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ICSRG Bulletin – January 2026 |
Latest news on sustainability reporting and governance in Europe and beyond |
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MESSAGE FROM ICSRG TEAM
2025 ended with intense activity in the sustainability reporting space. The EU’s Omnibus I was concluded and EFRAG unveiled its draft simplified ESRS. The dense fog of uncertainty cleared. While the EU may have lost its leadership position on sustainability reporting in 2025, in 2026 we hope that EU companies, investors, and employees will make-up for the short-sightedness of right wing MEPs, who have ignored process and evidence, by driving voluntary adoption of sustainability reporting and assurance.
Omnibus
While we are relieved to hear the near conclusion of the Ommibus I – it creates some certaity – we are disappointed that the threshold for mandatory reporting at 1,0000 is so high. We would have preferred it be set at the same level as the extant NFRD (500 employees). The final outcome fails to recognize and leverage the competitive advantage to be gained from the EU leading the global sustainable transition.
The 1,000 employee threshold for mandatory reporting leaves a large hole to be filled by voloutary reporting. We hope companies will fill that hole. Instead of the EC, with EFRAG, developing a new voluntary reporting standard for companies with 250-1,000 employees we wonder whether it better to simply encourage them to use what standards are already available. That is, either the VSME or the ESRS based on what seems the most appropriate. Smaller, simpler entities from lower risk sectors could be encouraged to use the VSME while larger, more complex entities from higher risk sectors might be encouraged to use the simplified ESRS.
We welcome the review clause whereby the European Commission (EC) will assess whether to extend the scope of the reporting requirements and hope that this will herald extending mandatory reporting, with limited assurance, to all companies with 250-1,000 employees from 2030 onwards.
Assurance
We welcome the decision to adopt a sustainability assurance standard by 1 July 2027. We support the timely global adoption and implementation of the ISSA 5000 and IESSA. Global standard setters should closely monitori the impact on value chain reporting and assurance and, where that impact is deemed disproportionate, modify the standards with timely limited scope amendments.
ISSB
We believe that the IFRS Foundation ought to focus on implementation of its present suite of standards and develop a broad nature-related standard.
The IFRS Foundation should also consider using the EU’s VSME as a basis for an IFRS sustainability disclosure standard for non-listed SMEs (or non-publicly accountable entities) so they might respond to requests for sustainability information from larger companies and finance providers. This standard would be a sister standard to the recently updated IFRS for SMEs, its financial reporting standard for non-publicly accountable entities.
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| EU Omnibus I |
On 16 December 2025 the European Parliament approved a provisional agreement between MEPs and EU governments on updated sustainability reporting and due diligence rules – the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD) for companies. The revamped rules will apply to fewer companies and reduce some obligations for firms. The hope is that this will strengthen EU competitiveness. The new rules have already entered into force. Read this Corporate Disclosures article for a useful summary.
CSRD
Sustainability reporting will only be mandatory for companies employing on average over 1,000 employees and with a net annual turnover of over €450 million. The rules will also apply to non-EU companies with net turnover in the EU of over €450 million and to their subsidiaries and branches generating turnover higher than €200 million in the EU. The reporting requirements will be significantly simplified (see ESRS Developments below) and sector-specific reporting will be voluntary. To protect smaller firms from being overburdened with demands for sustainability information, companies employing less than 1,000 employees will not have to provide information to their bigger business partners beyond what is included in the voluntary reporting standards (this is the value chain cap).
CSDDD
Fewer companies will need to carry out due diligence on reducing their negative impact on people and the planet. Under the revised rules, this will only be required from large EU corporations with more than 5,000 employees and a net annual turnover of over €1.5 billion and for non-EU companies above the same turnover threshold in the EU. They will have to carry out scoping exercises to identify risks in their chain of activities and they should only ask for information from business partners with fewer than 5,000 employees when the information for in-depth assessment cannot be obtained another way.
Transition plans ensuring a company’s business model is compatible with the shift to a sustainable economy will no longer be required. Businesses will be liable at the national level for failures to apply the rules correctly and could face fines of up to 3% of the firm’s net worldwide turnover. The due diligence directive will only apply from 26 July 2029.
Accountancy Europe shared their views on the revised rules here. Like the ICSRG they are disappointed at the narrowing of the scope of the CSRD - this research paper reveals a 90% reduction in scope from the orginal CSRD with smaller EU Member States left with few companies in scope - but welcome closure on the file, the value chain cap, and the decision to adopt a sustainability assurance standard by 1 July 2027.
It appears that the CSRD and CSDDD have survived intense efforts by the US Administration to deregulate even further. According to this Financial Times (FT) article the US has been pressing hard for the EU’s sustainability regulation to be cut (subscription) while in this FT article (subscription) the EU’s competition chief guards against further simplification. This Frankly Speaking podcast looks at the extraterritorial aspects of the EU’s sustainability regulations and the US lobbying efforts. And finally, this Frankly Speaking podcast assesses what the Omnibus 1 means for the effectiveness of sustainability legislation in the EU
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| ESRS Developments |
Draft Simplified ESRS Unveiled
On 28 November 2025 EFRAG’s Sustainability Reporting Board (SRB) formally approved the draft simplified ESRS. On 3 December 2025 EFRAG submitted the suite of ESRS, amounting to its technical advice, to the EC and then publicly unveiled them the following day at EFRAG’s 2025 Conference. See the conference recording here.
The full set of the draft simplified ESRS can be found here and at a glance factsheet here. Soon afterwards Position Green held a webinar on the simplified ESRS – access the recording here and slides here.
In less than six months EFRAG have significantly simplified the original ESRS. On many measures of size and burden the revised ESRS are less than half the original ESRS. At the same time EFRAG launched the ESRS Knowledge Hub, an interactive online platform to help users navigate the ESRS, including the VSME, and implementation materials developed by EFRAG.
On 23 December 2025 EFRAG announced the publication of the Basis for Conclusions and of four other accompanying documents aimed at supporting stakeholders’ understanding of the draft simplified ESRS. The Basis for Conclusions also serves as feedback statement and explains how the feedback from the public consultation has shaped the amendments. The publications include the Basis for Conclusions and Cost–benefit analysis (CBA).
The CBA estimates that the draft simplified ESRS will cut reporting costs by 44% compared to the original ESRS. Large companies (10,000+ employees) could save around €1.1 million per annum while smaller companies stand to save around €150k annually. Competitiveness effects, which have been touted as a key objective of the simplification exercise, are assessed as neutral. Companies themselves do not seem to think that significant competitiveness effects are created through ESRS simplification. The study also acknowledges possible downsides from reduced information though acknowledges these may be partly offset by improved usability.
Jane Thostrup Jagd, Director at We Mean Business Coalition, shared her reactions to the draft simplified ESRS in this op-ed for Financial Times Sustainable Views. Thostrup says that the draft simplified ESRS represent a clear improvement on the original ESRS but that there are some unresolved issues that undermine coherence between the financial and non-financial reporting regimes.
This Corporate Disclosures article reminds us that it ain’t over until it’s over and that there is a risk of the EC reopening the ESRS. The EC has already launched the consultation process on EFRAG’s technical advice. The EC must adopt the amended ESRS by way of a delegating act by mid-2026. The EC may decide to make targeted adjustments in response to concerns about the additional reliefs introduced by EFRAG. The EC is consulting the Accounting Regulatory Committee (ARC), the Member States Expert Group on Sustainable Finance (MSEGSF) and the eight EU bodies identified in the Accounting Directive, which include the ECB, the EBA and ESMA. Once the EC submits the final text, the Parliament cannot amend individual provisions; it can only object to the delegated act as a whole. If neither the Parliament nor the Council objects during the scrutiny period, the delegated act automatically enters into force. DG FISMA oversees the process and seeks feedback by 6 February 2026.
It seems unlikely we will see another round of simplification with datapoints pruned further. Rather the EC is expected to focus on reliefs: some reliefs do not have time limits so opening the door for companies to defer some of the most challenging disclosures indefinitely; ESRS 1 paragraph 94 allows companies to omit information related to IROs, the value chain, metrics and anticipated financial effects due to undue cost or effort which is beyond the relief available under IFRS; and ESRS 2 paragraph 29 allows companies to omit quantitative information on anticipated financial effects of material risks or opportunities if they do not have the skills, capabilities or resources to provide it. In effect, these provisions create permanent reliefs rather than transitional ones. During EFRAG’s drafting process, both the ECB and the EBA expressed concern about these. The EC is also expected to decide on phase-ins for Wave 2 companies. The amended ESRS include an additional significant phase-in until 2029 for Wave 1 companies for the disclosure of quantitative information on financial effects and substances of concern, but EFRAG handed the decision on phase-ins for Wave 2 companies to the EC.
Sustainability Reporting Standards for SMEs
Since the European Commission officially adopted EFRAG’s Voluntary Sustainability Reporting Standard for non-listed Micro, Small, and Medium-sized Enterprises (VSME) as a Recommendation in late July 2025 EFRAG has been busy mobilizing implementation support (access the Commssion’s press release, Q&A, and the recommendation here and the standard, explainer videos, digital templates, and guidance on EFRAG’s website here.
On 12 December 2025 EFRAG held an open session of the 3rd EFRAG SME Forum Meeting “Launch of VSME Supporting Guides & Presentation of EFRAG’s VSME Market Acceptance Report – VSME Ecosystem Update”. EFRAG has finalised three new supporting guides under the Comprehensive Module, covering key disclosure areas: C2 – Practices, Policies & Future Initiatives; C3 – GHG Reduction Targets & Climate Transition; and C7 – Severe Negative Human Rights Incidents. During the session, EFRAG also presented insights from the first VSME Market Acceptance Progress Survey. View the session recording here.
Other guidance on the VSME includes:
Omnibus VSME
The Omnibus outcome has resulted in a much reduced CSRD scope. Reporting will be voluntary for companies employing up tp 1,000 employees and these companies will be expected to use a new sustainability reporting standard based on the VSME, so called ‘Omnibus VSME’. This proposed new voluntary standard is now the subject of intense debate. Some believe it should be based on a subset of datapoints in the simplified ESRS, that is ‘ESRS lite’, while others suggest it be largely based on the VSME, that is ‘VSME+’. We question the need for any new standard. Why not simply encourage companies employing between 250-1,000 to use either the VSME or the ESRS, based on what seems the most appropriate - smaller, simpler entities from lower risk sectors the VSME while larger, more complex entities from higher risk sectors the simplified ESRS.
Connectivity Discussion Paper
In mid-December 2025 EFRAG has released its Discussion Paper on Connectivity of Financial and Sustainability Reporting. The paper includes: concepts, types, and mechanisms for connecting reported information; current identified gaps, including inconsistent terminology and potential underreporting of sustainability-related information in financial statements; and key recommendations to improve connectivity and reporting quality. A supplemental document with 17 real-world illustrations demonstrates practical applications of connectivity between sustainability disclosures (ESRS or ISSB Standards) and financial statements (IFRS Accounting Standards), helping stakeholders see how it works in practice. Stakeholders are invited to submit their comments by 30 June 2026. Read more here.
ECG Guidance for CSRD Wave 2 Reporters
To support preparers of sustainability reports in the second year of reporting under the CSRD, the ECG has published a paper on some considerations for companies that can be accessed here.
EFRAG Updates
EFRAG’s Sustainability Reporting Update podcast and the Financial Reporting Update podcast for November 2025 are available on Spotify here. Read the updates in pdf here. |
| Global Developments in Sustainability Assurance |
European Union
While the Omnibus proposal maintains the limited assurance requirement, proposes no changes to assurance providers, and maintains the EC’s delegated power to adopt a limited assurance standard, the proposal does remove the 2026 deadline for adopting a standard and suggests deleting the possibility of moving from a requirement for limited assurance to a requirement for reasonable assurance. The EC will adopt a sustainability assurance standard by 1 July 2027. Moreover, to protect SMEs it proposes requiring assurance providers to respect the obligation that companies should not request information from value chain companies with fewer than 1,000 employees beyond what is included in the ‘Omnibus VSME’.
Until the targeted assurance guidelines are issued assurance providers can consult the CEAOB guidelines on limited assurance on sustainability reporting. In addition, the European Contact Group (ECG) has published illustrative examples of limited assurance reports for engagements in accordance with the CSRD - see the unmodified illustrative report here and the modified illustrative report here. These may need adapting to align with specific jurisdictional requirements and standards.
Insights from Corporate Disclosures 2025 Conference
On 1 December 2025 Corporate Disclosures held its annual conference. In a ‘how to’ session at Corporate Disclosures 2025, panelists offered their perspectives on how companies can get ready for external limited assurance on their sustainability disclosures. Read more here. The conference concluded with roundtables, one on sustainability assurance - read the highlights here.
ISSA 5000
It has been a year since the IAASB and the IESBA launched their joint effort to support effective implementation of their landmark standards aimed at advancing trust and transparency in sustainability reporting and assurance. The International Standard on Sustainability Assurance (ISSA 5000)General Requirements for Sustainability Assurance Engagements becomes effective for periods starting on or after 15 December 2026, with early adoption permitted and encouraged. ISSA 5000 is scalable and adaptable to regional regulatory requirements, can be used with any sustainability reporting framework, standard or other suitable criteria, and is applicable to all assurance providers. Translations of ISSA 5000 are available here.
There is growing momentum around the world as jurisdictions continue to adopt ISSA 5000. Some jurisdictions are making sustainability assurance mandatory while others are taking a voluntary approach. This IAASB webpage includes ‘ISSA 5000 Jurisdictional Adoption’.
ISSA Adoption and Implementation Support
The IAASB’s ISSA 5000 Adoption and Implementation resources continue to grow. In late 2025 the IAASB published a new set of illustrative practitioner’s assurance reports to further support the implementation of ISSA 5000. The IAASB will continue to support the adoption and implementation of ISSA 5000, including an FAQ on materiality and updating information on jurisdictional adoption. Access published resources on the dedicated ISSA 5000 web page.
IESSA
In concert with the IAASB, the IESBA launched its new International Ethics Standards for Sustainability Assurance (IESSA) and other new sustainability-related provisions establish a strong ethical foundation for sustainability reporting and assurance engagements. These standards will become effective for sustainability assurance engagements on sustainability information for periods starting on or after 15 December 2026, with early adoption encouraged.
The IESBA continues to expand IESSA Implementation Resources. As part of the IESBA's commitment to supporting the implementation of the IESSA and the broader suite of global ethics sustainability standards, the global standards-setting board has established a feedback mechanism to gather implementation insights. This online submission form will collect insights from practitioners, firms, and other stakeholders on the application of the IESSA and related ethics standards in sustainability assurance engagements. IESBA welcomes input here. Read more about IESSA here. |
| Global Developments in Sustainability Reporting |
ISSB Adoption
China has issued its new corporate climate reporting standard. While based on the ISSB’s IFRS S2 it differs from S2 in that it incorporates the double materiality approach, calling for companies to report their impact on climate change. Furthermore, China will develop sector guidance and, over time, will apply the standards and guidance to smaller and non-listed companies. Read more here.
ISSB Amends IFRS S2
In December 2025 the ISSB published targeted amendments to GHG emissions disclosures in IFRS S2. The amendments make application easier by providing reliefs and clarifications to specific requirements in IFRS S2, assisting companies in meeting their sustainability disclosure requirements effectively. Read more about the amendments and access the documents here.
ISSB Update
The ISSB Update summarising the ISSB meeting of 10 December 2025, is now available. You can also listen to Chair Emmanuel Faber and Vice-Chair Sue Lloyd in the December 2025 episode of the ISSB podcast. In the podcast, Emmanuel and Sue reflect on 2025 and share insights into the December 2025 Board discussions.
SASB Consultation
On 12 December 2025 EFRAG released its Comment Letter to the Exposure Draft - Proposed Amendments to the (Sustainability Accounting Standards Board (SASB) Standards, and Exposure Draft - Proposed Amendments to the Industry-based Guidance on Implementing IFRS S2 published by the ISSB. In the comment letter EFRAG urges greater interoperability.
ISSB Implementation Support
In early January 2026 the ISSB hosted the first episode of the ISSB Implementation Insight Podcast here. ISSB Vice-Chair Sue Lloyd and Technical Staff highlighted some of the resources available to support companies applying ISSB Standards and outlined ways in which the ISSB is working to support implementation. In this episode, they discussed materials to help companies understand requirements in ISSB Standards, how the ISSB is responding to applications questions and challenges, and pans for 2026. Listen to podcast on Apple here, Spotify here and YouTube here.
UN Sustainable Stock Exchanges (SSE) Academy
Through the SSE Academy, and in collaboration with the IFRS Foundation and the IFC - International Finance Corporation, the UN SSE has now trained over 20,000 market participants on the IFRS S1 and S2. Read the full announcement and find out more here.
Public Sector Standards
Corporate Disclosures reports that during its meeting of 5 December 2025 the International Public Sector Accounting Standards Board (IPSASB) voted unanimously to approve its inaugural climate-related disclosure standard for public sector bodies (SRS 1). SRS 1 solely focuses on climate-related information associated with public sector bodies' own operations and is explicitly based on the ISSB's climate standard for private sector bodies (IFRS S2), but with some amended definitions for the public sector context. It uses the term 'operational model' instead of 'business model' and refers to 'long-term fiscal sustainability' rather than an entity's 'prospects'. The final version of SRS 1 will be published in Q1 2026. The standard will take effect from 1 January 2028.
The IPSASB has also published its Work Program Consultation with a deadline for comments of 4 May 2026. Staff recommend that IPSASB develop a general sustainability-related disclosure standard, which would leverage its private sector counterpart – the ISSB's IFRS S1 – and set out general principles for sustainability disclosures in the public sector. Read more here.
Taskforce on Nature-related Financial Disclosures (TNFD)
This webinar focused on the TNFD’s discussion paper on the identification, assessment and disclosure of dependencies and impacts on nature in financial portfolios. It explored practical challenges financial institutions face in identifying, assessing and disclosing nature-related dependencies and impacts at the portfolio level.Many financial institutions have started to assess their nature-related dependencies, impacts, risks and opportunities (DIROs) arising from their clients and portfolio companies. However, there are barriers to doing this effectively and comprehensively. disclosure practices, particularly around proxy-based approaches and financed emissions. The period for feedback closed in mid-December 2025.
GRI Report
Does sustainability reporting pay? This key question is addressed in the Global Reporting Initiative’s (GRI) new research report – From Impact to Income – which reviews 30 published studies on the topic. It finds 73% show a positive correlation between companies that disclose their impacts and improved financial performance. The analysis reinforces that sustainability reporting can provide tangible financial gains. It also links GRI Reporting to reputational advantages, such as stakeholder trust, which translates into improved access to capital.Find out more and download the report here
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