The ESG Reporting Labyrinth

How companies are navigating an increasingly complex web of disclosure requirements

Corporate sustainability reporting has reached an inflection point. What began as a voluntary exercise for environmentally conscious companies has become a mandatory requirement affecting tens of thousands of businesses across Europe and beyond.

In 2025, approximately 11,000 companies published their inaugural reports under the EU’s Corporate Sustainability Reporting Directive (CSRD), covering everything from greenhouse gas emissions to employee working conditions to supply chain due diligence.[1] These first-wave reporters, predominantly large listed companies, banks and insurers with more than 500 employees face a daunting reality: sustainability disclosure has become as complex and scrutinised as financial reporting itself.

Yet the regulatory landscape remains in flux. In February 2025, the European Commission proposed significant simplifications to the CSRD as part of an Omnibus package, responding to complaints that the directive’s breadth and complexity were overwhelming businesses. The European Parliament approved these changes in December 2025, focusing CSRD on companies with more than 1,000 employees and over €450 million in annual net turnover.[2][3]

For companies operating across multiple jurisdictions, the challenge is not simply compliance with individual frameworks. It is navigating an ecosystem of overlapping, sometimes contradictory requirements whilst extracting genuine strategic value from the exercise.

Why disclosure matters now

The business case for ESG disclosure has moved beyond reputational management. Capital allocation increasingly hinges on sustainability performance. Bloomberg Intelligence projected in January 2024 that global ESG assets would exceed $40 trillion by 2030, representing over 25 per cent of total assets under management globally.[4] Whilst subsequent market conditions led to a revised forecast of $35 trillion in early 2025, the trajectory remains clear: sustainability information drives investment decisions.

More immediately, banks and financial institutions now embed ESG performance in credit assessments. This affects loan pricing, insurance terms and access to capital markets. Strong ESG credentials can reduce borrowing costs; poor disclosure or performance can shut companies out of financing altogether.

Institutional investors demand material, comparable, financially integrated disclosure. The days of glossy sustainability reports with cherry-picked metrics are over. Under CSRD, sustainability information must be audited with the same rigour as financial statements, beginning with limited assurance and progressing towards reasonable assurance over time.

The European Union’s approach is particularly stringent. The CSRD requires double materiality assessments, examining both how sustainability issues affect the business financially and how the business impacts society and the environment. This is a fundamental departure from the investor-focused materiality that characterises most American standards.

The framework proliferation problem

Companies face a bewildering array of reporting standards, each serving different stakeholders and objectives. Table 1 summarises the major frameworks and their characteristics.

Table 1: Major ESG Reporting Frameworks

Framework	Founded	Primary Focus	Users	Key Strength
GRI	1997	External stakeholder impact	10,000+ companies globally	Broad stakeholder engagement
SASB	2011	Financial materiality	Industry-specific across 77 sectors	Investor-oriented materiality
TCFD	2015	Climate-specific disclosure	Governance, strategy, risk, metrics	Climate risk assessment
CDP	2000	Detailed questionnaires	Climate, water, forests	Environmental benchmarking
ESRS	2022	Double materiality	CSRD-mandated EU reporting	Mandatory EU standard
IFRS S1/S2	2023	Enterprise value	Global baseline disclosure	Financial materiality focus

Source: Framework documentation and industry analysis.

To this mix, add specific regulatory requirements in different jurisdictions. Most large companies now report under at least three frameworks. This creates obvious inefficiencies: data gathered for one standard often needs reformatting for another; different frameworks use incompatible metrics; stakeholders receive overlapping but not identical information.

Materiality: The critical first step

Before tackling multiple frameworks, companies must determine what actually matters. Materiality assessments form the foundation of effective ESG reporting.

SASB’s Materiality Finder demonstrates how sustainability issues vary dramatically across industries. Healthcare delivery companies focus on quality of care metrics; beverage manufacturers must address health and nutrition standards; technology companies face data privacy and security concerns.

A good materiality assessment considers three dimensions:

1.    The magnitude of the company’s impact relative to peers

2.    The timeframe over which effects materialise

3.    Both financial materiality (impact on the company) and impact materiality (impact on stakeholders and environment).

Under CSRD, this double materiality assessment has become mandatory and subject to audit. Early reports reveal wide variation in how companies interpret these requirements. Some identify fewer than 15 material impacts, risks and opportunities; others disclose more than 80.[5] This disparity reflects both genuine differences in business models and, frankly, uncertainty about where to draw the line.

Building a unified reporting architecture

The good news is that convergence is happening. The ISSB and EFRAG have worked to align their standards. EFRAG guidance explicitly shows how ESRS and IFRS sustainability standards interoperate, helping companies meet both EU and global baseline requirements.[6]

The main difference lies in scope. ESRS applies double materiality, examining both financial and impact perspectives. IFRS standards focus solely on financial materiality i.e. information relevant to investors and assessments of enterprise value. Companies reporting under ESRS automatically report with reference to GRI standards, creating further alignment.

Greenhouse gas emissions reporting

Emissions reporting has largely standardised around the GHG Protocol. This framework breaks down reporting into three scopes, as shown in Table 2.

Table 2: GHG Protocol Emission Scopes

Scope	Description	Examples	Typical Share of Total
Scope 1	Direct emissions from owned or controlled sources	Company vehicles, on-site fuel combustion, manufacturing processes	5-10%
Scope 2	Indirect emissions from purchased electricity, heat or steam	Grid electricity for offices and factories, purchased district heating	10-20%
Scope 3	Value chain emissions across 15 categories (upstream and downstream)	Purchased goods/services, business travel, use of sold products, logistics, waste	70-90%

Sources: GHG Protocol; McKinsey & Company; Science Based Targets Initiative.[7][8]

Scope 3 presents the greatest challenge. These value chain emissions typically represent 70 to 90 per cent of a company’s carbon footprint, though this varies dramatically by sector. Financial services firms see Scope 3 dominate through financed emissions; manufacturers face supply chain complexity; retailers must contend with product use and end-of-life impacts.

McKinsey’s research indicates that on average, Scope 3 emissions are 11 times higher than direct Scope 1 emissions. The Science Based Targets Initiative confirms that for most companies, addressing value chain emissions is essential to achieving meaningful decarbonisation targets.

The implementation reality check

Early CSRD reports reveal significant challenges. PwC’s analysis of the first 100 reports shows documents ranging from 30 pages to over 300, reflecting vastly different interpretations of requirements. Some companies reported on fewer than 15 material impacts, risks and opportunities; others disclosed more than 80.

Data quality and collection remain problematic. ESG data typically resides in departmental silos (finance, HR, operations, supply chain) with no central coordination. A 2024 Deloitte survey found data quality to be the biggest ESG challenge for companies, with 57 per cent citing it as their top concern and 88 per cent reporting it as one of their top three challenges.[9]

Supplier fatigue is emerging as a serious concern. Companies send multiple overlapping information requests to the same suppliers because their compliance programmes lack central coordination. Suppliers, particularly SMEs, face dozens of customer questionnaires asking for similar but not identical data.

The EU’s Voluntary Standard for SMEs (VSME) aims to address this by providing a standardised format for smaller companies to report sustainability information when requested by customers or financial institutions. However, even voluntary standards add to SME’s administrative burden.

Assurance challenges are only beginning to emerge. CSRD requires limited assurance initially, progressing towards reasonable assurance. Early assurance reports show practitioners flagging uncertainties around double materiality assessments, high measurement uncertainty on certain metrics, and difficulties comparing information across entities and over time.

The regulatory outlook

The trajectory appears clear. More disclosure, greater standardisation and increased assurance. Yet the path is not linear.

In Europe, the Omnibus simplification package approved by the European Parliament in December 2025, focuses CSRD on companies with more than 1,000 employees and over €450 million in annual net turnover, removing approximately 40,000 companies from scope.[10] The stop-the-clock decision has already delayed implementation for second and third wave companies by two years.

These adjustments reflect genuine concerns about regulatory burden, particularly for mid-market companies lacking the resources of large multinationals. However, market pressure may prove more powerful than regulatory requirements. Banks and large customers increasingly demand sustainability information from suppliers regardless of legal obligations.

The VSME standard exists precisely because SMEs face commercial pressure to disclose, even when not legally required.

In the United States, regulatory uncertainty persists. At the federal level, the SEC’s climate disclosure rules remain abandoned following the agency’s March 2025 decision to stop defending them in court. State-level requirements continue to advance, for example, California mandates Scope 1 and 2 reporting by August 2026, with Scope 3 following in 2027.[11]

This transatlantic divergence creates headaches for multinational corporations. European requirements mandate disclosure that American rules do not. American investors may demand information in formats different from European standards. Global companies must maintain multiple parallel reporting processes.

Finding a path through

Companies cannot wait for perfect regulatory alignment before developing their approach. The immediate priorities are clear.

First, conduct a rigorous materiality assessment. This determines which frameworks matter and which disclosures add genuine value versus regulatory compliance.

Second, invest in data infrastructure. Spreadsheet-based approaches will not scale. Proper software platforms reduce manual effort, improve data quality, and enable the audit trail required for external assurance.

Third, establish clear governance. Board-level accountability matters. The ESG committee, or whatever structure a company adopts, must have genuine authority to challenge management and drive strategic integration.

Fourth, start with alignment. Focus on the overlaps between ESRS, IFRS S1/S2 and GRI rather than treating them as wholly separate exercises. Most disclosure requirements have substantial common ground.

Finally, recognise that ESG reporting is not a solved problem. Standards will continue evolving. Regulatory requirements will change and stakeholder expectations will ratchet upward. Companies that treat disclosure as an iterative process of improvement, rather than a one-off compliance project, will cope better with inevitable future adjustments.

The current complexity is uncomfortable. The multiple frameworks, overlapping requirements, and regulatory uncertainty create genuine challenges. Yet businesses have navigated more complex reporting environments before, for example, financial accounting went through similar standardisation struggles over decades.

The companies that will thrive are those that look past the compliance burden to the strategic opportunity including better understanding of risks, stronger relationships with capital providers, improved operational efficiency, and enhanced reputation with all stakeholders.

This requires seeing ESG disclosure not as an unfortunate regulatory imposition but as a fundamental evolution in how businesses account for their impact on the world.

This article reflects the regulatory landscape as of February 2026. Given ongoing policy developments, readers should verify current requirements with relevant authorities.

[1]Council Fire, Navigating CSRD & CSDDD: New Reporting Rules for 2025, 18 November 2025. Available at: https://www.councilfire.org/blog/navigating-csrd-csddd-new-reporting-rules-for-2025 

[2] European Commission; Corporate sustainability reporting; Finance - Capital Markets Union. Available at: https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en 

[3] Morrison Foerster, EU Sustainability Omnibus I, Detailed Omnibus; Adopted, What the Final CSRD/CSDDD Deal Means for Companies, 22 December 2025. Available at: https://www.mofo.com/resources/insights/251222-eu-sustainability-omnibus-i-detailed-omnibus

[4]Bloomberg Intelligence, Global ESG assets predicted to hit $40 trillion by 2030, despite challenging environment, Press Release, 8 January 2024. Available at: https://www.bloomberg.com/company/press/global-esg-assets-predicted-to-hit-40-trillion-by-2030-despite-challenging-environment-forecasts-bloomberg-intelligence/ 

[5]PwC, Insights from the first 100 CSRD reports’, 2025. Available at: https://www.pwc.com/gx/en/issues/esg/sustainability-compliance-to-reinvention/corporate-sustainability-reporting-directive/initial-csrd-insights.html 

[6]EFRAG, Interoperability Guidance: ESRS and IFRS Sustainability Disclosure Standards, 2024.Available at: https://www.ifrs.org/content/dam/ifrs/supporting-implementation/issb-standards/esrs-issb-standards-interoperability-guidance.pdf 

[7]McKinsey & Company, What are Scope 1, 2, and 3 emissions? McKinsey Explainers, 17 September 2024. Available at: https://www.mckinsey.com/featured-insights/mckinsey-explainers/what-are-scope-1-2-and-3-emissions 

[8] Science Based Targets Initiative, Scope 3: Stepping up science-based action, 2024. Notes that emissions in a company’s supply chain are on average 11 times higher than direct (Scope 1) emissions and reflect more than 70 per cent of total emissions. Available at: https://sciencebasedtargets.org/blog/scope-3-stepping-up-science-based-action

[9]Deloitte, Sustainability Action Report, July 2024. Survey of 300 executives found 57 per cent cited data quality as their top challenge with ESG data, and 88 per cent reported it as one of their top three challenges. Available at: https://www.deloitte.com/us/en/services/audit-assurance/articles/esg-survey.html 

[10]Morrison Foerster, EU Sustainability Omnibus I – Detailed Omnibus; Adopted, 22 December 2025. Available at: https://www.mofo.com/resources/insights/251222-eu-sustainability-omnibus-i-detailed-omnibus 

[11] PwC, California climate reporting - SB 253 and SB 261 explained, January 2026. California Air Resources Board draft regulations require initial reporting of Scope 1 and 2 greenhouse gas emissions by August 10, 2026, covering data for years ending in 2025. Scope 3 reporting begins in 2027. Available at: https://www.pwc.com/us/en/ghosts/california-climate-reporting-sb-253-and-sb-261-explained.html