The European Commission has published new drafts of its proposed revised European Sustainability Reporting Standards and a separate Sustainability Reporting Standards for Voluntary Use, opening a consultation to finalise its simplified sustainability reporting framework. The drafts represent the final major step in the Commission's initiative to streamline corporate sustainability disclosures under the Omnibus I package, launched early last year. The proposed standards combine the largest reduction in mandatory disclosure requirements seen in European sustainability regulation to date with a sharply reduced scope of reporting companies.

 

What the Omnibus Package Has Already Changed

 

The Omnibus reform was approved by European Union lawmakers earlier this year and dramatically reduced the number of companies covered by the Corporate Sustainability Reporting Directive by approximately 90 percent. The revised scope removes companies with less than €450 million in revenue and 1,000 employees from mandatory reporting, raising the threshold from the previous 250 employee level. The change leaves a much smaller universe of large companies inside the CSRD perimeter while shifting the rest of the corporate landscape into a voluntary reporting framework.

For companies that fall below the new CSRD threshold, the Omnibus initiative also introduced a limit on the volume of sustainability information that larger companies can request from them. Such requests are now restricted to information contained within the planned voluntary reporting standard, which is being built on the Voluntary Standard for SMEs endorsed by the Commission last year. This value chain cap is intended to prevent reporting obligations from cascading down to smaller suppliers through commercial relationships rather than direct regulation.

 

Key Changes in the Revised ESRS

 

The European Financial Reporting Advisory Group submitted its finalised proposed revision of the ESRS in December 2025, with key changes including a 61 percent reduction in mandatory datapoints and the elimination of all voluntary disclosures, producing a total datapoint reduction of more than 70 percent. The Commission's new draft ESRS proposal maintains most of these changes while adding targeted modifications aimed at clarifying certain provisions and providing additional flexibility for companies. The cumulative effect is a significantly leaner standard than the version originally introduced under the CSRD framework.

Notably, the proposed standard does not include the closer alignment with the IFRS Foundation's ISSB standards that media reports had previously suggested the Commission was considering. Such alignment could have diminished the prominence of the European framework's double materiality approach, which requires companies to report both on the risks that sustainability issues pose to the enterprise and on the enterprise's impacts on environment and society. By preserving double materiality, the revised ESRS retains a structural feature that distinguishes the European framework from most global counterparts.

 

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GHG Reporting Flexibility and Transition Plan Disclosure

 

A particularly significant change in the new draft is the introduction of flexibility in greenhouse gas emissions reporting boundaries. Companies will now be able to determine which entities to include in their GHG inventory using either a financial control approach or an operational control approach, with the latter applicable even when the entity is only partly owned. The Commission noted that this change brings the ESRS into closer alignment with global sustainability reporting standards, which should reduce duplication for multinational companies operating across multiple frameworks.

The proposal also introduces a new requirement for companies whose transition plans contain targets that are not compatible with limiting warming to 1.5 degrees Celsius to be transparent about this misalignment. The disclosure does not prohibit companies from setting targets below 1.5 degree compatibility, but it forces them to publicly acknowledge the gap. This approach uses transparency rather than mandate to drive ambition, while creating a clear marker for investors and stakeholders evaluating corporate climate strategy.

 

The Voluntary Standard and Smaller Company Treatment

 

For smaller companies outside the CSRD scope, the Commission has built the new voluntary standard largely on the existing Voluntary Standard for SMEs, with changes kept to a minimum. The Commission noted that retaining close alignment with the VSME is considered proportionate even for companies with up to 1,000 employees, given the Omnibus initiative's recalibration of reporting obligations. The voluntary standard therefore covers a much wider range of companies than the original VSME was designed for.

Modifications in the new voluntary standard include reductions in the number of datapoints to align with the revised ESRS and clarifications around which datapoints fall within the value chain cap that protects smaller companies from oversized information requests. Companies with 10 or fewer employees may treat some of the more challenging environmental disclosures as voluntary under the value chain cap, which limits the burden on the smallest enterprises. This tiered approach attempts to balance information availability with proportionality across the size spectrum.

 

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Implications for Corporates and Investors

 

For companies that remain within the scope of the CSRD, the revised standards offer a substantially reduced compliance burden compared with the original framework. The 70 percent datapoint reduction is expected to lower preparation costs, ease audit readiness and shorten reporting timelines for in-scope companies. At the same time, retention of double materiality means that the structural complexity of European sustainability reporting remains higher than that of frameworks built solely around financial materiality.

For investors, the revised framework offers a narrower but potentially more standardised dataset across large European companies, which could improve comparability over time. The retention of double materiality also preserves a deeper view of corporate impact on environment and society, which is increasingly relevant for stewardship, transition assessment and impact investing strategies. Multinational investors active in both European and global markets will need to continue navigating differences between ESRS and ISSB-aligned disclosures.

 

Outlook for European Sustainability Disclosure

 

The consultation on the new draft standards will remain open until 3 June, and the Commission has indicated that it intends to adopt the delegated acts as soon as possible after the consultation closes. Once adopted, the acts will be transmitted to the European Parliament and the Council for scrutiny, and if neither legislative body objects or extends the scrutiny period, the standards will enter into force after two months. This timeline points to formal application potentially within the second half of the year, subject to legislative review.

The revised ESRS represent a recalibration of European sustainability reporting policy, balancing simplification pressure with a continued commitment to double materiality and transition transparency. The success of the framework will depend on consistent application across reporters, the credibility of audit and assurance practices and the capacity of investors to use the resulting data effectively. Sustained delivery would reinforce the European Union's position as one of the most influential jurisdictions shaping how corporate sustainability reporting evolves globally.