Seven out of ten companies reporting under the EU’s Corporate Sustainability Reporting Directive (CSRD) that have disclosed climate transition plans, increasing significantly over the past year, while the share, according to a new report released by the European Financial Reporting Advisory Group (EFRAG) examining the implementation practices of the European Sustainability Reporting Standards (ESRS).
The report also included new indicators assessing companies’ linkages of materiality and action, indicating that companies on average only have targets in place for about half of the sustainability topics that they consider to be material, and that around two-thirds of companies reported linking sustainability performance to executive incentive schemes.
For the study, “2026 State of Play Report,” EFRAG assesses 905 FY 2025 sustainability statements that have been subject to third-party assurance in line with the CSRD, against a structured set of 18 questions spanning the full breadth of the ESRS cross-cutting, environmental, social, and governance standards. In the inaugural report last year, EFRAG assessed 656 reports. EFRAG was mandated by the European Commission in June 2020 to prepare technical advice for the EU sustainability reporting standards (ESRS) underlying the CSRD regulation, which it submitted in 2022, and updated in 2025 as part of the Omnibus simplification process.
The report included a significant focus on materiality, which it noted is “the foundation on which all subsequent disclosures rest: the topics and sub-topics deemed material determine the scope, depth and granularity of the sustainability statement.” Out of a possible 10 topics, EFRAG found that companies on average identified 6.4 material ESRS topics. On a like-for-like basis with last year’s study, the new report found that the average number of material topics increased from 6.3 in FY2024 to 6.6 in FY2025.
By topic, the report found that the most frequently identified material topics were E1 Climate Change (99%), S1 Own Workforce (99%), and G1 Business Conduct (95%), while by sub-topic, the highest materiality scores included E1 Climate Change mitigation (99%), S1 Working conditions for own workforce (97%), and S1 Equal treatment and opportunities for own workforce (96%).
The report found an increase in non-climate environmental topics considered material, with a like-for-like comparison indicating E2 (Pollution) increased from 40% to 45%, E3 (Water and Marine Resources) from 33% to 38%, E4 (Biodiversity) from 40% to 44% and E5 (Resource Use and Circular Economy) from 65% to 69%. Similarly, social topics increased on a like-for-like basis with S1 (Own Workforce) stable at 99%, S2 (Workers in the Value Chain) up to 69% from 65%, S3 (Affected Communities) up from 30% to 34%, and S4 (Consumers and End Users) up to 69% from 67%.
The report also found a significant increase in companies declaring that they have a climate transition plan, jumping to 69% in FY 2025 from only 55% the prior year. By country, Spain had the highest proportion of companies with climate transition plans, at 89%, followed by France with 85% and Denmark with 81%, while by sector, Real estate led with 95%, followed by Administrative & support services at 82%, and Banks at 78%.
While nearly 70% have climate transition plans, the report found that 57% of companies disclosed that their near-term and long-term decarbonization targets are compatible with a 1.5°C warming pathway, with EFRAG noting that this indicates that “a meaningful share of preparers who report having a Climate Transition Plan have not yet explicitly referred in their targets to 1.5°C compatibility.”
In the new report, EFRAG also added new indicators to “provide a structural view of the linkage between sustainability disclosures and strategic management.” The new indicators found that while companies identified an average of 6.4 material topics, they only have targets for around half, with targets across an average of 3.3 ESRS material topics per company.
Additionally, the report found that 63% of companies report embedding sustainability targets into executive incentive schemes, which EFRAG said “implies that 37% of preparers have not established a formal link between sustainability performance in managing material topics and executive remuneration.” By country, Spain had the highest proportion of companies embedding sustainability targets into remuneration at 92%, followed by France at 90% and Germany at 84%, while by sector, Manufacturing led at 74%, Insurance at 70%, and Electricity, gas, steam & AC at 69%.
Click here to access the report.
