ESRS Simplification 2026: Seven Critical Weaknesses

14 per cent. That is how many of the more than 1,000 CSRD reports I evaluated as part of my benchmarking work contain not a single Scope figure. Not because companies are being dishonest, but because the standards already leave so much room for interpretation that omissions appear defensible. Now the European Commission has simplified the ESRS still further: according to EFRAG's technical advice of 3 December 2025, 61 per cent fewer mandatory data points, an expanded "undue cost or effort" filter, and greater methodological freedom in GHG accounting. This sounds like relief. In practice, it describes a structural risk: when standards narrow while data gaps are already wide open, the next generation of sustainability reports will be less informative, not more. Data as of September 2026.

As an independent ESG consultant, I submitted a formal response to the consultation on the revised ESRS to the European Commission on 14 May 2026. A parallel response addresses the simultaneously consulted VSME Voluntary Standard as a value-chain cap. This article summarises the seven points from the ESRS response that concerned me most, with particular focus on two topics that have received insufficient attention in the debate so far: the greenwashing gap for asset managers, and the structural incoherence between the ESRS simplification and the VSME cap. My response addressed the draft; the final text has been in the Official Journal since 21 September 2026 as Delegated Regulation (EU) 2026/1563. Which points it resolved and which it did not is set out in the section What the final text changed.

Simplification with side effects, the starting point

I support the Commission's objective: less bureaucracy, better workability, greater interoperability with global frameworks. The revised ESRS are operationally better than the first set from 2023 (Delegated Regulation 2023/2772) in several respects. That should be stated clearly.

What concerns me is the baseline into which the simplification lands. My benchmarking pool of more than 1,000 publicly available European CSRD reports for the 2024 and 2025 financial years presents a mixed picture: 14 per cent contain no Scope data. 8 per cent of reports that include a Scope 3 figure report a Scope 3 value lower than Scope 1 or Scope 2 individually, which is methodologically untenable. These gaps arise even without the expanded "undue cost" filter. Opening up further interpretive latitude without simultaneously sharpening assurance discipline makes the problem worse.

A note on the pool behind these figures: it comprises more than 1,000 publicly available European Sustainability Statements for the 2024 and 2025 financial years, analysed automatically via the VSEasy data platform. Scope values were included at an extraction confidence of at least 0.75. Sources are exclusively public CSRD reports, no client data. The methodology description is available on request.

My response is therefore not directed against the simplification as such, but against seven specific formulations that leave structural weaknesses. The full consultation text and the responses of other participants (including an NGO focused on financial-market transparency, the network behind a sustainable-business certification and a foundation for wage data) are available on the European Commission's website.

Key findings at a glance

Seven weaknesses run through my response, and they read better as one argument than as a list. Three concern the latitude the draft creates: the expanded "undue cost or effort" filter works without a documented justification trail and without an assurance obligation; the choice between financial control, operational control and equity share as the GHG system boundary comes without a disclosure or reconciliation requirement; and the severity-first principle covers human rights but not serious environmental risks. Two concern what falls out of scope: secondary microplastics, 69 to 80 per cent of marine input, and transition plans that are not 1.5°C-compatible, which need only be declared as such. The last two are the least discussed: asset managers are exempted from ESRS obligations on the investments they manage while marketing them with explicit sustainability claims, and nothing establishes coherence between the shrinking ESRS scope and the parallel VSME value-chain cap.

Where the revised ESRS stand: dates, legal texts and next steps

Status of this section: 28 September 2026. The critique below was written against the draft, so it only helps if you know where the text sits now. The European Commission published the draft delegated act amending Delegated Regulation (EU) 2023/2772 in May 2026 and opened it for feedback on the "Have your say" portal, alongside the parallel VSME draft; feedback closed on 3 June 2026 with more than 400 responses, and the Commission adopted the final act on 3 July 2026. It was published in the Official Journal on 21 September 2026 as Delegated Regulation (EU) 2026/1563, enters into force on 10 November 2026 and applies to financial years beginning on or after 1 January 2027. EFRAG, the Commission's technical adviser on sustainability reporting, supplied the underlying advice; every submitted response, including mine of 14 May 2026, is published on the consultation page.

Every date in the table is now backed by the published legal text: adoption on 3 July 2026, publication in the Official Journal on 21 September 2026, entry into force on 10 November 2026 and application from financial year 2027. The weaknesses below were written against the draft; what the final text did with each of them is set out in the section before the FAQ.

Weaknesses 1 to 5 in brief

Weakness 1: "Undue cost or effort" without a documentation obligation

In the draft, paragraphs 93 to 95 and AR 45 expanded the filter considerably. AR 45 required only a "balanced weighing" of costs and benefits, with no documented justifications and no assurance obligation. In the final text, the weighing sits in ESRS 1 paragraph 94, and ESRS 2 BP-1 AR 2 j at least requires significant limitations arising from this provision to be disclosed. It does not require a justification per data point. My recommendation: ESRS 2 BP-1 should require, for every material omission, disclosure of the omitted data point, the cost-benefit assessment, and the planned remediation timeline. Auditors should be required to scrutinise these justifications.

Weakness 2: Severity must take precedence, including for environmental risks

Paragraph 40 establishes the severity-first principle, but only for human rights. It does not apply to serious and irreversible environmental impacts. In a quantified climate risk analysis for a mid-market corporate group, I identified physical risk exposure of up to €31.5 million per year, primarily hail damage and heavy rainfall, with individual sites concentrating more than one third of total exposure. Hail has a low annual probability but high financial severity and is barely manageable in the short term. A pure probability-times-severity filter would systematically deprioritise precisely these tail risks, which would represent an information failure from the perspective of lenders.

Weakness 3: GHG methodology choice requires reconciliation

Paragraph 30 and AR 19 permit three different control approaches for the GHG system boundary: financial control, operational control, or equity share. This makes operational sense. The draft did not even require the chosen approach to be disclosed; the final text does so in paragraph 30 b. However, in my pool of more than 1,000 reports, even under a single methodology, 67 per cent of CSRD reports contain extractable values for all three Scopes. Equally valid methodologies without a reconciliation requirement will fragment sectoral comparability still further. I recommend a 10 per cent materiality threshold for the reconciliation obligation, consistent with the de minimis threshold of the GHG Protocol Corporate Standard and with the quantitative segment threshold from IFRS 8.

Weakness 4: Secondary microplastics are absent

ESRS E2-4 Paragraph 16 restricts disclosure to primary microplastics; the final text only adds a separate figure for microplastics released directly into the environment. The rationale given is feasibility. I find this unconvincing. Scientific consensus (OECD Global Plastics Outlook 2022) places the share of secondary microplastics in marine input at 69 to 80 per cent. The main sources, tyre abrasion, textile abrasion, paint residues, and plastic degradation, are precisely those associated with the largest companies in mobility, apparel, construction, and packaging. The technology for estimations already exists; the OECD and ETSC provide corresponding emission factors. I propose a phased introduction with a deadline of 2030.

If you want to go deeper: Scope 3 Supply Chain Tracking: From Data Sources to a Workable Approach.

Weakness 5: Honest transparency about non-1.5°C plans is not enough

ESRS E1-1 Paragraph 12 and AR 2 require companies to state when their reduction targets are not science-based and not 1.5°C-compatible. The final text adds in AR 2 a that they must then explain how their target values compare with the reference values and how they have taken future developments into account. The problem is that the requirement ends there. A company can disclose non-compatibility and take no further action, and that is compliant. From a practitioner's perspective, this is honest reporting of failure without any pressure to act. My proposal: where no 1.5°C-compatible plan exists, either a credible 3-to-5-year roadmap towards achieving that compatibility should be documented, or the specific structural reasons for the current impossibility must be identified. Transparency alone is not an instrument for change.

Weakness 6: Greenwashing-by-omission, when ESG commitments and ESRS obligations diverge

This is, in my assessment, the most consequential gap, and it survived into the final text unchanged. AR 17 (Paragraph 37, materiality) and AR 37 (Paragraphs 62 to 63, value chain) exempt companies that manage investments under a fiduciary duty, without bearing their own risks or opportunities, from the obligation to carry out materiality assessments and report on those investments.

The intention is understandable: an asset manager administering third-party capital should not be required to attribute the CO₂ footprint of its funds to its own corporate balance sheet. That is reasonable.

The problem lies one step further. The same asset managers actively market funds under SFDR Article 8 and Article 9 with explicit sustainability commitments. They publish Principal Adverse Impacts at fund level under SFDR (Regulation 2019/2088). They communicate "sustainable investments" to institutional and retail investors. And yet they are to be exempted from an ESRS obligation to report on precisely those investments at the corporate level.

The result is an asymmetric disclosure landscape: ESG commitments in marketing materials, with no corresponding reporting obligation in the sustainability statement. This is Greenwashing-by-omission, not through false statements, but through structurally legitimised omissions. Interestingly, this term remains largely absent from the public ESG debate, even though it describes precisely what is happening here.

My recommendation: the fiduciary exemption should be retained as a general principle, but an exception is needed where the asset manager markets investment products with explicit sustainability claims. In those cases, covering SFDR Article 8, Article 9, or any otherwise sustainability-labelled product, a minimum disclosure of the impacts, risks, and opportunities of the relevant managed investments should remain mandatory. This would bring ESRS reporting into alignment with asset managers' own external communications. Those who make ESG commitments externally should report accordingly internally.

The greenwashing trap often lies not in active misstatements, but in what is structurally permitted to go unsaid.

Weakness 7: The coherence trap, when ESRS and the VSME cap narrow simultaneously

Paragraph 66 of the revised ESRS 1 refers explicitly to Annex II of Delegated Regulation (EU) 2026/1560, the parallel delegated act on the VSME Voluntary Standard, and makes clear that the cap also protects undertakings outside the EU. Both delegated acts were consulted simultaneously, published in the Official Journal on 21 September 2026 and take effect from financial year 2027. This is the critical point that has received too little attention in the debate so far.

Viewed together, both simplifications produce a structural imbalance:

• The revised ESRS reduce what reporting entities must collect: a narrower microplastics scope, reduced biodiversity sub-topics.
• The VSME value-chain cap simultaneously limits what reporting entities are permitted to request from their SME suppliers, with an explicit exclusion of C3 (GHG reduction targets), C4 (climate risks), and minimum Scope 3 disclosures.

The combined result: data that banks need for EBA Pillar 3 disclosures, that CSRD-obligated groups require for their own transition plans, and that SFDR participants need for their PAI data, is neither required of reporting entities nor obtainable from SME suppliers via the cap. The data gap is not halved by the simultaneity of both simplifications; it is multiplied.

What happens next is predictable: reporting entities fill the gaps through individual ad hoc questionnaires sent to their suppliers. Precisely what both delegated acts were meant to prevent, a flood of questionnaires for SMEs, emerges as a by-product of the simplification. I see this already in project work today: the more a corporate group is permitted to simplify its own reporting, the more it requests individually from suppliers.

My recommendation is an explicit coherence clause between both delegated acts: what the revised ESRS require of reporting entities regarding their value chain (Paragraphs 62 to 65) should be covered at minimum by what the VSME cap permits reporting entities to request from SMEs. In my parallel response on the VSME Voluntary Standard, I propose including C3 and C4 as well as a minimum Scope 3 disclosure as "required where applicable" within the cap. The same coherence principle must be mirrored in the revised ESRS.

For SMEs thinking today about their position within supply networks, this is a good moment for the VSME Readiness Check. Not because obligations are imminent, but because structured data is already being negotiated now, and ad hoc requests can be avoided as a result.

What this means for your organisation

For CSRD-obligated companies: the simplification provides more latitude. But latitude that is not justified within the assurance process is latitude that is open to challenge in future. Those wishing to use the "undue cost" filter should build a clean internal documentation structure now, not for today, but for the audit in three years' time.

For asset managers: the greenwashing-by-omission issue from Weakness 6 affects you directly. Those marketing SFDR Article 8 or Article 9 products while avoiding the corresponding ESRS reporting are building up a regulatory risk. The question is not whether this gap will be addressed at policy level, but when.

For SMEs in supply chains: the coherence gap from Weakness 7 means you should expect more individual questionnaires in the coming years, not fewer. The pragmatic response is a structured VSME implementation that produces good data points once and then delivers them scalably. Collect once, respond everywhere: that remains the right underlying logic.

For VC investors and their portfolio companies: physical and transition risks will be structurally less well captured by Weaknesses 2 and 5 than was previously possible. This will affect due diligence assessments. Those who can present quantified climate risk data in an investment process will differentiate themselves clearly, because most competitors simply do not have it.

Sources and transparency

Primary sources:

• EU Have Your Say: ESRS consultation (submitted responses)
• EUR-Lex: ESRS Delegated Regulation 2023/2772 (first set)
• EUR-Lex: Delegated Regulation (EU) 2026/1563 (revised ESRS, OJ of 21.9.2026)
• EUR-Lex: Delegated Regulation (EU) 2026/1560 (Voluntary Standard and value-chain cap)
• EUR-Lex: CSRD (Directive 2022/2464)
• EUR-Lex: Omnibus I (Directive 2026/470)
• EUR-Lex: SFDR (Regulation 2019/2088)
• GHG Protocol Corporate Standard
• OECD Global Plastics Outlook 2022

Transparency: Fiegenbaum Solutions provides ESRS implementation, VSME, and climate risk advisory services to companies directly affected by this regulation. This article is based on the formal response I submitted to the European Commission on 14 May 2026 (reference number Ares(2026)4623964) and on my own project work. The anonymised practical examples (mid-market corporate group with physical climate risk analysis) are verifiable but presented without client attribution for reasons of confidentiality.

Not legal advice: This analysis reflects my practitioner perspective and does not replace individual legal or tax advice on the application of the CSRD, ESRS, SFDR, or related EU legislation. For company-specific application questions, I recommend consulting a specialist legal adviser.

What the final text changed

The Commission adopted the revised ESRS on 3 July 2026 as Delegated Regulation (EU) 2026/1563, published in the Official Journal on 21 September 2026. It enters into force on 10 November 2026 and applies to financial years beginning on or after 1 January 2027; for financial year 2026, Article 2 lets companies choose between the previous and the revised version. I have checked my seven points against that text. None has been fully resolved.

Points 1, 3 and 5 were partly addressed. The cost-benefit weighing behind the "undue cost or effort" filter now sits in ESRS 1 paragraph 94. AR 45 lists criteria such as size, resources, technical maturity and the availability of tools, including digital tools, but also states that no exhaustive search for information is required. Paragraph 95 requires availability to be reassessed for each reporting period, and ESRS 2 BP-1 AR 2 j requires disclosure of significant limitations arising from the undue cost or effort provision. A justification for each omitted data point, with a remediation timeline, is still not required. On the GHG boundary, ESRS E1 AR 19 still permits financial control, equity share or operational control; paragraph 30 b requires the approach used to be disclosed, and paragraph 30 c requires a breakdown between the consolidated accounting group and other emissions. No reconciliation between approaches is required. On transition plans, a company whose targets are not compatible with 1.5 °C must now explain under E1-1 AR 2 a how its target values compare with the reference values and how it has taken future developments into account. There is no roadmap requirement, and under E1-2 paragraph 17 and AR 6 scenario analysis is now voluntary. On point 5, the final text tightened one screw and loosened another.

Points 2, 4, 6 and 7 are essentially unchanged. ESRS 1 paragraph 40 still gives severity precedence over likelihood only for potential impacts on human rights. E2-4 paragraph 16 requires primary microplastics and, separately, the quantities of microplastics released directly into the environment; the definitions recognise secondary microplastics, but there is no disclosure requirement for them. The fiduciary exemption for asset managers in AR 17 to paragraph 37 and AR 37 to paragraphs 62 and 63 remains. Paragraph 66 now refers explicitly to Annex II of Delegated Regulation (EU) 2026/1560 and extends the cap to undertakings outside the EU. That makes the cap clearer, but there is still no coherence clause linking what the ESRS require on the value chain to what the cap allows to be requested.

My conclusion on the final text: the Commission has made latitude subject to disclosure, not to justification, and that gap is where the comparability of the next reports will be decided.

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