New sustainability reporting standards adoption: simpler rules, clearer boundaries, more predictability

The publication of the revised European Sustainability Reporting Standards (ESRS) – which become now mandatory for FY2027 for companies in scope of CSRD, with the possibility for earlier use already this year – and the sustainability reporting standard for voluntary use (Voluntary Standard) – for companies outside the CSRD scope – in the EU Official Journal marks an important milestone for Europe’s sustainability reporting framework, bringing the much needed predictability for private equity and venture capital (PE/VC) fund managers, investors and their portfolio companies.

More manageable, material sustainability reporting

The revised ESRS simplify the framework for companies that remain subject to mandatory sustainability reporting. The standards now reduce and streamline datapoints, place greater emphasis on material information and introduce practical reliefs, including the ability to rely on reasonable and supportable information available without undue cost or effort and greater flexibility when assessing the value chain.

For PE/VC fund managers, this translates into less time and fewer resources spent collecting information simply because a datapoint exists, leaving more room to concentrate on what is material to the company and the investment. This is something Invest Europe has consistently argued for: sustainability reporting needs to reflect this investment lifecycle rather than operate as a standalone compliance exercise. Portfolio companies range from young, fast-growing businesses with small teams to mature international groups. Their sustainability systems develop over time, alongside the business itself.

An important clarification for fund managers: an investment is not supply chain

The final ESRS also clarify that where a company manages investments under a fiduciary duty on behalf of clients pursuant to a mandate and without retaining the risks or rewards of ownership, it is not expected to provide value-chain data on those investments. The standards contain a corresponding provision regarding the assessment of sustainability impacts, risks and opportunities.

This is significant for private capital. It recognises a principle Invest Europe has strongly advocated for: managing an investment is not the same thing as operating the underlying company, and an investor-investee relationship should not automatically be treated like a conventional supplier-customer value chain. For fund managers that meet the conditions, this should reduce the risk of having to reproduce large volumes of portfolio-company information within their own corporate ESRS reporting only because they manage those investments for their clients.

A common starting point for smaller businesses, but not a ceiling

The new Voluntary Standard is also important for PE/VC portfolios, as it establishes the reference point for the new value-chain cap. In simple terms, companies subject to mandatory CSRD reporting cannot demand unlimited additional sustainability information from smaller companies in their value chain beyond the information protected by that cap for their own reporting obligations.

The value-chain cap is, however, not a blanket prohibition on investors requesting sustainability information for (other) legitimate investment purposes. For information requests outside CSRD reporting obligations, the objective remains a common baseline for reporting under the Directive, not a ceiling on decision-useful investment information. This is especially important because fund managers and investors still need information for due diligence, risk management, stewardship, value creation, investor reporting and other regulatory requirements. And sustainability priorities continue to evolve: cybersecurity, AI, and other issues are becoming financially or operationally relevant even where they are not fully captured by a static reporting template – and can all be inquired about outside CSRD reporting purposes.

Our next priority: one (European) reporting chain, not overlapping sustainability rulebooks

The final standards deliver meaningful improvements, but publication is not the end of the process.

There remains an important next step at national level, as the wider changes to the sustainability reporting framework agreed through the Sustainability Omnibus must be reflected in national law by March 2027. And consistent implementation across Member States will matter almost as much as simplification at EU level, because the benefits of a simpler European framework would quickly be lost if national implementation recreated different reporting expectations and additional processes.

However, the most important work also moves beyond the Sustainability Omnibus itself. Fund managers and investors do not experience sustainability legislation as separate regulatory exercises. If different pieces of EU legislation ask for the same information using different definitions, methodologies, or different information altogether, simplification at one point in that chain simply creates complexity somewhere else. This is why our focus now shifts not only to implementation, but also to making sure the next generation of EU sustainable finance rules – including the ongoing SFDR 2.0 negotiations and the subsequent Level 2 framework – are built around the same information rather than creating another layer of complexity.

In parallel, we will continue the review of the Invest Europe ESG Reporting Template, ensuring that the private capital ecosystem can continue to have a template grounded in private capital market-tested practices that provides a practical, decision-useful framework, while taking into account the evolving regulatory landscape.