July 31, 2025
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Shift welcomes the revised European Sustainability Reporting Standards (ESRS) exposure draft issued this week. It offers genuine simplification of process and substance for companies preparing reports, while still delivering meaningful information for their investors and other stakeholders. While further improvements could be made, the most pressing change now needed to the social standards is to remove discriminatory measures embedded in the disclosure on adequate wages, which would have companies apply far lower standards to employees outside the EU.
The exposure draft has been developed by EFRAG – the European Financial Reporting Advisory Group which advises the European Commission on reporting standards – through a technical process involving various stakeholders. Shift’s Director for Standards, Ruben Zandvliet, participated as a Civil Society Organisation member of the Sustainability Reporting Board.
A contrast with the broader Omnibus process
The ESRS exposure draft is part of a wider EU effort to simplify sustainability due diligence and reporting requirements, alongside proposed changes to the Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD).
However, while many of the legislative proposals around the CSDDD and CSRD have been accompanied by under‑informed political soundbites about “simplification” that in reality mask greater complexity, the EFRAG process has been markedly different. Though far from straightforward, it has delivered evidence‑based reductions and revisions that preserve the core purpose of the standards: providing meaningful insight into how companies address their impacts on people and planet and the resulting risks to their own business.
The process has also preserved the substantial alignment between the ESRS and the existing international due diligence standards of the UN Guiding Principles on Business and Human Rights (UNGPs) and OECD Guidelines for Multinational Enterprises. This is good news for the many companies whose existing approaches are already grounded in those standards.
Clarity, flexibility, and retained architecture
The revised standards:
- Provide greater clarity and simplicity in implementation.
- Allow companies more flexibility to tell a coherent narrative about their most relevant sustainability issues.
- Preserve the essential concept of double materiality — assessing both a company’s impacts on people and planet and the implications for the company itself.
- Maintain the core architecture of the standards.
Simplification beyond the numbers
The revised ESRS cut the data points by more than half (57%) – and by 66% if you count cuts to voluntary data points too. But as many companies have been quick to point out, the number of data points alone is not a true measure of burden. Some data points are straightforward; others more complex. And, as in financial reporting, once systems are in place to capture information, the burden of ongoing reporting reduces significantly — while access to relevant data becomes an asset in better management of impacts and risks.
While the reduction in data points is notable, it is not the most significant aspect of simplification. A more meaningful improvement is that the exposure draft responds to feedback from companies who found it difficult to “tell their story.”
Previously, companies often repeated information across multiple sections or separated data on material impacts from how they responded. The revisions now enable companies to report related information once, in the most relevant section, in a way that reflects how they operate in practice.
Sustaining double materiality, with common‑sense implementation
Too many companies had understood, or been advised, that assessing material impacts, risks and opportunities meant mapping all entities in their value chain and assessing every sustainability issue at every tier — a process that quickly became overwhelming.
The exposure draft makes clear this is neither necessary nor correct. It underscores that risk‑based due diligence, as set out in the UNGPs and OECD Guidelines, should guide the identification of impacts and prioritization of those that are material for reporting. It clarifies that many issues will be self-evidently material, or will require only limited analysis to determine whether they are, and that this analysis can focus on general areas of risk in the value chain, without the need for a tier-by-tier assessment.
In short, companies that already identify and prioritize impacts through risk-based due diligence aligned with the UNGPs will be well on their way to determining their material impacts. The ESRS make clear that these material impacts also form the foundation for understanding financially material risks and opportunities.
Our analysis of reporting by 40 leading companies across sectors shows the majority are already leveraging their due diligence processes for materiality assessments. Crucially, every financially material social issue disclosed by these companies was also linked to a material impact – reinforcing the alignment between impact materiality and financial materiality in practice.
Preserving key architecture for social standards
The revised ESRS retain the four social standards, covering a company’s own workforce, workers in its value chain, affected communities, and consumers and end‑users. Feedback from two workshops we ran with practitioners highlighted the value of this structure as a common language that helps align conversations across functions — from finance and HR to legal, the C‑suite and the Board.
The exposure draft also retains key provisions for disclosing how companies manage social impacts in line with the UNGPs:
- Processes and outcomes of engagement with affected stakeholders.
- Availability of grievance mechanisms and approaches to remedy.
- Transparency on business models, potential tensions with other business pressures (such as purchasing practices), and the climate–human rights nexus.
A call for improvement on adequate wages
One area that still needs urgent attention is “adequate wage” — the EU term for what is widely known as a living wage or fair wage.
Workers have a human right to a living wage — enough to support themselves and their families in a life of basic dignity. The first social standard (S1) requires companies to disclose whether all employees receive an ‘adequate wage’ — a growing priority for investors.
Under the current text, companies must disclose whether all employees are on an “adequate wage”. Yet the methodology still allows companies to apply the “adequate wage” standard only for employees in the EU while relying on legal minimum wages for those outside the EU.
This is blatantly discriminatory. The legal minimum wage nearly everywhere remains substantially below a living wage threshold. Many leading companies that reported this year rejected this double standard and instead measured all their employees’ wages against a living wage estimate in their disclosures. To make these disclosures fair to all employees and comparable and decision‑useful for investors, the text must be revised to make this consistent approach the clear expectation.
Simplification that safeguards impact
Overall, Shift welcomes the revised ESRS exposure draft as a meaningful step toward simplification that does not sacrifice impact.
By making reporting more practical, more coherent and better aligned with international standards, these proposals can help companies account for what truly matters: how they address their most significant impacts on people and the planet and the resulting risks to their own success.
