1/S2 (providing the EU sustainability standards a broadened reach).
Yet simplification carries a paradox. Transparency is both a right and a discipline; reduce its demands too far, and you risk turning reporting into marketing. Boards therefore face a new question:
Will this revision create better disclosure, or just quieter reporting?
The following chapters trace how ambition met realism – and what this means for governance, assurance and long-term credibility.
2 · The Logic of Revision – Simplifying without Hollowing Out
The revision was not a political retreat but an exercise in systems engineering. EFRAG’s consultation received more than 700 comment letters; the chorus was remarkably consistent: *feasible, phased, and globally aligned*.
Three tectonic forces drove the redesign:
- Political gravity: Business federations such as BusinessEurope and national ministries urged proportionality. The Parliament wanted a visible success story, not a second GDPR nightmare.
- Economic realism: CFOs pointed to cost–benefit asymmetry: thousands of ESG datapoints, yet limited investor use. The goal shifted from volume to value.
- Global convergence: The ISSB’s IFRS S1 and S2 were gaining traction; divergence would punish multinational filers and weaken the EU’s voice in global markets.
From these pressures emerged three design principles:
- Technical simplification – streamlining definitions, pruning overlaps, clarifying boundaries.
- Scope adjustment – explicit proportionality for SMEs, subsidiaries and joint ventures.
- Disclosure prioritisation – a shift from “mandatory unless immaterial” to “disclose if material.”
That last principle changes the mental model of compliance. Under the first ESRS, preparers started with a mountain of mandatory disclosures and worked backward. Under the revision, they start with strategy, assess impacts and risks, and build disclosures outward. The ESRS thus become a mirror of governance: transparency flows from reasoning, not from templates.
Of course, every simplification hides a compromise. Environmental NGOs fear dilution; auditors fear ambiguity. But from a governance point of view, this shift may be the healthiest outcome: it rewards professional judgment, documentation and oversight – the very disciplines boards already understand from financial reporting.
The European Union – Commission presents voluntary sustainability reporting standard to ease burden on SMEs.
3 · Structural Changes in the Revised ESRS
The 2024/2025 revision re-engineered the ESRS architecture from basement to rooftop. What was once a sprawling blueprint became a logical, three-tier structure: cross-cutting standards (ESRS 1 and 2), thematic standards (E1–E5, S1–S4, G1), and application guidance. Think of it as a governance nervous system: ESRS 1 is the brain, ESRS 2 the spinal cord, and the E-S-G topics the sensory organs transmitting data back to the centre.
3.1 Cross-cutting standards: the spine of logic
The two cross-cutting standards remain the backbone:
- ESRS 1 (General Requirements) now maps the entire reporting process – from identifying impacts, risks and opportunities (IROs) to deciding whether each topic is material. It reads less like legislation and more like a manual for judgment.
- ESRS 2 (General Disclosures) collects all governance, strategy and risk information in one place. For auditors, this consolidation is gold: it allows a coherent assurance plan instead of a patchwork of topic-specific tests.
Key improvement: the “double materiality process” is now described as a logical flow rather than a list. EFRAG has added guidance for documenting impact, risk, and opportunity (IRO) analyses — the sustainability version of a control framework.
3.2 Thematic standards: leaner and clearer
Environmental standards (E1–E5) retain their thematic scope but drop redundancies. Climate (E1) is now almost fully aligned with IFRS S2 and the TCFD framework – same four pillars, similar metrics. Social standards (S1–S4) have been recalibrated around proportionality, recognising data limitations in value chains. Governance (G1) adds narrative richness on ethics, anti-corruption and lobbying.
For companies, the experience is tangible. Where the 2023 drafts demanded endless mapping exercises, the revised set behaves like an intelligent reporting framework: fewer inputs, clearer connections, better integration with existing ERP and risk systems. For auditors and boards, that is the difference between a data dump and a control system.
4 · What Changed in Practice – Core Simplifications
Reform lives in the details. Beneath the architecture, five operational simplifications redefine how sustainability data is collected, governed and reported.
4.1 Materiality re-defined as a governance act
The most important conceptual change is the inversion of proof. Originally every topic was presumed material unless management could argue otherwise. Now the burden of evidence flips: management must prove materiality, supported by a clear process approved by the board. This turns the materiality assessment into a living governance ritual – a moment where strategy, risk appetite and stakeholder expectations meet.
One sustainability director described the change succinctly: “Before, we filled templates; now we defend logic.”
This approach mirrors the ISSB’s enterprise value lens but retains the EU’s broader double-materiality perspective. The difference lies in how it’s documented: governance now matters more than volume.
Example: a logistics company may deem biodiversity non-material because it has limited land use, but it must demonstrate this conclusion through its process — board involvement, stakeholder consultation, and internal documentation.
For boards this means allocating time to review the rationale rather than the report layout. For auditors, it means tracing judgments – the governance trail behind every disclosure – not merely verifying arithmetic.
Also read the IFRS Sustainability Standards Navigator.
4.2 Metrics and KPIs simplified – from volume to value
EFRAG cut or merged roughly 25 percent of datapoints. Biodiversity intensity ratios, water quality sub-metrics and certain workforce indicators became voluntary (in the EFRAG revision 2024). The mandatory core now concentrates on:
- GHG emissions (Scope 1–2 mandatory; Scope 3 on reasonable efforts)
- Transition plans and targets aligned with EU taxonomy
- Energy consumption and mix
- Diversity, equal pay and turnover metrics for own workforce
This is logical: better to ensure quality and assurance feasibility for key metrics than to flood reports with low-reliability numbers. Yet comparability risk remains: companies may cherry-pick flattering voluntary indicators. Hence, governance challenge becomes vital – the audit committee must ask, *why did we choose these metrics and not others?*
4.3 Value chain disclosure – the “reasonable efforts” clause
The original ESRS demanded complete upstream and downstream coverage, an ideal impossible for complex supply chains. The revision accepts realism: preparers must make reasonable efforts and disclose estimation techniques and data gaps. This aligns sustainability reporting with long-standing financial-reporting logic: disclose uncertainty, don’t conceal it.
4.4 Proportionality for SMEs and subsidiaries
The revised ESRS formally embeds the principle of proportionality. SMEs may use a simplified voluntary standard; subsidiaries can rely on group-level disclosures where relevant. In governance terms, proportionality mirrors subsidiarity – decisions should be taken at the level where they are most effective.
The danger is inconsistency; the remedy is internal group guidance and centralised data definitions.
4.5 Phased application – time to build control muscle
The timetable extends over three years (2025–2027 onward). Early filers gain reputational capital but must treat the first cycle as a learning year. Many are establishing ESG control offices mirroring financial-control functions.
Simplification, paradoxically, allows them to professionalise – not just comply.
5 · What Was Watered Down – and Why That Matters
No reform escapes criticism. Environmental groups accused the Commission of “lowering the bar”; business groups called the revision “a breath of realism.” The truth lies between. Some disclosures were indeed diluted, others merely deferred.
5.1 Environmental topics thinned out
- Biodiversity (E4) moved from mandatory to materiality-based; the most demanding metrics – area of sensitive ecosystems affected, pollutant releases by category – became voluntary.
- Pollution (E2) now requires narrative disclosure before quantitative data.
- Circular economy (E5) will mature in future sector standards.
The logic: build data systems first, regulate precision later.
5.2 Social topics softened
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Workers in the value chain (S2): downgraded from mandatory to materiality-based.
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Consumers and end users (S4): qualitative disclosure only.
This was acknowledging that most companies cannot yet trace downstream social impact at scale.
Investor appetite for these disclosures remains high, so voluntary leadership here could distinguish credible reporters.
5.3 Financial connectivity postponed
Arguably the biggest conceptual loss: explicit linkage between sustainability metrics and financial statements was postponed.
Originally, companies had to quantify financial effects of climate risks – capital expenditure, asset impairment, revenue dependency. Now that requirement is “phase two.”
Integration – the holy grail of CSRD – is delayed, not dead (yes the CSRD reporting is alive).
5.4 The credibility equation
Europe’s strength was moral clarity: report not only what investors want but what society needs to know.
The revised ESRS bends toward feasibility, not cynicism. Yet credibility now migrates from regulation to governance: what you choose to disclose voluntarily will say more about integrity than what law requires.
The compass still points north – but the magnet of political and business pressure has nudged the needle. Whether companies stay on course will depend less on regulation and more on conscience, oversight and professional scepticism.
Read our blog on the EU ESG regulatory framework.
6 · Governance Implications – From Checklists to Culture
If the first generation of ESG reporting was about collecting data, the revised ESRS mark the moment it becomes about governing judgment. The new standards embed the board more deeply in the sustainability narrative: oversight, approval and challenge now have to be visible, not implied. In that sense, the revision is not a retreat from control but a call for cultural maturity.
A well-governed company will treat sustainability disclosure like the pulse of its nervous system. Data are the signals; governance is the brain that interprets them.
Without this integration, sustainability remains a side show — an annex for the CSR department. With it, the ESRS become what they were always meant to be: a mirror of corporate integrity.
Also consider to read our blog on a broader Corporate Governance alignment – King IV™ South Africa – A Universal Approach to Corporate Governance.
6.1 The board’s expanding fiduciary map
ESRS 2 requires companies to describe how the board and relevant committees oversee sustainability topics. It asks explicitly: Who approves the materiality process?
- Who monitors progress?
- How are sustainability risks integrated into strategy and remuneration?
In effect, the ESRS transform these once-abstract ideas into public commitments.
For boards, that visibility cuts both ways. On one hand, it empowers directors to steer ESG strategy.
On the other, it exposes failures of attention.
A boilerplate statement like “The board is regularly informed about sustainability risks” will no longer convince anyone.
Readers want traceability of judgment — minutes, charters, and committees that prove oversight is real.
6.2 Culture as the new control
When rules relax, culture must tighten.
Governance theorists call this the control substitution effect: the less external prescription you have, the more you rely on internal norms.
That means building tone-at-the-top and tone-in-the-middle — the values and incentives that make employees choose accuracy over convenience.
Boards should treat the revised ESRS as an opportunity to articulate their sustainability philosophy: what level of transparency defines integrity here?
The answer should be visible in policies, internal communications and — crucially — remuneration systems.
A culture that rewards clarity, not cosmetics, will deliver credible reporting without endless rules.
6.3 Governance as connective tissue
Good governance links functions: finance, sustainability, risk, audit, legal, communications.
Under the revised ESRS, their collaboration is no longer optional.
CFOs supply data discipline; sustainability officers supply domain insight; internal audit supplies challenge; and the board supplies purpose.
Together they form the governance nervous system that keeps corporate reporting alive.
Boards that internalise this flow gain resilience.
Those that see it as compliance lose the plot.
In the long run, the market will distinguish between the two.
7 · Assurance and Internal Control over Sustainability Reporting
Simpler standards do not mean simpler audits.
The CSRD mandates limited assurance from 2025 and reasonable assurance by 2028, pulling sustainability into the same assurance orbit as financial statements.
The revised ESRS therefore demand not less control, but better-designed control.
7.1 From SOX to S-OX – Sustainability Internal Control
Seasoned CFOs will recognise the pattern. In the early 2000s, Sarbanes-Oxley (SOX) forced finance departments to document every control around financial reporting.
Two decades later, Europe is inventing its own version: call it S-OX – sustainability internal control.
The COSO framework has already extended its reach with “Internal Control over Sustainability Reporting (ICSR)”.
Its five components — control environment, risk assessment, control activities, information & communication, and monitoring — now guide ESG data too.
A mature control environment for ESRS data should include:
- Defined ownership for each disclosure line (no orphan KPIs).
- Automated data lineage from source system to report cell.
- Change-log functionality and approval workflows for restatements.
- Periodic reconciliation between ESG and financial data (e.g., energy spend vs CO₂ emissions).
Where financial control was once the company’s skeleton, sustainability control must now become its muscle — flexible, trained, and traceable. The goal is not bureaucracy but repeatability: the ability to tell the same story tomorrow and have it still be true.
7.2 Technology as enabler and risk
Modern ERP suites (SAP S/4HANA, Oracle Cloud, Dynamics 365) now include ESG modules capable of capturing emission data, workforce statistics and supply-chain KPIs.
AI-based anomaly detection highlights inconsistencies; dashboards visualise targets in real time.
Yet automation without governance is a mirror without glass — it reflects nothing.
Companies must therefore pair digital tools with policy frameworks: who validates model assumptions? Who decides when an outlier becomes a disclosure?
The revised ESRS don’t answer these questions — governance does.
7.3 The assurance journey
External auditors will expect an audit trail equivalent to financial reporting:
documented procedures, management representations, and clear control ownership.
Boards should treat 2024–2025 as the rehearsal period — testing sampling, data quality controls, and estimation methodologies.
By the time reasonable assurance arrives, the systems should run like a heartbeat.
8 · Alignment with Global Standards (ISSB / IFRS S1 – S2)
In the geopolitical landscape of reporting, alignment is currency.
The revised ESRS move decisively toward interoperability with the International Sustainability Standards Board (ISSB) framework — IFRS S1 (general) and IFRS S2 (climate).
Where the first ESRS drafts stood proudly European, the new ones speak a dialect investors understand.
8.1 The meeting point of two philosophies
IFRS S2 focuses on enterprise value — what sustainability means for investors.
The ESRS extend that lens to impact materiality — what the enterprise means for the world.
The revised version narrows, but does not erase, the gap.
EFRAG and the ISSB now share taxonomies, climate metrics and scenario-analysis structures.
This convergence has practical consequences.
Multinationals can now prepare one sustainability dataset feeding both EU and global disclosures.
For assurance, this reduces reconciliation nightmares; for investors, it increases comparability.
8.2 The remaining gaps
Yet differences remain.
ESRS still demand disclosure of impacts on communities, workers and consumers — areas the ISSB omits.
Conversely, IFRS S1/S2 emphasise financial quantification earlier.
Europe leads on breadth; ISSB on investor precision.
The challenge for global groups is to report with the strictest common denominator — doing more, not less.
Strategically, this alignment is Europe’s way of staying relevant.
By speaking both the language of markets and the language of society, the ESRS preserve the moral edge of the Green Deal while integrating into global capital flows.
9 · From Regulation to Strategy – What Companies Should Do Now
The revised ESRS are not just a compliance checklist; they are a strategy accelerator.
They push companies to translate sustainability from communication into execution.
The following five pivots summarise how leaders can turn simplification into advantage.
9.1 Pivot 1 – Re-anchor materiality in purpose
Start every disclosure journey with the corporate purpose statement.
If materiality decisions cannot be traced back to that purpose, they will ring hollow.
Boards should periodically revisit the double-materiality map and test whether it mirrors real strategy.
9.2 Pivot 2 – Integrate data ecosystems
Merge ESG and financial data pipelines.
A unified ledger – energy use linked to cost, workforce diversity linked to productivity – creates insight that no silo can.
IT departments should treat ESG as a data domain, not a spreadsheet hobby.
9.3 Pivot 3 – Build control literacy
Train managers not only to collect data but to understand control concepts: evidence, traceability, review, segregation of duties.
When hundreds of local teams grasp these basics, assurance becomes efficient rather than adversarial.
9.4 Pivot 4 – Communicate uncertainty
Under the new rules, admitting estimation is not weakness — it is professionalism.
Disclose methodologies, confidence intervals and improvement plans.
Investors price honesty better than silence.
9.5 Pivot 5 – Lead by voluntary transparency
The gap between minimum compliance and credible leadership will widen.
Boards that publish beyond requirements — especially on biodiversity, supply-chain labour, and consumer impact — will set the benchmark and attract capital that rewards trust.
9.6 The long view
Europe’s experiment with the ESRS is bigger than sustainability disclosure.
It is a governance renaissance: a test of whether transparency can be voluntary and still powerful.
The revised standards hand the pen back to companies.
They will write their own credibility.
Simplification is not the end of ambition.
It is the transition from rule-based compliance to principle-based leadership — from counting datapoints to creating understanding.
In the end, the measure of success will not be how many disclosures survived the revision, but whether European companies can use this lighter framework to tell the truth more clearly.
Because truth — like carbon — may be invisible, but it still accumulates.
FAQs – The revised ESRS 2024/2025
Q1 – What is the main difference between the original and revised ESRS?
The revised ESRS simplify the original framework by reducing mandatory disclosures and introducing a more flexible materiality process.
Companies now disclose only material topics, supported by governance documentation.
Q2 – Does simplification mean lower ESG ambition?
Not necessarily. The revision aims to make implementation feasible. However, ambition now depends more on corporate governance and voluntary transparency.
Q3 – How do the ESRS align with IFRS S1 and S2?
They are now largely interoperable. Climate-related disclosures (E1) align with IFRS S2, while ESRS 1 and 2 share the same structural pillars as IFRS S1.
Q4 – What are the assurance implications?
Limited assurance starts in 2025; reasonable assurance by 2028. Companies need internal controls similar to those used in financial reporting.
Q5 – How do SMEs fit into the ESRS?
SMEs will follow a simplified voluntary ESRS set, expected in 2025, applying proportionality and phasing to ease the burden.
Q6 – What should boards do right now?
Strengthen oversight, ensure robust materiality documentation, integrate ESG data systems, and aim for transparency beyond compliance.
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