The European Financial Reporting Advisory Group (EFRAG) released its 2026 State of Play report (July 2026), which assesses sustainability reporting practice over 900 assured 2025 sustainability statements prepared under the European Sustainability Reporting Standards (ESRS).
Human Level’s Take:
- EFRAG’s latest review of companies reporting against the ESRS shows that material topics have largely remained unchanged since the previous reporting year. Though 82% updated their double materiality assessments, the topical standards that were most widely reported as material were E1 Climate Change, S1 Own Workforce, and G1 Business Conduct.
- Though many see social impacts in their own workforces as material, fewer companies are focused on stakeholders upstream and downstream from them, including workers in the value chain, affected communities, and consumers and end-users. This could suggest a potential gap in understanding how materiality could show up across the value chain beyond own operations.
- Fewer companies are reporting on the key levers to implement effective human rights and environmental due diligence (HREDD), such as setting measurable targets and linking sustainability performance to executive incentives.
- EFRAG finds that reporting on supplier ESG due diligence lacks operational depth. While 81% of companies reporting supplier relationship management as material say they use ESG criteria in supplier selection, this is usually limited to codes of conduct. More robust approaches (such as corrective action plans, performance incentives and procurement integration) remain relatively uncommon.
- Our take: overall, the results show that reporting on sustainability policies and practices yields valuable information on companies’ sustainability priorities — but the value of reporting only goes so far.
- To make HREDD effective across the value chain, it’s vital for companies to start integrating mechanisms that embed human rights and environmental topics into business decision-making. This can include setting KPIs and creating executive accountability, offering suppliers training, support and incentives for sustainability performance, embedding ESG into purchasing practices, and assessing risks to potentially affected stakeholders along the full value chain.
Some key takeaways:
- Consistent disclosures on common topics but missing implementation levers: While 82% of companies updated their Double Materiality Assessment (DMA) from 2024, overall the data shows that most companies have not significantly changed which topics they assessed as most material. Consistent with last year, the topical standards that were most widely reported as material were E1 Climate Change (99%), S1 Own Workforce (99%), and G1 Business Conduct (95%). The topics with the highest materiality scores were E1 Climate Change Mitigation (99%), S1 Working Conditions for Own Workforce (97%), and S1 Equal Treatment and Opportunities for Own Workforce (96%). When it comes to other social topics, an average of 68% of companies across EU and non-EU countries reported S2 (Workers in the Value Chain) as material, 31% reported S3 (Affected Communities) as material, and 64% reported S4 (Consumers and End-Users) as material. However, even though companies identified an average of 6.4 material topics out of 10, measurable targets are set for just half of them (3.3 on average), which could limit the ability to track progress on due diligence. In addition, less than two-thirds of companies reported that they embed sustainability metrics into executive incentive schemes, suggesting a disconnect between reported materiality and strategic commitments in practice.
- Reporting on key human rights topics: The majority (89%) of companies that declared S2 and/or S3 material also reported they have a human rights policy. Disclosure on human rights policies was highest in the mining and quarrying sector (100%), manufacturing (95%) and transportation and storage (93%). For companies disclosing severe human rights incidents in own operations (which includes any violation of fundamental rights such as forced labour, child labour or freedom of association), disclosure was high (93%) among companies reporting S1 (Own Workforce) as material. Several sectors had 100% disclosure of this information: wholesale and retail, transportation and storage, real estate, and administrative and support services. In addition, the majority (85%) of companies that reported the Own Workforce - Equal Treatment topic as material disclosed on reported incidents of discrimination in their own operations. Another area analysed by EFRAG was the reported adjusted gender pay gap, meaning the difference of average pay levels between female and male employees, as a percentage of the average pay level of male employees, without accounting for role, seniority or geography. Overall, the average unadjusted pay gap was 14.3% in favour of men, with the lowest gaps in Belgium (7.7%), Finland (10.7%) and Sweden (12.5%). Among sectors, electricity, gas, steam and AC have the lowest gap (3.9%), then construction (6.8%), followed by administrative and support services (8.8%). The highest pay gaps appeared in the financial sector — the lowest gap in this sector was seen among insurance companies (22%).
- Disclosure of ESG criteria in supplier selection but unclear integration: The report finds that a large number (81%) of companies that reported the G1 subtopic Management of Supplier Relationship material disclosed that they use ESG criteria in supplier selection. However, this is mostly in the form of requiring suppliers to sign a code of conduct. Fewer companies reported that they used mechanisms like corrective action plans, supplier disqualification procedures or incentive mechanisms linked to supplier ESG performance; EFRAG points out that this could suggest supplier ESG performance management is not widely operationally embedded. This also raises questions about the depth of integration of ESG criteria into supplier management systems, whether criteria are only applied at supplier onboarding, whether criteria are used to manage supplier performance on an ongoing basis, or whether criteria are formally integrated into procurement decisions, i.e., through scoring frameworks.
