EFRAG's 2025 Roadmap for Corporate Reporting

On December 10th, the European Financial Reporting Advisory Group (EFRAG) hosted its annual conference, themed “Advancing Transparency & Competitiveness in Challenging Times.” The event brought together distinguished panelists to explore the latest trends in corporate reporting, with a strong focus on advancements and upcoming challenges in sustainability and financial reporting.  

In this article, expert Marion Kerestedjian distills the key insights and takeaways from these impactful discussions. From the improved interoperability of reporting frameworks to the increasing global adoption of international standards, corporate reporting has made significant progress in achieving broader acceptance and representation across jurisdictions. However, with several European Union (EU) Member States yet to transpose the Corporate Sustainability Reporting Directive (CSRD) and ongoing calls for deregulation — most notably reflected in the proposed omnibus package — there’s a clear need to address reporting complexities in a holistic and effective manner.

In response to the demand for simplification, EFRAG recently delivered on its “by Christmas” commitment by publishing voluntary sustainability reporting standards tailored for Small and Medium Enterprises (SMEs). While this marks an important step forward, significant challenges remain, including the development of sector-specific standards and harnessing Artificial Intelligence (AI) to manage and analyze the growing volume of complex data.

1. Enhancing consistency and interoperability between sustainability reporting frameworks amid uncertainty

The year 2025 is set to mark the initial implementation phase of the CSRD, but the current global climate and the tone at the close of the year suggested a less robust backing for new corporate reporting standards. Newly elected President Trump called for a push toward deregulation, championing an “anti-woke” agenda and oil-and-gas-centric policies.  

Amid this backdrop, it’s crucial for the EU to remain steadfast, especially during these volatile times when pressures to consider deregulation are mounting. Now more than ever, allowing “the dust to settle” before making any significant changes is essential. Despite the pushback against Environmental, Social, and Governance (ESG) principles, these efforts have yet to manifest in substantial investments within the EU. The foundational principles of ESG — such as due diligence and supply chain management — remain sound and vital for the long-term success of businesses. These principles are critical for fostering stability and safeguarding against future risks. 

However, in response to the rapidly evolving geopolitical landscape, the International Sustainability Standards Board (ISSB) and the EFRAG must prioritize updates to keep pace with emerging trends and challenges. A key area of focus should be the modernization of outdated standards, particularly those related to intangible assets, which no longer reflect the realities of today’s business environment. 

As the pace of change accelerates, we must ask ourselves: “are we moving quickly enough?” While progress is crucial, taking the time to build consensus is equally important. Achieving meaningful outcomes requires open dialogue and collaborative efforts, especially as the global business environment grows increasingly complex and sustainability considerations become integral to financial reporting frameworks. 

In July 2023, as a major milestone, the International Organization of Securities Commissions (IOSCO) endorsed the ISSB standards and urged jurisdictions to adopt and implement them nationally. Within less than a year, 30 jurisdictions, including the EU (and its 27 Member States), have embraced these standards (totaling 57 jurisdictions). Looking ahead, IOSCO plans to evaluate the next International Ethics Standards Board for Accountants (IESBA) ethical standards. By the end of 2024, IOSCO had anticipated announcing that over 60 jurisdictions — representing 57% of global GDP — would align with the ESRS/ISSB standards. This progress aligns with IOSCO’s goal of having 130,000 companies utilize sustainability reporting standards. To advance this objective, IOSCO launched the Growth and Emerging Markets (GEM) Committee Network for Adoption or Other Use of ISSB Standards on December 18, 2024. 

This initiative represents a pivotal step in promoting the adoption and practical implementation of the ISSB Standards (including the International Financial Reporting Standards – IFRS) across the jurisdictions represented.

Interoperability workstreams 

EFRAG is actively advancing interoperability efforts to create a cohesive and efficient sustainability reporting framework across various standards. A key priority is aligning the definitions of financial materiality between the ISSB and financial accounting standards, enabling companies to apply consistent principles across different reporting frameworks. This alignment seeks to streamline reporting processes and enhance consistency in financial disclosures. 

In parallel, EFRAG has been collaborating closely with the Global Reporting Initiative (GRI) to harmonize approaches to impact materiality, fostering a shared understanding of the critical sustainability factors that should be disclosed. To support this alignment, EFRAG has developed Implementation Guidance that provides additional clarity on applying these standards.  

EFRAG’s mapping initiatives also extend to key frameworks such as the Taskforce on Nature-related Financial Disclosures (TNFD) and the Carbon Disclosure Project (CDP), ensuring the European Sustainability Reporting Standards (ESRS) aligns with these essential environmental and sustainability reporting standards. 

A key element of EFRAG’s interoperability roadmap with IFRS is to ensure that companies can apply IFRS with minimal adjustments relative to the ESRS, enabling them to navigate diverse reporting frameworks seamlessly across markets. This approach significantly reduces reporting complexity, making it easier for businesses to comply with both sets of standards. 

Looking ahead, critical sustainability topics such as human rights and nature-related issues will be a primary focus in the coming months, as they are integral to the broader sustainability agenda.

Non-EU Group Reporting Standards (NESRS) 

The development of standards for non-EU headquarters groups (NESRS) is also progressing steadily. The draft standards are expected to be submitted to the EU Commission by the end of 2025, with an exposure draft planned for release in the first quarter of 2025. These standards will introduce notable differences — approximately 10% — compared to the current ESRS, with a primary emphasis on impact materiality. Unlike the ESRS, NESRS won’t include the assessment of risks, opportunities, or resilience, focusing instead solely on the impacts of a company’s activities on sustainability. 

Companies will have the option to choose between two reporting approaches:  

• a global approach, where the sustainability impacts of the entire group are reported 

• a mixed approach, allowing disclosures to focus on impacts directly linked to the sale of products and services to EU customers rather than adopting a global perspective. This dual approach is designed to balance global consistency with region-specific accountability. 

All in all, achieving alignment between global and regional sustainability reporting standards is critical for establishing a common reporting language.  

2. Navigating the growing complexity of sustainability reporting and the path to simplification

When it comes to ESG objectives and the CSRD, there’s a widespread misconception that legislators introduced these regulations solely to complicate matters for businesses. The CSRD was introduced in response to market demand for more granular, comparable data, recognizing that the world is changing and business foundations are shifting. Policymakers must keep in mind the core reason for these changes: businesses were increasingly facing material risks and needed clearer, more consistent reporting. A prime example of this complexity is the adoption of “EFRAG Implementation Guidance (IG) 3: Detailed ESRS Datapoints”, which contains nearly 800 data points, with two-thirds being narrative disclosures in nature, without clearly outlining the key elements considered.  

The ongoing debate around burden reduction and how to achieve it is important. While some advocate for simplification, there’s a clear risk of ESG washing, where changes are made without meaningful substance. It has now been confirmed that the ‘Omnibus Simplification Package’ is scheduled to be published by Executive Vice President Stéphane Séjourné on 26 February 2025. Nonetheless, this omnibus proposal, aimed at simplifying regulations, has and would probably keep creating uncertainty, leaving businesses unsure of their next steps. In the EU Parliament, progress can only be made with a clear working majority. Any new proposal, at the moment, risks destabilizing existing legislation, potentially undermining the progress that has allowed businesses to access funding and demonstrate transparency. Businesses must be cautious about proposals that could reverse this progress, as doing so wouldn’t serve their best interests.

Gradual implementation of sustainability reporting for SMEs 

To fully understand the growing demand for simplification, it’s important to look at the evolution of annual reports. 20 years ago, annual reports were concise — typically around 20 pages. Over time, they expanded to more than 350 pages as complexity and data volume increased. While business models and the scale of information have evolved, so too has the audience for this data — not just from an investment perspective, but for all stakeholders. The key to meaningful reporting lies in dialogue, where true insights are generated. The focus should be on delivering concise, relevant information rather than overwhelming users with excessive details. 

Sustainability reporting remains a challenge, particularly for SMEs that haven’t traditionally provided such disclosures. The IOSCO Chair acknowledged that the implementation process must be gradual, with improvements made incrementally. 

The EU Commission and EFRAG have already taken significant steps to alleviate the burden on companies. Measures such as phase-in applications and late standards for SMEs have been crucial in addressing initial challenges. Most companies are still on a learning curve, but voluntary reporting has helped prepare them for the ESRS. As part of this effort, final Voluntary Standards for SMEs (VSME) have now been adopted on 17 December 2024. 

Finally, the IOSCO Chair emphasized the need for continued investment in capacity-building programs, training, and resource allocation to support the global adoption of sustainability reporting standards. 

3. Taking stock of the sustainability reporting journey and seizing opportunities

The journey toward robust sustainability reporting is undoubtedly challenging and filled with obstacles, but it also offers significant opportunities for enhancing data accuracy. The risks associated with poor decision-making, ineffective communication, and greenwashing are too great for stakeholders (including preparers and users) to overlook. High-quality data is essential to ensure the smooth flow of sustainable finance and maintain long-term competitiveness. A well-founded, accurate perspective is crucial, as sustainability is inherently a medium- to long-term endeavor. 

EFRAG is committed to facilitating the necessary adjustments to face these challenges, offering “the right vehicles, maps, and fuel” to support the process. However, each regulation must be evaluated based on its specific objectives and real-world application. Hence, the concept of an omnibus approach to regulations, lacking this clarity, isn’t welcomed. 

The first set of ESRS provides a solid foundation for implementing the CSRD legal framework, with interoperability being a key achievement. ESRS also significantly contributes to the global momentum of sustainability reporting, strengthening its overall effectiveness.

Development of sector specific standards 

As we move forward, we anticipate further clarification on sector-specific standards. EFRAG’s goal isn’t to burden companies with additional reporting requirements. Once a company’s materiality assessment identifies its key sustainability risks, impacts, and opportunities within its specific industry sector, it should tailor its disclosures based on these findings. The materiality assessment should determine the scope of reporting, not necessarily predefined standards. It is crucial to begin adopting this approach now as under the current timeline, companies won’t be required to apply sector-specific standards until 2027 or 2028. However, the IOSCO Chair emphasized the importance of early convergence, noting that investors, auditors, and other stakeholders are eager to see comparable alignment in sectoral standards. Thorough consultation is essential to ensure alignment between sectoral standards at both the EU and international levels, drawing on existing frameworks like Sustainability Accounting Standards Board (SASB) Standards to enhance coherence and consistency. 

Finally, digitalization plays a critical role in reducing the burden of sustainability reporting. The development and adoption of digital taxonomy are key to improving data management and enhancing reporting efficiency. 

4. Future Directions: Incorporating emerging technologies and AI in corporate reporting

As companies increasingly engage in complex IT architecture and software development, the costs tied to these areas — especially for software services — often prove to be material but can seem counterintuitive or disputable in traditional financial reporting frameworks. The growing complexity of business operations calls for an evolution in financial reporting, moving beyond simple standards setting to focus on improving the quality of financial statements, enhancing the reporting process, and incorporating new technologies, such as AI, for data collection and analysis. In essence, there’s a pressing need to upskill the entire financial reporting ecosystem in response to rising complexity. 

AI is transforming financial reporting by integrating business models, strategies, governance structures, and product offerings. AI allows companies to stay relevant in a rapidly evolving world, but it’s essential to ensure that the financial reporting system remains understandable and transparent. Capital markets are global, with information flowing from all corners of the world. Thus, transparency is more crucial than ever, though it comes with its own set of challenges. 

One of the most pressing challenges is enhancing risk management. Understanding the risks and opportunities facing a company is critical to shaping a robust reporting framework. As generative AI continues to play a larger role in financial reporting — whether for preparers, standard setters, or data analysts — the human element remains vital. Collaboration, brainstorming, and consensus-building will drive corporate reporting to the next level. 

The future of sustainability reporting

As the corporate world navigates the evolving landscape of sustainability and financial reporting, the path toward fully implementing the CSRD and broader global standards presents both challenges and opportunities. Despite political and economic pressures for deregulation, largely fueled by confusion and complexities in global reporting frameworks, the need for robust, transparent, and reliable reporting remains undeniable. 

The EU’s steadfast approach to advancing its reporting framework, alongside efforts by organizations like EFRAG, IOSCO, and ISSB, underscores the importance of alignment and interoperability across jurisdictions. Significant progress has been made, from voluntary standards for SMEs to advancements in sector-specific and non-EU reporting frameworks, as well as increased global adoption of ISSB standards. However, the road ahead calls for further modernization and simplification of standards, particularly through digitalization and leveraging AI technologies to ease the reporting burden and enhance accuracy. 

Achieving meaningful outcomes in sustainability reporting requires balancing the urgency for progress with the time needed to build consensus. By fostering collaboration among stakeholders, the corporate world can create a more streamlined and effective reporting system that aligns with both regional and global priorities. 

In this complex and dynamic landscape stepping into 2025, the EU and global partners must not only ‘talk the talk’ but also lead the way in fostering long-term corporate resilience worldwide.