How should companies decide for the 2026 reporting year?

On 6 May 2026, the European Commission (EC) published the draft delegated act intended to adopt the amended (simplified) European Sustainability Reporting Standards (ESRS), aimed at reducing reporting burdens. The draft builds on the earlier technical recommendations of the European Financial Reporting Advisory Group (EFRAG) and explicitly aims to significantly reduce the costs of sustainability reporting while maintaining the quality of disclosures.

In its announcement, the EC also stated that it expects the proposals to generate cost savings exceeding 30% per company in the area of sustainability reporting.
The following summary outlines the key elements of the draft and the accompanying explanatory materials published by the Commission.

Although the Omnibus package has increased the reporting thresholds, market demand for data remains. Banks, investors and global supply chains continue to expect transparency. Companies therefore need to consider carefully which reporting standard is worth applying.

The most important changes in the simplified ESRS

The draft simplifies reporting obligations in several areas while also introducing more precise professional guidance:

• “Top-down” materiality approach: during the double materiality assessment (DMA), companies are expected to focus on strategically significant impacts and risks. As a result, there is no need to analyse every individual IRO (impact, risk, opportunity) separately if they are not materially relevant at a systemic level.
• Faithful representation: this principle will now apply to sustainability reporting as a whole, rather than to each individual data point separately.
• More flexible emission boundaries: for greenhouse gas accounting, companies may choose between the financial control approach (ownership-based) and the operational control approach (based on day-to-day decision-making authority).
• Grace periods: a one-year delay is introduced, for example, for reporting substances of very high concern (SVHC).
• Forward-looking data: estimates of future financial effects may be based on assumptions that can be updated year by year without such modifications being considered errors.

VS or simplified ESRS? – The decision dilemma

Medium-sized companies that are not formally subject to reporting obligations but are increasingly expected to provide ESG data essentially face two main options:

VS (Voluntary Standard): a simplified, minimum-data framework specifically designed for SMEs. It can serve as an excellent entry-level solution when the primary objective is to respond efficiently to banking or supplier questionnaires.

Simplified ESRS: retains the full logic and comparability of the original standards while requiring 60–70% fewer data points. This may represent the more strategic option for companies seeking decision-support capabilities and long-term resilience.

“The era of non-standardised sustainability reporting is over. Whether reporting is mandatory or voluntary, it is still worth conducting a double materiality assessment, as this helps companies identify where resources should be focused.”

Practical considerations when choosing

When is the VS (voluntary standard) sufficient?

If a company is still at the beginning of its sustainability journey and stakeholders (banks, customers) exert limited pressure for deeper and more structured disclosures, the VS may represent a cost-efficient solution.

When is the simplified ESRS the better option?

It is generally recommended if management wants to create business value from reporting (e.g. reducing employee turnover or improving energy efficiency) and comparability with competitors is important. For suppliers of large corporations, it may also provide a form of assurance for remaining within supply chains.

What is the market reality?

Banks often still send individual questionnaires because they are not yet able to process sustainability reports in a standardised manner. However, once a company prepares a standardised report, the necessary data will already be available, avoiding the need to repeatedly provide the same information.

How should companies get started?

If a business plans to prepare a voluntary sustainability report for the 2026 financial year, preparations should begin this summer.

The first three recommended steps are:

Assign responsibility: this may fall under finance, quality management or corporate governance functions — a dedicated ESG department is not necessarily required.

Build an internal team and provide training: it is important to involve key business areas so that stakeholders understand the expectations of the standards.

Conduct a materiality and GAP analysis: a diagnostic assessment is recommended to identify missing data and determine the areas requiring the greatest focus.

The draft delegated act is currently subject to a four-week public consultation period. During this time, stakeholders across Europe may provide feedback on the revised ESRS before the final requirements are adopted.

The final text is expected to be adopted in mid-June, after which the reporting obligations applicable to FY2026 are expected to become clearer.