In his first regular column for IPE, Frédéric Ducoulombier, head of the climate regulation and policies programme at EDHEC Climate Institute, warns that the European Commission’s plan for corporate sustainability reporting standards will shift a growing data burden onto investors and they should demand minimum safeguards.
The European Commission’s consultation on simplified European Sustainability Reporting Standards (ESRS) may look technical. It is. But it is also critical: it will determine whether Europe’s sustainable finance framework rests on a base of thinner but still reliable and comparable corporate data, or on a patched scaffold of discretionary disclosures, bilateral requests, models and commercial datasets.
The EU built its sustainable finance framework in a peculiar order: it created regulatory standards for climate benchmark products and imposed disclosures and supervisory expectations on financial institutions before the corporate data infrastructure needed to support them had been designed, let alone become effective. The ESRS, under the Corporate Sustainability Reporting Directive (CSRD), were meant to fix that by requiring large companies and listed SMEs to disclose sustainability-related risks, opportunities and impacts from 2025.
That correction is now being reversed, without serious evaluation, after only the first wave of ESRS reports. Against the backdrop of the sustainability backlash, and under the banner of simplification and competitiveness, the 2026 Omnibus Directive confines CSRD reporting to the largest companies, weakens assurance, broadens omission rights, constrains value-chain information gathering and abandons sector-specific ESRS. The result will be less reporting, with reduced relevance, depth and comparability. The ESRS revision mandated by the Omnibus Directive now risks weakening what remains.
This outcome is not inevitable.
EFRAG, the Commission’s technical adviser, produced a draft that could form the basis of a workable compromise. It cut mandatory datapoints by close to two-thirds, clarified double materiality and sought interoperability with international standards. But the mandate also brought reliefs and flexibilities: additional phase-ins and exemptions as well as greater room for estimation, aggregation and presentation choices. Some simplification was defensible: preparers had legitimate concerns about granularity and uncertainty, and users could benefit from more focused reports.
Insufficient as it may be, disclosure remains necessary
The question was whether the damage from reliefs could be controlled. A majority of users surveyed by EFRAG expected information quality to deteriorate, rising to two-thirds in the financial sector. The European Supervisory Authorities and the European Central Bank warned that the standards could function only if reliefs and flexibilities were proportionate, time-bound where needed, and disciplined by fair presentation.
‘Obfuscation rights’
The Commission’s draft moves in the opposite direction, tipping the balance further towards corporate discretion and allowing disclosure convenience to override materiality in deciding what gets reported. This gets the hierarchy wrong: information needed for supervision, financial decisions, labour scrutiny or public accountability should not disappear simply because reporting is burdensome, data collection difficult, aggregation easier or the information could be construed as commercially sensitive.
Yet the draft lets companies limit reporting, aggregate away location-specific information and choose different greenhouse gas reporting boundaries. It also gives them several ways to avoid quantifying anticipated financial effects, including by claiming insufficient capabilities or resources. What appears as targeted flexibility becomes, in practice, a broad option set for omission, deferral and aggregation. In combination, these provisions may allow companies not only to escape public scrutiny of their impacts but also to withhold the information needed to assess the financial materiality of sustainability risks and opportunities.
This is ‘simplifuscation’: simplification that gives preparers obfuscation rights. It expands the conditions under which decision-useful information can be aggregated, estimated, deferred or withheld. For reporting companies, it may reduce data collection and processing work, though not preparation or assurance costs if flexibilities must be justified. From the system’s perspective, it shifts and increases the burden: supervisors, financial institutions and other users must fill the resulting data gaps through bilateral requests, modelling and commercial datasets. Accepting degraded data is hard to reconcile with compliance and fiduciary duties; sidelining poor reporters is unrealistic when they include Europe’s largest companies.
The irony is striking. The campaign against the ESRS first claimed to defend financial materiality against excessive impact reporting. Yet the Commission’s draft weakens disclosures that financial-materiality users themselves need, while creating interoperability problems with international single-materiality standards. This suggests that the backlash was never only, or even mainly, against impact materiality, but against transparency.
The information at risk is often highly decision-relevant: location-specific physical and environmental exposures, value-chain dependencies and anticipated financial effects. If companies can aggregate away critical geographies, rely on estimates where value-chain exposures matter, or invoke commercial sensitivity where disclosure is most informative, the framework cannot support effective risk assessment or capital allocation.
Minimum safeguards
The damage is not only lost datapoints, but eroded coherence. Transition plans illustrate this: emissions, targets, energy use and some information on financial resources may remain. But the links and granularity needed to test whether those plans are credible, financed and executable – whether targets match emissions reductions, capital expenditure, asset exposure and operational delivery – are weakened or made more discretionary.
The consultation, which closes on 3 June, should force the issue. Report users should demand minimum safeguards: time-bound reliefs where data availability or quality is invoked; cumulative reliefs tested against the fair-presentation principle; protected anticipated-financial-effects disclosures where financially material; sufficient granularity across geographies, assets, activities and value chains; and narrow, exceptional and reassessed commercial-sensitivity omissions.
Disclosure will not deliver the transition on its own: policy, technology and infrastructure will determine whether transition pathways are financeable and viable. But insufficient as it may be, disclosure remains necessary. After the Omnibus removed much of Europe’s sustainable-finance data foundation, the Commission should not further weaken corporate reporting by giving preparers excessive latitude to omit, defer, aggregate or estimate what users need to know. A regime that leaves outsiders to reconstruct the missing picture is not simplified. Sustainable finance cannot be built on a patched scaffold.
Frédéric Ducoulombier
Programme director, climate regulation and policies, EDHEC Climate Institute, EDHEC Business School
