‘Tis the season for the streamlining of ESG reporting

The sustainability reporting landscape is undergoing a significant transformation. Over the past few weeks, three major developments have emerged, each signalling a shift toward simplification, convergence, and greater accountability.

1.  European Financial Reporting Advisory Group (EFRAG) European Sustainability Reporting Standards (ESRS) revision

On 28 November 2025, the EFRAG Sustainability Reporting Board voted on revisions to ESRS Set 1, marking a decisive step toward alignment with the ISSB framework. The changes are substantial as the number of required data points has been slashed by 70%, dropping to 320. Flexibility has also been introduced, allowing companies to omit information where disclosure would involve “undue cost or effort.”  The revised Double Materiality Assessment (DMA) also promises clearer guidance, less documentation, and better alignment with audit expectations, addressing one of the most contentious aspects of the original standards and demonstrating accountancy for a proportionate approach.

These factors no doubt provide a welcome relief to organisations who feel the burden of various reporting requirements, and we support the deployment of a proportionate approach for businesses. However, consumers and those within the ESG sector will need to be astute to the reliefs becoming loopholes for greenwashing and a lack of action. Further, investors will need to scrutinise disclosures carefully and watch for inconsistencies, but on the whole, we view this move as a positive one in making ESG reporting more digestible, and ultimately more useable, for many.

The European Commission intends to adopt the final amendments in mid-2026, with application from financial years beginning on or after 1 January 2027, possibly with the option of earlier application.

2.  SFDR 2.0: A New Classification Era

Also at the end of November, the European Commission unveiled their final proposal for a set of amendments to the Sustainable Finance Disclosure Regulations, coined SFDR 2.0. The proposal introduces new categories for financial products, collectively called "sustainability-related financial products” but named as transition, ESG basics, and sustainable. For example, only products in the “sustainable” category can “claim that their financial products invest in sustainable undertakings, sustainable economic activities, or other sustainable assets, or contribute to sustainability”. For those products which are uncategorised, significant marketing limitations on ESG claims and disclosures are imposed.

One aim of SFDR 2.0 was to align more closely with other EU sustainability frameworks, and particular links can be drawn with the EU Taxonomy. Here, there is a requirement for managers to disclose how portfolios contribute to environmental objectives, with 70% of assets being aligned as the new benchmark. Another aim was to simplify reporting, with entity level principle adverse impacts (PAI) and remuneration policy disclosures subsequently being removed from the requirements and a 2-page limit imposed for both pre-contractual and periodic disclosures. Both of these moves, alongside other amendments, should support firms to increase efficiency and cut ESG reporting costs.

3.  FCA targets ESG ratings providers

Across the Channel, the UK Financial Conduct Authority has published their proposed approach to overseeing ESG ratings providers. This follows the decision by the government to bring ESG ratings within the FCA’s remit, supported by 95% of those who responded to its consultation. The proposed rules aim to ensure transparency in methodologies, reliability, and comparability, drawing international recommendations and voluntary industry code of conduct. Final rules are expected in Q4 2026, with implementation from June 2028.

Ratings have long influenced capital allocation, yet their opacity has been a persistent concern. We believe that greater oversight should improve trust and comparability, reducing the risk of mispriced ESG factors. For investors and consumers, this is good news as it means more confidence in the tools they rely on for decision making, but also highlights the desire to understand how the methodologies behind such ratings work in practice.

What are the key takeaways?

Taken together, European developments represent a clear push toward simplification without outright dilution. Political pressure is evident, but the revisions show a welcomed effort to balance ambition with practicality. We see that reliefs and flexibility are helpful for companies navigating complex requirements, but they must be carefully managed to avoid undermining credibility. The recurring “70% rule” also hints at a new norm, whether in reporting scope or investment thresholds, anchoring ESG standards in achievable, measurable goals.

We see simplification and streamlining of reporting rules presenting a positive change for businesses because they reduce the administrative burden and compliance costs associated with ESG reporting. By focusing on the most material data points and aligning frameworks, companies can allocate resources more efficiently, improve data quality, and integrate sustainability into decision-making without being overwhelmed by complexity.

However, a sense of uncertainty still remains. Many proposals are not yet final, and the next 18 months or so will be critical in determining whether these reforms deliver genuine transparency or open the door to greenwashing and a lack of oversight. Last week also marked the final stage of Omnibus negotiations between the European Parliament, Council, and Commission to align positions on the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D). Final votes on these, along with the EU Deforestation Regulation (EUDR), are scheduled for 16th December. After months of stop-start discussions, attention is firmly fixed on the outcomes and what they will mean in practice for companies and investors alike.

What action should firms be taking?

Changes in reporting can be confusing and a little daunting, so we’ve provided a few key actions that organisations should be considering over the coming months.

• Assess readiness for ESRS changes: Companies should review their current ESG reporting processes against the revised ESRS requirements, including the reduced data points. Early preparation will help avoid last-minute compliance challenges.

• Update double materiality assessments: With clearer guidance and less documentation required, firms should revisit their DMA approach to ensure it aligns with the new expectations and audit standards.

• Monitor developments: Regulation of ESG rating providers and SFDR 2.0 classifications will impact firm’s products and disclosures. Firms should therefore track timelines and start planning for portfolio reclassification and methodology transparency.

• Review and strengthen governance and controls: Removal of reporting which requires undue cost or effort introduces flexibility, but also risk. Firms need robust internal controls to ensure exceptions are applied appropriately and documented.

Still unsure what you need to do?

If you’re still a little lost, we support firms by conducting gap analysis to identify where current reporting falls short of revised requirements. Our team can review and streamline Double Materiality Assessments, ensuring they meet new standards without unnecessary complexity and without overburdening resources. If you only need a helping hand and require some assurance, we also work to review and uplift client’s governance frameworks and internal controls, as well as external promotions, to manage compliance with oversight and marketing risks. And if you’re just finding the world of regulation to be a hive of activity that’s a maze to navigate, we can support by conducting quarterly horizon scans and reporting back on the regulations that matter most to you - get in touch at contact@avyse.co.uk.