ESRS Simplification 2026: Seven Critical Weaknesses

27 per cent. That is how many of the first 638 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 is simplifying the ESRS still further: 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.

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.

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 638 publicly available European CSRD reports for the 2025 financial year presents a sobering picture: 27 per cent contain no Scope data. 21 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. 76 per cent report static figures with no prior-year comparison. These gaps arise even without the expanded "undue cost" filter. Opening up further interpretive latitude without simultaneously sharpening assurance discipline makes the problem worse.

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 Reclaim Finance, B Lab and WageIndicator) are available on the European Commission's website.

Key findings at a glance

Weaknesses 1 to 5 in brief

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

Paragraphs 93 to 95 and AR 45 expand the filter considerably. AR 45 requires only a "balanced weighing" of costs and benefits, with no documented justifications and no assurance obligation. 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, we 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. However, in my 638-report pool, even under a single methodology, only 34 per cent of CSRD reports contain extractable values for all three Scopes. Two equally valid methodologies without a disclosure obligation and 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 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.

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 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 in the entire draft. 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 the parallel delegated act on the VSME Voluntary Standard. Both delegated acts were consulted simultaneously and are to apply from the same financial year. 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, optional market-based Scope 2 reporting, 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: 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), as well as practitioner experience from more than 300 projects. 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.

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