A majority of investors and financial institutions believe that the European Union’s proposed simplification of sustainability reporting standards will reduce the quality of information available to markets, according to a new study released by European Financial Reporting Advisory Group. Concerns centre on reduced comparability, weaker climate disclosures, and the loss of decision-critical environmental data under the revised European Sustainability Reporting Standards.

The findings contrast sharply with the views of reporting companies, which largely welcome the changes for their expected cost savings and operational simplicity. The study highlights a growing tension between regulatory burden reduction and the information needs of capital markets.

 

Investor Concerns Over Information Quality

 

According to the study, 55 percent of sustainability data users believe the amended ESRS will negatively affect information quality. This concern is significantly higher among investors and financial institutions, where 67 percent expect a deterioration in the usefulness of sustainability data once the simplified standards are applied.

Key issues raised include lower cross-company comparability, identified by more than half of respondents, alongside the loss of critical climate and environmental datapoints. Investors also expressed concern about greater reliance on estimates and reduced requirements for value chain data, which they fear could weaken the ability to assess transition risks, physical climate exposure, and broader environmental performance.

While many users acknowledged that streamlined standards could improve usability in principle, none of the investors surveyed said they were confident these benefits would materialise in practice.

 

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Companies See Significant Cost Relief

 

In contrast, companies preparing sustainability reports were broadly positive about the revised standards. The study estimates that reporting entities subject to the Corporate Sustainability Reporting Directive could save approximately €3.7 billion between 2027 and 2031, representing a 34 percent reduction in reporting costs. When supply chain impacts are included, total savings could rise to €4.7 billion, or 44 percent.

The largest driver of these savings is the sharp reduction in mandatory datapoints. Under the revised ESRS, mandatory disclosures have been cut by 61 percent, with the removal of all voluntary datapoints pushing the overall reduction beyond 70 percent. Companies also pointed to clearer structure, less duplication across standards, and greater flexibility in data collection as major benefits.

Among first-wave CSRD reporters, 90 percent expect lower recurring internal costs, while nearly three-quarters anticipate reduced external spending on consultants, IT systems, and data platforms.

 

Policy Context and Regulatory Trade-Offs

 

The revised ESRS form a core element of the European Commission’s Omnibus I initiative, which aims to ease regulatory and reporting burdens on companies operating in the EU. European Commission mandated EFRAG to revise the standards following concerns from businesses about compliance complexity and cost.

While preparers largely believe that simplified reporting will not affect access to green finance or the cost of capital, investors are more cautious. Although most do not expect an immediate impact on financing conditions, many worry that weaker disclosures will impair their ability to evaluate ESG performance, climate resilience, and long-term risk management.

 

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A Growing Gap Between Markets and Preparers

 

Overall, the study reveals a clear divergence between the priorities of companies and capital providers. For preparers, the revised ESRS promise lower costs and greater clarity. For investors, the changes risk eroding the depth and consistency of sustainability data at a time when such information is increasingly embedded in valuation, risk assessment, and stewardship decisions.

As the EU moves forward with its sustainability reporting reforms, the challenge will be balancing administrative simplification with the need to preserve robust, comparable, and decision-useful ESG information for financial markets.