EU Enforcers Want the Bad News in Sustainability Reports, Not Just the Good

Most of the sustainability reporting news out of Brussels this year has been about subtraction: fewer companies in scope, fewer datapoints, later deadlines. The regulators who actually read the reports have now said what they will be looking for, and none of it is subtraction. The European Securities and Markets Authority wants to see whether companies describe the harm they cause as carefully as the good they do, and whether a climate target labeled "1.5 degree" means anything once an enforcer asks how it was built.

What ESMA Will Check This Year

ESMA and the national supervisors published their common enforcement priorities for the 2026 financial year on October 13. For sustainability statements there are two: continuing progress in applying the materiality assessment, and connected information on impacts, risks and opportunities (IROs), on policies, actions and targets, and on metrics. ESMA's guidance on the revised standards sits alongside them as general remarks rather than a formal priority.

The detail is where the pressure sits. As ESG Today reported, ESMA has observed that some issuers provide more extensive disclosure on positive impacts than on negative ones, and it wants both described with comparable granularity. IRO disclosures should cover the company's own operations and its upstream and downstream value chain. Enforcers will concentrate on the climate change standard (ESRS E1) and the own workforce standard (ESRS S1), the two topics ESMA considers mature enough to judge. Where a company has identified a material IRO but has no policy, action or target for it, ESMA expects the report to say so.

The scale of the review is not trivial. ESMA's network brings together 38 national enforcers that oversee nearly 4,000 issuers preparing IFRS financial statements, and the common priorities are how those enforcers agree on what to examine first. Listed companies that publish a sustainability statement inside their annual report should assume it will be read with the same eye as the financial statements.

Targets Are Where the Claims Get Tested

ESMA's sharpest language is about targets. They should be measurable, time-bound and outcome-oriented, with clear terminology and methodology specific to each one. Companies should say whether they met a target disclosed previously, and disclose any target that was missed, abandoned or can no longer be met. For greenhouse gas reduction targets, ESMA flagged reports that use "science-based" or "1.5 degrees" without explaining whether and how the target meets those standards, and it wants absolute values disclosed alongside intensity figures.

That last point matters more than it looks. An intensity target can improve while total emissions rise, so a report that shows only tonnes per unit of revenue can tell a better story than the atmosphere would. Requiring the absolute number puts both versions side by side. The same discipline applies to people: ESMA has seen workforce disclosures that blur broad commitments and actual targets, and it wants targets tied to the material IROs, policies and actions they are meant to address.

Connectivity runs beyond the sustainability statement, too. Enforcers will look for mismatches between how IROs appear in the sustainability report and how they show up in the rest of the annual financial report. A climate risk described as material in one section and absent from impairment or provisioning discussion in another is the kind of gap that invites a question.

Fewer Datapoints, Same Scrutiny

All of this lands as the reporting framework itself shrinks. The European Commission's revised European Sustainability Reporting Standards, adopted on July 3, cut mandatory datapoints by more than 60 percent and total datapoints by more than 70 percent, and the Commission expects reporting costs to fall by more than 30 percent per company. A companion voluntary standard caps what companies covered by the CSRD can demand from smaller partners in their value chain.

The timing creates a choice for this year's reports. According to EY, companies reporting on financial year 2026 may continue with the first set of ESRS, apply the revised standards early, or apply the first set with selected reliefs drawn from the revision. The revised standards become mandatory from financial year 2027, and the delegated act is expected to enter into force on November 10, 2026. Because those options remain open, ESMA describes 2026 as a transitional year.

Transitional is not the same as lenient. The enforcement priorities do not depend on how many datapoints a company reports. They test whether what it does report is balanced, consistent and supported, and a slimmer report makes each claim more visible, not less. A company that drops datapoints it no longer has to file but keeps an unexplained "1.5 degree" label has reduced its workload without reducing its exposure.

The Enforcement Readiness Playbook

• Audit the balance of impacts: Compare how much space and detail the report gives positive impacts against negative ones. If the harms read as a footnote, rewrite before an enforcer points it out.
• Explain every alignment claim: Any target described as science-based or 1.5 degree aligned needs the method, the validating body if there is one, and the pathway it follows, stated in the report.
• Publish absolute numbers: Report total emissions and absolute reduction targets next to any intensity metric, including the value chain emissions that drive most footprints.
• Disclose the targets you missed: ESMA expects missed, abandoned or unachievable targets to be named. Prepare the explanation now rather than letting the target quietly disappear.
• Map every material IRO to action: For each material impact, risk or opportunity, show the policy, action, target and metric that address it, or state plainly that none exists.
• Reconcile with the financial statements: Have finance and sustainability teams review together so climate and workforce risks are described consistently across the whole annual report.