EFRAG Finds Companies Set Targets for Just Half Their Material ESG Topics

Companies applying the EU's European Sustainability Reporting Standards identify an average of 6.4 material sustainability topics but set measurable targets for only 3.3 of them, according to EFRAG's 2026 State of Play Report, which analysed 905 assured fiscal year 2025 sustainability statements against 18 structured questions. Climate transition planning showed the sharpest year-over-year gain, with companies disclosing a formal Climate Transition Plan rising from 55 to 69 percent, while 57 percent now report near- and long-term decarbonisation targets aligned with a 1.5°C pathway. Sustainability disclosures continue to represent roughly a third of annual reports, even as the average statement shrank from 115 to 95 pages.

 

The Gap Between Identifying Risk and Committing to Fix It

 

The gap between 6.4 material topics and only 3.3 measurable targets is the report's most revealing structural finding. Materiality assessment under ESRS requires companies to identify which sustainability topics genuinely affect their business or are affected by it, and doing so is now well established, with E1 Climate Change, S1 Own Workforce and G1 Business Conduct remaining the most frequently identified material topics across nearly all sectors and countries at 99, 99 and 95 percent respectively.

What the data shows is that identifying a topic as material does not reliably translate into setting a measurable target against it. Roughly half of the material topics companies flag as significant to their business currently carry no quantified commitment attached, which means a large share of ESRS reporting still functions descriptively, acknowledging where risks and impacts exist, rather than committing companies to move those metrics in a defined direction. That gap is where the standard's practical accountability currently falls short of its disclosure ambition, and it is the area regulators, investors and civil society groups are most likely to scrutinise as the framework matures.

 

Read more: EU Targets 46% Electrification by 2040 to Cut €260 Billion Fossil Fuel Bill

 

Why Executive Incentives Are the More Telling Metric

 

Sixty-three percent of companies now link sustainability performance to executive incentive schemes, a new area of analysis introduced in this year's report. Tying compensation to sustainability metrics is generally considered a stronger signal of genuine organisational commitment than disclosure alone, since it creates a direct financial consequence for leadership tied to performance against sustainability targets, rather than sustainability functioning as a reporting exercise disconnected from how executives are actually evaluated and paid.

That figure sits meaningfully above the 3.3 average measurable targets companies currently set, suggesting that where targets do exist, companies are increasingly building them into governance and compensation structures rather than treating them as aspirational statements. Whether that incentive linkage extends specifically to the topics companies have identified as material but not yet targeted, or concentrates narrowly on the handful of metrics already being tracked, is a distinction the underlying report and dashboard would need to clarify further.

 

Explore OneStop ESG Marketplace: ESG reporting

 

What Shrinking Reports and Rising DMA Updates Signal

 

The average sustainability statement shrinking from 115 to 95 pages, even as disclosures continue to occupy roughly a third of the average annual report, points to companies becoming more efficient at ESRS reporting in its second year rather than reporting less substance. A denser, shorter statement covering the same regulatory ground typically indicates growing familiarity with what the standard actually requires, as companies move past an initial period of over-inclusive, defensive disclosure toward more targeted reporting focused on what is genuinely material.

That interpretation is reinforced by the finding that 82 percent of companies updated their Double Materiality Assessment compared with the prior fiscal year, with 67 percent now using a hybrid approach combining top-down and bottom-up methodologies. Regularly revisiting the materiality assessment, rather than treating the first year's assessment as fixed, suggests companies are treating materiality determination as an ongoing process that should evolve with the business rather than a one-time compliance exercise completed at the framework's introduction.

The report's social and governance findings add further texture to the maturity picture: an average unadjusted gender pay gap of 14.3 percent across reporting companies, widespread disclosure of human rights policies at 89 percent, and growing use of ESG criteria in supplier selection at 81 percent. Whether the gap between materiality identification and measurable target-setting narrows in next year's edition of the report, and whether executive incentive linkage extends more broadly across the full range of material topics companies identify, will indicate whether ESRS reporting is moving from a disclosure exercise toward one with genuine performance accountability built into it.

 

 

Source: EFRAG