"Undue Cost or Effort" Under ESRS 1 (2026): What Actually Changed for Value Chain Data

Most teams reading about the revised ESRS focus on the headline: mandatory datapoints cut from over 1,000 to approximately 320 - a reduction of around 60%. That number is real and the workload relief is real. But the change that will cause the most assurance problems in FY2026 and FY2027 is quieter: the rewrite of how value chain data must be gathered, and the introduction of a proportionality mechanism called "undue cost or effort."

This article is for sustainability reporting leads, finance controllers, and internal audit teams who need to understand what the mechanism actually does - and, more importantly, what it does not do.

---

1. What ESRS 1 (2026) actually changed

On 3 July 2026, the European Commission adopted the revised ESRS delegated act (C(2026) 5010), with mandatory application from financial years beginning 1 January 2027 and voluntary early adoption available for FY2026.

The 2023 ESRS created an implicit sequencing expectation for value chain data: try to get primary data from suppliers first; use estimates only where primary collection fails. That sequencing is gone.

Under ESRS 1 (2026), three things changed in combination:

Equal footing for primary and secondary data. Collecting data from the value chain is now made more flexible by placing primary data collection on an equal footing with secondary and indirect forms of data collection to gather estimates - both for identifying material IROs and when reporting on metrics. You are not required to attempt primary collection before reaching for industry averages or spend-based factors.

Broadened scope of the relief. The 2023 ESRS applied proportionality relief narrowly. ESRS 1 (2026) extends it more broadly by applying it to all value chain information and the preparation of all metrics - not just selected datapoints.

No exhaustive search required. ESRS 1 (2026) AR 12 states explicitly that undertakings are not required to perform an exhaustive search for information. Paragraph 32 requires only "reasonable and supportable evidence" without undue cost or effort.

What did not change: the disclosure requirement itself. The relief adjusts the effort you must expend to populate a disclosure - it does not remove the obligation to make it.

---

2. What "undue cost or effort" means in practice

The phrase is deliberately not defined as a bright line. "Undue cost or effort" is not directly defined and will depend on a company's specific circumstances, requiring a balanced assessment of the costs and efforts involved against the benefits of the resulting information for users.

That means the judgement has two sides:

• Cost/effort side: staff time, system changes, supplier survey design and administration, response-rate risk, data validation, and the cost of chasing non-respondents.
• Benefit side: the incremental decision-usefulness of more precise data for the readers of your sustainability statement - investors, lenders, analysts, and regulators.

The judgement is entity-specific and datapoint-specific. A company with 12 direct suppliers in a concentrated supply chain faces a different cost/benefit equation than one with 4,000 suppliers across 60 countries. A company that already runs an annual supplier questionnaire for procurement purposes faces lower marginal cost than one building from scratch.

It is also not a one-time policy. "Undue cost or effort" must be reassessed annually as circumstances change - supplier relationships evolve, data systems improve, and the cost of primary collection typically falls over successive reporting cycles.

---

3. Where the relief does not get you off the hook

Four limits matter most:

It is not an exemption from disclosure. The disclosure requirement still applies. If a topic is material, you must disclose - using the best information you can obtain without undue cost or effort. You cannot use the mechanism to avoid a disclosure you find inconvenient.

It does not apply to your own operations. Where you control the data source - your own facilities, your own energy meters, your own payroll - there is no proportionality argument for using estimates. The relief is designed for situations where you depend on third parties who may not cooperate or whose data systems are immature.

Materiality is a prior and separate gate. Double materiality determines whether a topic must be disclosed at all. "Undue cost or effort" only governs how you populate a disclosure once materiality has been established. A weak materiality assessment does not become stronger because you invoke proportionality.

You still need reasonable and supportable evidence. The standard requires "reasonable and supportable information." An estimate you cannot support - one that lacks a documented method, a credible source, and a known uncertainty range - is not protected by the mechanism. It is simply an unsupported number.

---

4. A practical decision framework

For each material datapoint that involves value chain information, work through this sequence:

---

5. The documentation pack that survives assurance

Under a limited assurance engagement (ISSA 5000 or equivalent), the assurance provider tests the judgement, not just the number. They will ask: was this decision to use an estimate reasonable? Was it documented? Was it signed off by someone with authority?

For each estimated datapoint, your evidence file should contain:

Element	What to record
Datapoint reference	Standard paragraph and disclosure requirement (e.g., ESRS E1-6, GHG Scope 3 Cat. 1)
Sources considered	Which primary sources were evaluated and why they were not used (or used only partially)
Cost/effort assessment	Quantified or described cost of primary collection; who reviewed and approved the assessment
Method and source of estimate	Spend-based factors (database and version), industry averages, extrapolation from a sample, proxy suppliers - be specific
Known limitations	Direction of likely bias (over- or under-estimate), sensitivity to key assumptions
Improvement plan	Specific steps and timeline for improving data quality in future periods

The sign-off matters. An undocumented judgement made informally by a junior analyst is not the same as a documented judgement reviewed by the CFO or Head of Sustainability and recorded in the working papers.

---

6. What to disclose in the sustainability statement itself

Invoking proportionality is not a private internal decision - it must be visible to the reader. Your sustainability statement should make clear:

• That estimates were used for specific categories or metrics, and why
• The method and source of those estimates (e.g., "Scope 3 Category 1 emissions were estimated using spend-based factors from EXIOBASE 3.8, applied to procurement spend by NACE sector")
• The level of uncertainty and the direction of likely bias
• The proportion of the metric covered by primary versus secondary data - ESRS E1 requires disclosure of the primary/secondary data split for Scope 3

Transparency here is not just good practice. A reader who discovers that a material metric was estimated without disclosure is a reader who loses confidence in the entire statement. Under limited assurance, a lack of transparency about estimation methods is itself a finding.

---

7. The value chain cap and proportionality: two different tools

The Omnibus I value chain cap - which prohibits large reporters from requiring sustainability information beyond the VSME standard from value chain partners with 1,000 or fewer employees - and the "undue cost or effort" mechanism are complementary but distinct.

The cap constrains what you can ask of smaller suppliers. It is a legal limit on your demands, designed to protect SMEs from disproportionate reporting burdens. Our guide to the value chain cap covers the supplier-rights dimension in detail.

The proportionality mechanism governs what you must do when you cannot get the data you need. In practice, the cap often supplies part of the justification for using estimates: if you are legally prohibited from demanding full-ESRS data from a supplier with 800 employees, that constraint is directly relevant to your cost/effort assessment for that portion of your supply base.

The two tools work together. The cap tells you what you cannot demand; proportionality tells you what to do with the gap.

---

8. Worked example: Scope 3 Category 1, purchased goods and services

Scenario: A mid-size industrial manufacturer. Category 1 is material (it represents approximately 65% of total Scope 3 emissions). The supply base has 340 direct suppliers; the top 15 account for roughly 70% of procurement spend.

Step 1 - Materiality: Confirmed material. Proportionality analysis required.

Step 2 - Existing data: Prior-year spend data by supplier and NACE code is available in the ERP system. No supplier-reported emissions data exists.

Step 3 - Own operations: Not applicable - this is upstream supply chain.

Step 4 - Cost/effort assessment:

Approach	Estimated cost	Expected coverage	Accuracy gain
Spend-based (all 340 suppliers)	3 weeks analyst time	100% of spend	Baseline
Supplier survey (all 340)	~€80k + 6 months	~25% response (est.)	Marginal for tail
Supplier survey (top 15 only)	~€15k + 8 weeks	~70% of spend	Significant for hotspots

Decision: Hybrid. Primary collection from the top 15 suppliers (70% of spend, highest emissions exposure). Spend-based EXIOBASE factors for the remaining 325 suppliers. The cost of surveying all 340 is disproportionate given the expected 25% response rate and the low emissions significance of the long tail.

Documentation written up:

"Category 1 emissions for FY2027 are calculated using a hybrid method. Supplier-specific data (primary) was obtained from the 15 largest suppliers by procurement spend, representing approximately 70% of Category 1 spend. The remaining 325 suppliers were estimated using spend-based emission factors from EXIOBASE 3.8 (2022 version), applied to FY2027 procurement spend disaggregated by NACE 2-digit sector. The decision to use secondary data for the tail was assessed as proportionate: a full survey of all 340 suppliers was estimated to cost approximately €80,000 in staff and administration time, with an expected response rate of 25%, meaning secondary estimates would still be required for approximately 75% of the tail regardless. The spend-based method is likely to overestimate emissions for suppliers with above-average energy efficiency. The company plans to extend primary collection to the top 30 suppliers (covering approximately 85% of spend) by FY2029."

That paragraph - or its equivalent in your working papers - is what your assurance provider needs to see.

---

9. Action checklist

For FY2026 early adopters (reporting in 2027):

• Confirm which topics are material under your revised double materiality assessment - proportionality analysis is only needed for material topics
• Map each material value chain datapoint against existing data holdings (ERP, prior surveys, procurement records)
• For each gap, run the cost/effort assessment and document it - who assessed it, what the cost estimate was, what the benefit assessment was, who signed it off
• Decide primary / secondary / hybrid for each datapoint and record the method and sources
• Draft the disclosure language for the sustainability statement: method, source, uncertainty, primary/secondary split
• Set the improvement trajectory for FY2027 and beyond, with specific milestones
• Brief your assurance provider on the approach before year-end - surprises during the engagement are expensive

For FY2027 first-time reporters (Wave 2):

• Start the materiality assessment now - it is still the longest single item in a first reporting cycle
• Use the FY2026 early-adopter experience as a reference: look at what Wave 1 companies disclosed about their estimation methods and what assurance qualifications were issued
• Build supplier data collection into procurement contracts and onboarding processes for key suppliers - the marginal cost of collecting data from a new supplier at contract stage is far lower than retrofitting a survey programme later
• Treat the value chain cap as an input to your proportionality assessment, not a substitute for it

---

This article is for information purposes only and does not constitute legal or professional advice. Consult a qualified assurance provider or legal adviser for guidance specific to your situation. The revised ESRS delegated act adopted on 3 July 2026 remains subject to a two-month scrutiny period by the European Parliament and Council before entering into force.