Is the ESRS ‘undue cost or effort’ principle a step back for sustainability reporting?

The inclusion of the ‘undue cost or effort’ principle in the ESRS exposure drafts is aimed at easing the reporting burden for companies. But will this create loopholes that undermine the comparability of disclosures? 

The EU Simplification Omnibus Package introduced the need to streamline the European Sustainability Reporting Standards (ESRS). In response, EFRAG published exposure drafts of the amended ESRS on 31 July 2025, setting out proposed revisions. These drafts are open for public consultation until 29 September 2025.

One of the key changes proposed is the ‘undue cost or effort’ principle, introduced in ESRS 1 General Requirements, to avoid unnecessary complexity and cost in reporting. It directly addresses the “excessive regulatory burden” addressed by the Omnibus package; however, it also introduces ambiguity and inconsistency in disclosures across companies in the same sector. 

The undue cost or effort principle

Previously, the exhaustiveness of mandatory disclosures made it laborious and resource-intensive to gather value chain data points, especially from third-party suppliers and partners. According to the undue cost or effort principle, companies are no longer required to assess every possible impact, risk and opportunity across all areas of its operations and value chain.

Instead, companies can report on topics or sub-topics with reasonably supported information. For example, companies can rely on data and information already used for financial reporting, strategic planning and due diligence. If direct data collection is too costly and impractical, companies can also use estimates, sector averages or market benchmarks. 

A step back?

While this principle may lower costs and better align business operations to material topics, if poorly monitored, it could reduce the comparability, completeness and reliability of data. More specifically, it raises two major concerns. 

First, the principle provides a leeway for companies to surpass disclosure requirements. According to the exposure draft, there is no longer a preference for direct data. Rather, both estimates – through sample analysis, indirect sources and peer groups data – and direct data can be reported. 

Second, the principle leaves the judgment of what constitutes undue cost or effort to the companies themselves. This may lead to variations in the comprehensiveness of reports – while some companies may decide to disclose detailed value chain data, others in the same sector may use the principle to omit significant data points. 

Overusing the principle can also lead to less comprehensive reporting, which can potentially reduce long-term incentives and investments in improving sustainability statements. 

Reducing burden or just an exemption clause? 

The Omnibus package was introduced to ensure EU companies remain competitive and are not held back by excessive regulations. While the undue cost or effort principle is intended to support this goal, only practice will tell whether it truly eases the burden or diminishes incentives for companies to invest in a more robust and transparent approach to sustainability reporting.