ESRS 1 General Requirements: Rules and Exemptions

ESRS 1 is the only one of the twelve standards that ultimately does not result in a single line in the sustainability report. It does not contain any disclosure requirements. It specifies how materiality is determined, the scope of the value chain, the applicable time horizons, and the structure of the statement. In this way, it determines how much work the other eleven standards entail.

That is precisely why the relief provided by the 2026 version is largely found here. Of the eight relief measures that companies may adopt individually from the new version for the 2026 fiscal year, all eight come from ESRS 1. This article explains what has changed, which rule ended up where, and which version applies to which fiscal year.

What is ESRS 1: General Requirements?

ESRS 1, “General Requirements,” is the framework standard of the European Sustainability Reporting Standards. It does not specify disclosure requirements, but rather sets forth the rules according to which all other standards must be applied: how double materiality is determined, the extent to which the value chain must be included, which time horizons apply, and how the sustainability statement must be structured.

In practical terms, this means that if you apply ESRS 1 incorrectly, you are not producing an incorrect statement, but rather an incorrect basis for reporting. A materiality analysis that applies the wrong standard affects every topic-specific standard. You can find a classification of all twelve standards and how they interact in our overview of all ESRS standards.

What Has Changed in the Structure of ESRS 1

The number of chapters remains at ten, but the structure has changed significantly. Three sections from the 2023 edition have been omitted without replacement, six new sections have been added, and of the seven appendices (A through G), two remain. The application requirements are no longer listed in a separate appendix but appear immediately next to the section to which they pertain.

The following table maps each section of the 2023 set to its counterpart in the 2026 version. It is intended as a working document for anyone who needs to update existing work instructions, exam folders, or software configurations to reflect the new structure.

What was eliminated without replacement

Three sections of the 2023 set no longer have a counterpart: the section on stakeholders, the link between the past, present, and future, and the transitional provision for company-specific disclosures. In addition, there are Appendices D through G—a structural diagram, a flowchart, and two examples.

A common misconception concerns the entity-specific disclosures themselves. The transitional provision has been deleted, not the requirement. Paragraph 11 of the 2026 version continues to state this obligation using the word “shall”: If a company concludes that an issue with a material impact, material risk, or material opportunity is not covered—or is not covered with sufficient detail—by any ESRS, it must provide its own disclosures regarding that issue. Paragraph 12 requires comparability over time and with companies in the same sector.

What's New

Six sections are new, and they follow a recognizable pattern: Five of them are tax relief provisions. New additions include the definition of reporting boundaries (5.3), the exemption for acquisitions and disposals (5.4), the section on preparatory exemptions (7.3), the proportionality clause regarding “undue cost or effort” (7.4), and the two sections on supplementary information and presentation options (8.2 and 8.3).

Dual Materiality: The Top-Down Approach Is New and Optional

In the future, companies may determine the materiality of an issue based on their strategy, business model, sectors, regions, and the structure of their value chain, without assessing every single impact, risk, and opportunity. Paragraph 27 refers to this as the “top-down approach to materiality assessment.” According to paragraph 28, the previous method—which involved assessing individual impacts and risks—remains expressly permissible.

This, therefore, is a choice of method, not a new obligation. In its explanatory notes, the Commission justifies this approach by stating that it allows companies to avoid “unnecessary work” and, as a rule, eliminates the need to assess every single impact, risk, and opportunity individually.

Two additional changes move in the same direction. According to paragraphs 32 and 33, the analysis must be based on the information available to the entity as of the reporting date without incurring unreasonable costs or time; for the value chain, the entity may proceed without directly involving its business partners and may instead use average regional or sector data. And according to paragraph 35, the entity must assess at each reporting date whether any significant changes have occurred that affect the previous conclusions—the standard does not require a complete reanalysis in every period.

The wording reflects a tightening of the rules: Whereas the 2023 version stated that non-material information did not have to be reported, the 2026 version—according to the Commission’s explanation—states that it must not be reported. What was once an option has become a requirement. Anyone who conducts a dual materiality analysis in practice should keep this in mind: including non-material information does not improve the report.

The requirement to provide a rationale for non-material matters has not disappeared, but has been shifted. In ESRS 1 (2023), paragraph 32 required a detailed explanation, including a forward-looking analysis, in the case of non-material climate change. This rule no longer appears in ESRS 1 (2026); according to the EFRAG draft of ESRS 2 from November 2025, if ESRS E1 is omitted entirely, “the basis for concluding that climate change is not material” must be disclosed instead. This is a reduction in substance. Since we currently have only the draft text for ESRS 2, we present this point as an assessment, not as established law.

Value Chain: The Value Chain Cap and What It Limits

The 2026 version explicitly limits, for the first time, the information that a reporting entity may require from smaller partners in its value chain. Paragraph 66 specifies that the upper limit for protected entities encompasses the data points listed in Annex II. Paragraph 67 further clarifies that no information is expected that goes beyond the scope of relevant EU law.

For protected companies, the Commission adopted a second legal act on the same day, C(2026) 5011, which establishes a separate voluntary standard based on the VSME. Suppliers who regularly receive ESG inquiries from customers will find in this document the framework for determining what is reasonable—we have summarized the fundamentals of this in our service on VSME reporting for SMEs.

In addition, there are four practical simplifications: New acquisitions and disposals may be included only in the subsequent reporting period (paragraphs 74 et seq.); for non-significant activities, reduced requirements apply to parameters (paragraph 90); the scope of reporting on the value chain may remain partial (paragraph 91); and joint activities without operational control may be excluded from the environmental indicators in Standards E2 through E5, provided that the limitation and the improvement measures are disclosed (paragraph 92).

A terminology note, since this term is currently appearing frequently in market commentary: “reasonable effort” is not a term used in the ESRS. The standard refers to “reasonable and supportable information that is available without undue cost or effort,” states that an exhaustive search is not required, and, in the transitional provision, calls for an explanation of the efforts undertaken. Anyone who uses “reasonable effort” as an argument during a review meeting is relying on a term that does not appear in the text.

“Undue cost or effort”: the new proportionality clause

Chapter 7.4 is new and consolidates provisions that were previously scattered throughout the text. Companies must use all reasonable and reliable information available to them as of the reporting date without incurring unreasonable costs or time—for five purposes: identifying material impacts, risks, and opportunities; determining the scope of the value chain; incorporating value chain information; establishing metrics; and reporting on current and expected financial impacts.

The standard does not define what is “inappropriate” in abstract terms. It requires a balancing of the costs to the company against the benefits of the information to the recipients, based on the specific circumstances of each individual case.

Why the clause is not a permanent free pass

The standard explicitly states that the assessment must be repeated in each reporting period and that the availability of information is expected to improve over time. This means the exemption is designed to be dynamic. Anyone who invokes it in 2027 will have to explain in 2030 why the data situation has not changed.

Anyone who takes advantage of tax breaks must disclose this information

Paragraph 31 requires: If a company takes advantage of the ESRS simplifications, it must disclose the information prescribed in subsections 5.4, 7.3, 7.4, and 7.7. The simplifications are therefore not without cost. They trade data collection effort for explanatory effort—which is a good trade-off for most companies, but a trade-off nonetheless.

ESRS 1 and ESRS 2: What the Shift from MDR to GDR Means

The minimum disclosure requirements regarding concepts, measures, parameters, and objectives have been completely removed from ESRS 1. Section 1.2 of the 2023 set has been deleted without replacement; in paragraph 29, ESRS 1 now refers only to the general disclosure requirements in ESRS 2. The “Minimum Disclosure Requirements” are referred to there as the “General Disclosure Requirements.”

There are four, not three: GDR-P for concepts, GDR-A for measures and resources, GDR-M for parameters, and GDR-T for objectives. The GDR-M identifier is often overlooked in market communications, but it is explicitly included in the cross-reference for ESRS 1. We’ve broken down what this entails in detail in our article on ESRS 2: General Information.

Our assessment of the significance: The shift from “minimum” to “general” is more than just a name change. The MDRs served as a minimum checklist in projects that had to be worked through regardless of the materiality of the information. The GDRs are based on the materiality filter outlined in Chapter 3. That is precisely where the reform’s real potential for reducing the audit burden lies—and at the same time, it is the point at which auditors will in the future ask for documentation of the materiality decision.

Structure of the Sustainability Statement: Four Parts, but Flexibility Is Allowed

The sustainability statement remains a separate section of the management report, clearly identified as such, and the standard structure—divided into four parts: general, environmental, social, and governance-related information—remains the norm. What is new is that companies may deviate from this structure if they provide a reasoned explanation for the deviation.

Three additional changes pertain to the presentation. Supplementary information from other legal acts or frameworks may be included in the statement provided that it is clearly delineated and does not obscure material information. An executive summary is expressly permitted under paragraph 110. And, according to paragraph 106, taxonomy disclosures may be moved to a separate appendix—which, for many reports, significantly improves readability.

Chapter 9 now clearly distinguishes between related information, direct and indirect links to the financial statements—including the consistency of the underlying assumptions—and inclusion by reference. Inclusion by reference is retained but moved to the end of the chapter.

Which set applies to my company, and when?

For fiscal years beginning in 2025, the 2023 set, as amended by Delegated Regulation (EU) 2025/1416, continues to apply. For fiscal years beginning between January 1 and December 31, 2026, there is a choice between three options. For fiscal years beginning on or after January 1, 2027, the revised version is mandatory.

The eight relief provisions for fiscal year 2026 all come from ESRS 1

Option 3 of the choice of law rule is the most interesting because it allows for an exhaustive list of options. Article 2(1)(b) of the legislative act specifies eight provisions that may be adopted individually from the new version without departing from the rest of the 2023 set. All eight are listed in ESRS 1.

• Paragraph 27 — Top-down approach in the dual materiality analysis
• Paragraphs 32 through 33 — Disproportionate Cost and Time Expenditures and Limitations of the Value Chain in the Materiality Analysis
• Paragraphs 74 through 75 — New Acquisitions and Disposals
• Paragraph 90 — Criteria for Insignificant Activities
• Paragraph 91 — Partial Coverage of the Value Chain in the Report
• Paragraph 92 — Community Activities
• Paragraph 106 — Presentation of Taxonomy Information in a Separate Appendix
• Paragraph 110 — Executive Summary

Any entity that uses this option must indicate so in the report. Article 2, paragraph 2, explicitly requires companies that follow Option 1 or Option 3 to specify which version they are applying. In practice, this means that the decision must be documented before data collection begins, not afterward. Which version applies in a specific case depends on the fiscal year and the stage of data collection—we regularly clarify this as the first step in projects involving CSRD reporting.

Which transitional rules from the 2023 set are no longer applicable

The transitional provisions themselves remain largely unchanged: the relief for the value chain during the first three reporting years, the waiver of comparative information in the first year, and the list of disclosure requirements to be introduced gradually. What is new is how these provisions are structured. Paragraph 125 applies them to companies in the first wave—those with net revenue exceeding 450 million euros and an annual average of 1,000 employees; for fiscal years prior to 2027, these companies may, among other things, omit all disclosure requirements under Standards E4, S2, S3, and S4.

By contrast, the exemptions in the 2023 package that were tied to the threshold of 750 employees, as well as the phase-in rules for the second and third waves of the CSRD, are no longer applicable. The reason for this lies not in ESRS 1, but in Directive (EU) 2026/470 of February 24, 2026: If, starting with the fiscal year 2027, only companies with at least 1,000 employees and revenue exceeding 450 million euros are subject to reporting requirements, a relief provision for companies with fewer than 750 employees can no longer apply to any entities subject to reporting requirements. This is a conclusion drawn from the interplay of both legal acts, not an explicit statement by the Commission—these rules are still cited in many places online as if they were still in effect.

Our Assessment: Where the Relief Measures Are Having an Impact—and Where They Aren't

The reform is primarily communicated in terms of the number of data points. The Commission cites a 61 percent reduction in the number of mandatory data points and a reduction of over 70 percent in the total number. These figures refer to the entire dataset, not to ESRS 1. For project practice, three other points are more important.

First, the top-down approach shifts the workload rather than eliminating it. In the materiality analyses we’ve supported, assessing individual impacts was rarely the most expensive part—what was costly was ensuring traceability. Those who work top-down must document the derivation from the business model, sector, geography, and value chain in such a way that it stands on its own without the individual assessments. If this derivation is missing, the audit file will ultimately contain an assertion rather than an analysis. The approach saves on workshops, not on due diligence.

Second, the proportionality clause is a time-based framework, not a fixed allowance. Because the assessment must be conducted anew each period and is based on the expectation of improved data availability, we recommend outlining a plan for the justification from the very beginning: Which data sources should be available by when, and who is responsible for them? A justification without a timeline may hold up the first time but becomes a point of criticism by the third time.

Third, the 2026 election law poses a scheduling issue. If the legislative act enters into force on November 10, 2026, as planned, companies with a fiscal year that aligns with the calendar year will have approximately seven weeks remaining until their balance sheet date. Anyone wishing to use one of the two new options must, in effect, make the decision in advance and bear the residual risk that the legal act might fail. We consider this risk to be low because Parliament and the Council can only reject a delegated act in its entirety, and the standards were developed in close consultation. However, it is a decision made under uncertainty, and it should be recorded as such.

A fourth point concerns data management. Companies that have used the topic list from the previous AR 16 as a checklist can continue using it seamlessly with the new Appendix A. Those who have instead developed their own topic tree must map it to the new list—and they must do so before the materiality analysis for the next fiscal year begins, not after.

Frequently Asked Questions About ESRS 1

Conclusion: The method changes, but the standard remains the same

The 2026 version of ESRS 1 is more streamlined, but no less demanding. The application requirements are aligned more closely with the text of the standard, six new sections provide relief, and, for the first time, the materiality analysis may be conducted using a top-down approach. In return, the standard requires justification: for the deviating structure, for the use of relief provisions, and for the choice of version.

The next logical step depends on the fiscal year. Nothing will change for 2025. For 2026, a decision on the election right is pending, and it must be made before data collection begins. For 2027, it makes sense to align the materiality analysis with the new methodology now, rather than having to revamp it later.

Sources and Legal Bases

1. European Commission: Delegated Regulation C(2026) 5010 final of July 3, 2026, amending Delegated Regulation (EU) 2023/2772, including the explanatory memorandum (Articles 2 and 3). ec.europa.eu (PDF) (as of August 2026).
2. European Commission: Annex to C(2026) 5010 final — ESRS 1 General Requirements (paragraphs 11, 12, 27, 28, 29, 31, 32 et seq., 35, 66, 67, 74 et seq., 90–92, 94–96, 106, 110, 122–126). ec.europa.eu (PDF) (as of August 2026).
3. European Commission: Delegated Regulation C(2026) 5011 final of July 3, 2026 — Standard for voluntary use by companies protected by the Value Chain Cap. ec.europa.eu (PDF) (as of August 2026).
4. European Commission: Press release on the adoption of the revised standards, July 3, 2026 (reduction of mandatory data points by over 60%, and of total data points by over 70%). finance.ec.europa.eu (as of August 2026).
5. European Commission: Delegated Regulation (EU) 2023/2772 of July 31, 2023, Annex I — ESRS 1, as amended in 2023, including Appendices A through G. eur-lex.europa.eu (as of August 2026).
6. European Commission: Delegated Regulation (EU) 2025/1416 of July 11, 2025, postponing reporting requirements for first-wave companies. eur-lex.europa.eu (PDF) (as of August 2026).
7. European Parliament and Council: Directive (EU) 2026/470 of February 24, 2026 (Omnibus I) — Application thresholds effective as of the 2027 fiscal year. eur-lex.europa.eu (as of August 2026).
8. Council of the European Union: Transmission of the delegated act to the Parliament and the Council, Document ST 11667/2026 of July 9, 2026. data.consilium.europa.eu (PDF) (as of August 2026).
9. EFRAG: [Draft] ESRS 1 General Requirements, November 2025 — technical recommendation to the European Commission. efrag.org (PDF) (as of August 2026).
10. EFRAG: [Draft] ESRS 2 General Disclosures, November 2025 — Basis for disclosures regarding GDR-P, GDR-A, GDR-M, and GDR-T (secondary version; final version not yet reviewed). efrag.org (PDF) (as of August 2026).
11. EFRAG: European Commission Publishes Delegated Act on Revised ESRS and Voluntary Sustainability Reporting Standard, July 3, 2026. efrag.org (as of August 2026).
12. Deloitte: Heads Up — European Sustainability Reporting, July 17, 2026 (secondary source; removal of over one hundred “may disclose” options; placement of application requirements in the main text). dart.deloitte.com (as of August 2026).

These paragraphs refer to ESRS 1 as amended by the delegated act of July 3, 2026. Statements regarding ESRS 2 are based on the EFRAG draft of November 2025 and the cross-reference in ESRS 1, and are identified as such in the text.