Investors Warn Simplified EU Sustainability Reporting Standards May Reduce Data Quality

A study released by the European Financial Reporting Advisory Group (EFRAG) highlighted growing concerns among investors and financial institutions about the potential impacts of revised European Sustainability Reporting Standards (ESRS). The study found that a significant portion of investors are worried that the newly proposed simplified reporting requirements will diminish the quality of sustainability information disclosed by companies. This development comes as the EU continues to revise its sustainability reporting framework to reduce administrative burdens under the Corporate Sustainability Reporting Directive (CSRD). Under the proposed simplified standards, mandatory data points are set to be drastically reduced, with a significant portion of voluntary disclosures eliminated. While this reduction aims to streamline compliance and reduce cost for companies, many investors believe it could lead to lower comparability and a loss of critical climate and environmental details that are essential for accurate assessment of corporate sustainability performance. The study noted that 67% of institutional investors surveyed anticipate adverse effects on data quality under the revised framework. Respondents to the study also highlighted specific areas of concern, including the potential loss of key climate metrics and environmental disclosures, as well as greater reliance on estimates rather than direct data collection. These changes could make it harder for market participants to evaluate corporate actions related to emissions, environmental management and long-term climate risk, according to feedback from the investor community. However, the study pointed out that companies preparing sustainability reports view the simplified requirements more positively. Many corporate reporters expect cost savings and improved clarity, citing a reduction in reporting burden and administrative complexity. Despite these differing perspectives, investors emphasise the importance of preserving analytical robustness and comprehensive sustainability data to support informed decision-making in capital markets.