Most Investors Concerned Simplified EU Sustainability Reporting Standards Will Impair Information Quality: Latest EFRAG Study Reveals

A latest study released by the European Financial Reporting Advisory Group (EFRAG) indicates that the vast majority of investors and financial institutions express concerns over the EU's proposed simplified European Sustainability Reporting Standards (ESRS). They argue that this simplification initiative will significantly diminish the overall quality of corporate sustainability disclosure information, with primary issues focusing on reduced comparability across companies and the loss of critical climate and environmental data. As the body responsible for developing the ESRS standards, EFRAG's study highlights a profound divergence in market views on the EU's sustainability reporting regulatory adjustments.

In stark contrast to the negative sentiments from investors, companies bearing reporting obligations (i.e., preparers) demonstrate a high level of approval toward these changes. They anticipate substantial cost savings from the simplified standards, alongside improvements in the clarity and operational feasibility of reporting requirements. Moreover, companies generally believe that these adjustments will not impact their access to green financing channels or opportunities.

This study, titled Cost-Benefit Analysis on the Draft Amended European Sustainability Reporting Standards, was conducted following EFRAG's submission of the final simplification proposal in early December 2025. Its core objective is to substantially alleviate the sustainability reporting burden on companies under the EU's Corporate Sustainability Reporting Directive (CSRD) framework, while addressing longstanding market feedback on the excessive complexity and high costs of the original standards.

The study's key findings encompass the following aspects:

• Stance of Investors and Financial Market Participants: Among surveyed users of sustainability information, over half (approximately 55%) believe the revisions will have a negative or very negative impact on information quality. This proportion rises further to 67% within the investor and financial institution cohorts. Their most pressing specific concerns include:
  • Significant decline in sustainability information comparability between companies (noted by 52% of respondents);
  • Loss of key data in climate-related standards (45%);
  • Omission of critical metrics in other environmental topics (43%);
  • Overall reduction in information volume due to exemptions of certain metrics (43%).
• Feedback from Reporting Preparers (Companies): The corporate side exhibits a markedly more positive outlook, with approximately 65% of surveyed preparers expecting positive or very positive effects from the simplifications. Primary benefits include substantial reductions in reporting burdens and compliance costs, coupled with clearer standard formulations and greater flexibility in application.

The ESRS revisions form a pivotal component of the EU's Omnibus simplification package adopted at the end of 2025. Key adjustment measures include:

• A roughly 61% cut in mandatory datapoints (exceeding 70% total reduction when eliminating all voluntary disclosures);
• Significant easing of double materiality assessments and value chain reporting requirements;
• Permitting companies to rely more on estimates rather than direct supplier data in value chain disclosures;
• Enhanced proportionality principles and reporting flexibility.

In its report, EFRAG emphasizes that, despite the substantial simplifications, the revised framework remains committed to the CSRD's fundamental goal: delivering high-quality sustainability information with decision-useful value to investors and other stakeholders. At the same time, it responds to strong calls from companies—particularly smaller "large" enterprises—regarding the undue complexity and cost burdens of the prior standards.

The cost-benefit analysis incorporates insights from over 400 stakeholders, spanning investors, reporting preparers, audit firms, regulatory authorities, and non-governmental organizations. It serves as a critical foundation for the revised standards' entry into the European Commission's formal delegated legislative procedure.

Broader Macro Context: These simplification measures arise amid dual political and economic pressures on the EU: the need to lighten regulatory burdens on businesses to bolster overall competitiveness, while upholding long-term commitments under the European Green Deal. However, multiple investor organizations have issued public warnings that excessive weakening of reporting requirements could erode the transparency essential for capital allocation toward sustainable activities, potentially creating opportunities for greenwashing.

EFRAG specifically notes that the proposed adjustments are not expected to materially adversely affect companies' capacity to secure sustainable financing, as prevailing green finance frameworks prioritize overall sustainability performance over the granular disclosures mandated by ESRS.

The revised ESRS standards are projected to receive formal adoption by the European Commission in the coming months and will apply to all CSRD-regulated companies in subsequent reporting cycles.