ESMA Sets 2025 Enforcement Priorities: Geopolitical Risk, Segment Reporting, And ESRS Materiality In Focus
The European Securities and Markets Authority (ESMA) has set out the European Common Enforcement Priorities (ECEP) for 2025, sharpening attention on how listed issuers connect financial and sustainability disclosures. The regulator’s focus points to three pressure fronts for preparers and auditors: the portrayal of geopolitical uncertainty in IFRS financial statements, the discipline of segment reporting, and the robustness of materiality determinations and structure under the European Sustainability Reporting Standards (ESRS). ESMA also flags persistent digital reporting errors in ESEF, particularly within statements of cash flows.
European Common Enforcement Priorities For 2025
ESMA’s 2025 priorities ask issuers to explain clahead how geopolitical risks and broader uncertainties affect performance, cash flows, and financial position, and to ensure that these narratives are consistent across the management report, financial statements, and sustainability disclosures. Investors are expected to view more decision-useful analysis of sensitivities, assumptions, and transmission channels from macro and policy shocks into company-specific outcomes. Boilerplate language that ignores sector-specific exposures will attract scrutiny.
Segment reporting also features prominently. ESMA emphasizes that issuers must present segments that faithfully reflect how management monitors performance, allocates resources, and assesses risk. Enforcement will concentrate on internal consistency between reported segments, alternative performance measures, and board-level reporting, as well as on transparent reconciliations and meaningful disclosures of major customers, geographic risk, and the economic rationale for any changes to segments.
Connectivity across the report is a recurring theme. ESMA expects coherent links between IFRS numbers, sustainability claims, and digital tags, so that users can navigate from risk narratives to quantified impacts and back. Where companies discuss climate, supply-chain, or geopolitical headwinds in sustainability statements, ESMA will look for corresponding reflections in impairment tests, provisions, useful lives, and other IFRS estimates that would reasonably be affected.
Sustainability Statements: Materiality And Structure
On sustainability reporting, ESMA directs issuers to strengthen double materiality assessments under ESRS Set 1, explaining both the process and outcomes that determine what is reported and why. Companies should describe how they identify impacts, risks, and opportunities (IROs), how stakeholders are engaged, which thresholds are applied, and how material topics translate into metrics, targets, and action plans. The regulator wants users to view a defensible chain from methodology to disclosed content, not a perfunctory checklist.
ESMA also points to the scope and structure of sustainability statements. Issuers should organize disclosures to reflect clear topic boundaries, avoid duplication, and ensure that cross-references are precise and accessible. Where companies rely on cross-referencing to other sections or documents, ESMA expects a navigation path that is complete, stable, and free of dead links, with the identical level of assurance and governance as information embedded in the primary sustainability section.
Consistency over time is another priority. ESMA expects issuers to disclose methodological changes, restatements, and data limitations with enough granularity for users to understand trend integrity. Where estimation uncertainty is high—common in value-chain data—companies should quantify ranges where feasible and explain remediation plans to periods.
IFRS Focus: Geopolitical Risks And Segment Reporting
In IFRS financial statements, ESMA will examine whether geopolitical developments—such as trade restrictions, tariffs, sanctions, or commodity disruptions—are appropriately reflected in revenue recognition, inventory valuation, impairment of non-financial assets, and expected credit losses. Preparers should ensure that significant judgments and sources of estimation uncertainty are updated, specific, and aligned with , rather than carried forward from prior periods without reconsideration.
For segment reporting under IFRS 8, issuers should confirm that reported operating segments match the internal reporting reviewed by the chief operating decision maker, with reconciling items that are transparent and stable. ESMA will look closely at sudden changes to segment definitions, aggregation criteria, or performance measures, particularly where such changes have the effect of obscuring underperformance. Disaggregation should be sufficient to illuminate differing risk and return profiles.
Disclosures around major customers, geographic concentration, and sensitivity to supply-chain or logistics constraints should be revisited in light of current realities. ESMA expects entities to link segment-level narratives with quantitative indicators—margins, capex, headcount, or working capital dynamics—so users can understand how shocks propagate diversely across segments and what management is doing in response.
ESEF Digital Reporting: Cash Flow Errors
ESMA highlights recurring ESEF tagging difficultys, with a particular concentration of errors in the statement of cash flows. Common issues include incorrect signs and summation relationships, misuse of extension elements where taxonomy concepts exist, and inconsistent tagging between the consolidated financial statements and ESEF instance documents. These errors impair comparability and can distort automated analysis relied upon by investors and data vendors.
Issuers are expected to strengthen pre-filing controls, including automated validation against the latest ESEF taxonomy, review of calculation linkbases, and reconciliation procedures that tie tagged values back to audited figures. ESMA encourages companies to involve both finance and IT functions in end-to-end dry runs and to preserve robust documentation that demonstrates how tagging decisions were made and reviewed.
Where filers use extensions, ESMA expects careful anchoring to the closest standard elements and a clear justification for why extensions are necessary. Entities should minimize extensions to preserve comparability and should periodically reassess whether evolving taxonomy updates now cover previously extended concepts, thereby allowing a migration back to base taxonomy terms.
What Issuers, Auditors, Supervisors Should Do Next
Issuers should initiate a coordinated workplan across finance, sustainability, investor relations, internal audit, and IT to map the 2025 priorities to existing disclosures, controls, and systems. Practical steps include revisiting risk registers and sensitivities, refreshing segment reporting governance, documenting the double materiality methodology, and testing ESEF tagging with a focus on cash flow statements. Clear ownership, timelines, and board-level oversight will be essential to avoid last-minute remediation.
Auditors should align their risk assessment and materiality judgments with ESMA’s focus areas, ensuring that significant judgments in IFRS and double materiality processes under ESRS receive robust challenge and evidence. Audit teams may need to deepen expertise in sustainability data processes and digital reporting controls, particularly where reliance on third-party or value-chain data introduces higher risk of error or bias.
Supervisory bodies and audit committees should emphasize connectivity—pressing and opportunities inform financial statement judgments and how ESEF tagging faithfully mirrors audited disclosures. They should also monitor remediation of known and ensure that control improvements are embedded, tested, and repeatable rather than one-off fixes.
Takeaway
ESMA’s 2025 agenda moves from principles to practice: articulate how shocks translate into numbers, reveal how the , and show your workings on sustainability materiality. The connective tissue between narrative, quantification, and digital tagging matters as much as the individual parts. Users expect to follow a consistent thread from risks to metrics to cash flows without contradictions.
For preparers, the largegest wins will come from tightening governance around judgments, elevating the transparency of methodologies, and building durable data pipelines that serve both IFRS and ESRS needs. For auditors and supervisors, the challenge is to encourage incisive, entity-specific disclosures while resisting the drift back toward generic templates. Credibility rests on specificity, comparability, and internal consistency.
Ahead of the 2025 reporting season, ahead action is the best risk mitigant. Issuers that invest now in double materiality discipline, segment transparency, and ESEF data quality will reduce enforcement risk, improve investor trust, and shorten the feedback loop from markets to management decisions—exactly what ESMA is signaling it wants to view.
