ESRS as a beacon, not a burden: What boards need to know about the ESRS revision

Corporate sustainability reporting goes through a revision of its baseline, the European Sustainability Reporting Standards, or ESRS, which is expected to be fully completed by 30 November 2025[1]. As part of a wider and much debated revision of key sustainability directives, that on reporting (CSRD) and that on due diligence (CS3D), this re-examination becomes a symbolic forefront defining EU strategic choices.

Europe’s original ambition was straightforward: the Union intended to set up clear and stimulating rules that push for sustainable value creation. By defining clear expectations, the EU planned to lead global transition, inevitable in the long-run. However, geopolitical changes have intervened: energy prices went up shifting both business and political priorities towards adapting to the new situation or to maximising gains from the current status quo.

Although these external shifts explain why a long-term focused agenda has been almost doomed to revision and why sustainability reporting has fallen the first victim of the call for simplified regulation, it is not the only reason. Omnibus also results from the decision-making haste that has compromised the original intention of sustainability reporting. The uncertainty resulting from abrupt simplification has both reputational and legal consequences[2]. 

European Financial Reporting Advisory Group, EFRAG, is well positioned to address complex and controversial feedback on sustainability reporting. EFRAG has finished the first round of open consultations, approaching diverse stakeholders and gathering multiple perspectives. It is going through the second limited round during summer 2025, focusing rather on verifying technical issues. The Group has tools, expertise and authority not only to revise the standards themselves, but also to review the envisaged reporting process and responsibilities around it. In its large-scale revision exercise, EFRAG has rightly chosen to stick to the original intention of CSRD, i.e. “to put the emphasis on principles rather than on a checklist of granular information”. 

The regulatory funnel has  frightened numerous European companies as well as EU international partners, resulting in current revision, which gives all parties involved a rare opportunity to return to the critical basic questions: what ESRS should be like. This note gives an update of the situation for the well-informed director and focuses on strategic questions that are crucial for impactful revision of the sustainability reporting standards, a key tool for transparent and well-informed transition.

Why ESRS?

GUBERNA values the high degree of sustainability awareness that NFRD and then CSRD have stimulated.  Companies need a reliable tool to measure transition efforts and to ensure transparency. Business strategy focused on material ESG issues becomes indeed synonymous with high quality management teams and improved returns.  What drives such performance forward, is the effective strategy that incorporates ESG disclosure as its integral part, as highlighted by the aggregated evidence from recent 1000+ studies[3]. 

These findings support GUBERNA’s key claim: we treat NFRD / CSRD as a means to push for the ultimate goal, i.e. for sustainability transition.

As any transition, this one is uneasy: it requires change which is rarely welcome. At the same time, there is growing evidence that by promoting different ways of doing business, such a transition also generates more value[4]. It invites companies to experiment and innovate.

Soft regulation has demonstrated its effectiveness in encouraging transition throughout diverse business landscape. The notion on sustainable value creation has been included into the 2020 Belgian Code on Corporate Governance[5] to empower businesses in their search for more sustainable ways to operate. As a result, active experimentation and innovation have been launched at diverse levels[6].

Within this logic, ESRS could be considered a benchmark, an overarching frame that ensures transparency and serves rather a reference that invites stakeholders to make comparison, than an ultimate goal. In other words, ESRS’ primary mission should be to provide necessary guidance that supports the sustainability transition.

How should ESRS function?

From its wide national network GUBERNA knows that business keeps experimenting with its sustainability transition[7]. Given the variety of economic sectors, markets, business models and individual teams, it is impossible to embrace the existing diversity and to preview the further expansion of approaches and models the companies will experiment with[8].

This is the key reason why we believe that ESRS should provide a general framework, allowing wide experimentation and flexibility. This is the way to support genuine trial & error and thus innovation that promotes competitiveness of each individual business. It is also the best way to address sectoral diversity. Otherwise even the best intentions risk to be treated as red tape and excessive burden[9], because they do not allow seeing the wood for the trees.

The first sustainability reporting results are already available for preliminary conclusions[10]. Belgian wave 1 reports indicate that companies took the exercise seriously, they invested resources, although providing diverse level of details. The reported explanations vary from 40 to 200 pages.

The first reporting results show that companies have included sustainability reporting into their agendas. As an exercise, sustainability reporting has helped in mobilising companies as a whole, stimulating constructive revision of key business processes. Reporting framework has been treated as well drafted, easy to understand and addressing the right ESG topics.

However, the areas of improvement are clear too:

• The reported companies have encountered challenges while addressing this new way of non-financial accounting. The necessity of linking it with traditional financial accounting to report on business model viability remains not clear enough. That explains why CSRD is considered rather a hindrance to financial performance than a tool.

• Besides, the educational part of CSRD is still missing. The exercise has not included the assessment of impacts of ESG factors on business model’s viability in the long-run, e.g., in 10, 30 or 50 years.

• Finally, a global approach is also lacking in the existing reporting framework. As geographic areas compete between themselves, it remains possible to shift a problem elsewhere.

From its own research and interactions with its community. GUBERNA constates that businesses and their board members prefer soft law tools and self-regulation to imposed formal regulation. The former methods enable long-term focus, more experimentation and thus tailor-made approach for including sustainability into company’s agenda[11].

Excessive regulation, on the contrary, leads to negative consequences for companies; moreover, it results in a lack of European competitiveness, creating entry barrier for potential investors and pushing local companies to relocate.

GUBERNA calls for soft regulation and self-regulation. If we push too much, we risk damaging highly interdependent business ecosystem. When regulation becomes too burdensome, the companies could choose other venues to operate.

That brings us back to Draghi report[12] which is often referred to as the reason behind Omnibus package. In fact, the report proposes measures for raising Europe’s global competitiveness, it encourages innovation and experimentation through soft law tools, but speaks against meticulous regulation. With the Draghi report’s approach in mind, we believe that the revision should aim for principles-based standards to empower sustainability transition.

Conclusions

1. Sustainability transition is a journey. As Rome was not built in a day, pursuing a durable modus operandi for a company is not a simple task. Sustainability reporting is meant to make this transition easier through:

2. objective, measurable and traceable records for internal monitoring of transition progress;

3. a clear framework and thus equal opportunity for all companies, i.e. through a level playing field.

In other words, through measurement and data, sustainability reporting creates both internal awareness and external transparency on how viable the business model of a company will be in the long run.

European Sustainability Reporting Standards (ESRS) frame and support reporting, and thus should serve the above listed goals of creating awareness and ensuring transparency. The envisaged role of sustainability reporting in corporate strategy defines key points of attention in current ESRS revision:

• GUBERNA suggests treating ESRS as a beacon that calls for action, rather than a barrier that blocks experimentation and innovation. The beacon that guides towards sustainability transition.
• To enable stimulating effect of ESRS, we propose minimising the level of details that the standards impose. Delegating more decision-making towards companies through soft law tools and through enabling self-regulation enhances innovation, crucial for any transition and key for sustainability transition. General guidance empowers, while detailed instructions discourage.

What are the key takeaways for boards regarding sustainability reporting per se and ESRS revision in particular?

• As the first wave of sustainability reporting indicates, the exercise creates awareness and mobilises companies. Thus, it pushes to explore new frontiers, to challenge certain assumptions, to experiment with various elements of business processes and with a business model as a whole. In other words, sustainability reporting creates new opportunities and warns about long-term risks.
• The key task of the boards is to translate the information generated through sustainability reporting into strategic decision-making and then into strategy-setting. Why? Highly volatile environment in which companies are operating, makes long-term viable choices indispensable.

Sustainability reporting complements a set of tools that boards already have at their disposal. Clear and reliable reporting standards improve the quality of data and thus of analysis, offering new perspectives to identifying and assessing both risks and opportunities.