ESMA 2026 Enforcement Priorities: What Companies Must Get Right in Their FY2026 Sustainability Statements

On 13 October 2026, the European Securities and Markets Authority (ESMA) published its European Common Enforcement Priorities (ECEP) for 2026 corporate reporting, outlining the areas that national supervisory authorities will prioritise when reviewing listed companies’ annual financial reports. For the second consecutive year, sustainability reporting under the European Sustainability Reporting Standards (ESRS) remains a central enforcement focus, with particular attention to materiality assessments and the connectivity between sustainability disclosures.

1. ESRS Reporting Basis and Transition to Simplified Standards

FY2026 represents an important transition period following the European Commission’s adoption of revised ESRS on 3 July 2026. Companies need to clearly identify which reporting framework they have applied, including whether they use the original ESRS Set 1, the revised standards or applicable transitional reliefs. Where reporting requirements or methodologies have changed, companies should explain the implications for comparative information and reporting consistency.

2. Connectivity Between IROs, Policies, Actions, Targets and Metrics

ESMA expects companies to demonstrate a clear connection between material impacts, risks and opportunities (IROs), their corresponding policies, actions and targets (PATs), and reported metrics. For FY2026, enforcement attention will particularly focus on ESRS E1 (Climate Change) and ESRS S1 (Own Workforce).

Companies should demonstrate how their policies and actions address identified material IROs, explain how key actions contribute to policy objectives, and disclose the financial resources allocated to implementation, including relevant capital expenditure (CapEx) and operating expenditure (OpEx). Where no policies, actions or targets exist for a material IRO, or where existing measures only partially address an identified risk or impact, this should be explicitly disclosed.

3. More Robust Sustainability Targets

Companies should ensure that sustainability targets are measurable, time-bound and supported by clearly explained methodologies. Reporting should distinguish genuine performance targets from broader commitments and ambitions.

Disclosures should explain whether previous targets have been achieved, whether targets have been replaced or discontinued, and how changes to baselines, target years or calculation methodologies affect reported progress. For climate targets, companies should substantiate claims such as “science-based” or “1.5°C aligned”, disclose absolute emissions reduction targets alongside intensity measures, and distinguish gross emissions reductions from targets involving offsets.

With many corporate climate targets approaching their 2030 deadlines, companies should transparently communicate when existing targets are no longer expected to be achieved.

4. Double Materiality Assessment and Balanced Disclosures

Materiality assessment remains an enforcement priority for the third consecutive year. ESMA highlights the need for balanced reporting of positive and negative impacts, with comparable levels of detail and methodological rigour.

Companies should provide a clear, entity-specific explanation of their double materiality assessment, including how impact and financial materiality are evaluated and how qualitative or quantitative thresholds are applied. Particular attention should be given to situations where different thresholds are used for positive and negative impacts.

The objective is to ensure that materiality assessments are transparent, sufficiently documented and genuinely reflective of each company’s activities and circumstances, rather than relying on generic descriptions.

5. Consistency Across Corporate Reporting

ESMA also emphasises consistency between sustainability statements, financial statements and other sections of the annual report. Companies should ensure that material IROs disclosed under ESRS are consistent with risks and opportunities described elsewhere, particularly in the management report and financial risk disclosures.

Reporting teams should also verify comparative information, explain changes in reporting methodologies and clearly identify prior-period corrections or restatements. Executive summaries must provide a balanced representation of sustainability performance, covering both favourable and unfavourable developments.

What This Means for Companies

ESMA’s 2026 enforcement priorities signal a shift towards more connected, transparent and decision-useful sustainability reporting. Companies should move beyond treating ESRS disclosures as individual reporting requirements and ensure that material sustainability matters are consistently reflected in corporate strategy, risk management, financial planning and performance measurement.

For sustainability, finance, compliance and internal audit teams, the immediate priority should be a structured review of FY2026 disclosures, particularly the materiality assessment, IRO-to-PAT-to-metric traceability, target performance and consistency with financial reporting. Stronger coordination between these functions will be essential to producing sustainability statements that meet regulatory expectations and withstand supervisory scrutiny.

Read more at:

• ⁠ESMA – Statement on the European Common Enforcement Priorities for 2026 Corporate Reporting (13 October 2026)
• ⁠Hogan Lovells – ESMA Sets 2026 Common Enforcement Priorities
• ⁠Lovguiden – ESMA Sets 2026 Enforcement Priorities
• ⁠European Commission – Corporate Sustainability Reporting
• EFRAG – Q&A ID 517: Disclosure of Materiality Thresholds