ESMA Sets 2026 Sustainability Reporting Priorities for Materiality, Targets and Metrics

ESMA’s 2026 enforcement priorities put the quality and consistency of sustainability disclosures under sharper scrutiny. Issuers should expect attention to how they assess material impacts, risks and opportunities (IROs), and whether their policies, actions, targets and metrics connect clearly to those findings. The emphasis is on how companies explain their reporting: readers should be able to follow the path from an identified IRO to the response, and then to the evidence used to assess progress.

That focus raises the bar for the sustainability statement as a piece of corporate reporting. A list of policies or targets may contain relevant information, but it won’t tell readers much if the company doesn’t explain what issue each item addresses or how it relates to the assessment. ESMA’s priorities point toward disclosures that make those relationships visible and consistent across the report.

Balanced assessments and value chain coverage

Materiality remains a central enforcement concern, including the process companies use to conduct double materiality assessments. ESMA says disclosures should give readers a balanced view of positive and negative impacts. It has seen some issuers describe positive impacts in greater detail than negative ones, leaving users without comparable information. That imbalance matters because readers can’t form a clear view of an issue when one side receives far more explanation than the other.

A balanced account doesn’t require every impact to receive identical treatment. It does require enough explanation for readers to understand what the company has identified, how it has assessed the relevant effects, and why those findings matter to its reporting. If positive claims are presented with detail while negative impacts are treated briefly, the assessment can appear incomplete, even when the company has identified both.

The regulator also expects clear explanations of how IROs are identified, assessed and determined. Those disclosures should cover a company’s own operations and its upstream and downstream value chain. This scope asks companies to explain how they looked beyond activities directly under their control when identifying relevant impacts, risks and opportunities. The account should help readers see what parts of the value chain were considered and how that work informed the results.

For companies preparing their statements, the practical question is whether the assessment can be understood from the disclosure itself. A conclusion without a clear account of the process gives readers little basis for judging how the company arrived at it. Here’s the thing: process detail is part of the evidence, not background decoration.

Linking IROs to policies, actions and metrics

ESMA expects issuers to present IROs alongside the policies, actions and targets (PATs) and metrics tied to them. Its 2026 scrutiny will focus in particular on European Sustainability Reporting Standards E1, covering climate change, and S1, covering the company’s own workforce, where reporting is more mature. Those areas give the regulator a basis to examine whether companies are making the connections between identified issues and their stated responses clear.

Within sustainability statements, companies should explain how policies and targets respond to material IROs. Descriptions of policies should be as detailed as those of the related IROs. If a material IRO has no corresponding policy, action or target, that gap should be disclosed. When reporting key actions, issuers should explain how they support the relevant policy objectives. A reader shouldn’t have to infer the relationship from separate passages or assume that a general commitment addresses a particular finding.

This is more significant than it looks. When the links are hard to follow, readers may struggle to distinguish a specific response from a broad statement of intent. ESMA’s expectation also leaves room for an issuer to report that no corresponding policy, action or target exists; the issue is whether that gap is made clear rather than obscured by generic language.

ESMA will also look for consistency between the sustainability statement and other parts of the annual financial report. Conflicting descriptions of IROs across those sections can make it harder for readers to understand a company’s reporting. The same issue can arise when terminology or explanations shift between sections: readers are left unsure whether they’re seeing different accounts of the same matter or separate assessments.

If you’re working in this space, it’s useful to read the report as a connected document. Do the sustainability statement and the rest of the annual financial report describe the same IROs consistently? And can a reader trace each major response back to the issue it addresses? Those are straightforward questions, but answering them may require coordination across the teams responsible for different parts of the report.

Targets need measurable detail

Targets should be measurable, time-bound and focused on outcomes, with terminology and methodological information made clear and specific to each target. Companies should report whether earlier targets have been met, explain newly established targets, and disclose when a target has been missed, abandoned or is no longer expected to be met. That history gives readers context for interpreting a target: a new commitment means more when its scope and relationship to earlier commitments are clear.

For greenhouse gas reduction targets, ESMA cautioned against using terms such as “science-based” or “1.5 degrees” without explaining whether and how the target meets those descriptions. Such labels can sound precise while leaving the underlying method unclear. Issuers should explain what they mean in relation to the specific target, so readers can assess the claim from the information provided.

ESMA also expects companies to disclose absolute emissions values, rather than relying solely on intensity measures. An intensity measure relates emissions to another measure of activity, while an absolute value reports emissions in total. Showing absolute values helps give readers another way to understand reported emissions; an intensity figure alone doesn’t provide that total. Both the measure and the explanation around it matter.

Workforce reporting has a related distinction to clarify: broad commitments shouldn’t be presented as if they were concrete targets. ESMA expects actual targets to be identified and linked to material IROs, policies and key actions. That distinction helps readers separate a general direction from a defined outcome that can be tracked. A commitment may communicate an intention; a target needs enough detail to assess progress against it.

Some targets will be missed. The disclosure task is to say so plainly and explain the status, including when a target has been abandoned or is no longer expected to be met. A record of progress. That’s more useful to readers than a target presented without an update or a clear account of its measurement.

What the priorities mean for reporting

ESMA’s focus puts weight on the quality of the explanation as well as the presence of disclosure items. A company may mention an IRO, a policy and a target, yet still leave readers unable to see how they fit together. The priorities suggest that coherence, balance and specificity will shape how those disclosures are scrutinised.

That said, the stated focus on E1 and S1 reflects areas where reporting is more mature; it doesn’t remove the need for a clear account of other material issues. For issuers, the immediate work is to check whether assessments cover their operations and value chains, whether positive and negative impacts receive balanced treatment, and whether policies, actions, targets and metrics connect to the findings. Readers should be able to follow those connections without filling in missing steps themselves.

The message for this reporting cycle is direct: disclosures should make those connections visible and give users enough detail to assess progress. Clearer reporting won’t answer every question about a company’s sustainability performance. It can, however, make the company’s own account easier to examine and compare.

Click here to access ESMA’s corporate reporting enforcement priorities.