The European Central Bank (ECB) has published its opinion on the draft simplified ESRS. As a long‑standing supporter of the EU’s sustainability reporting framework, it welcomes the simplification achieved, calling it “a good starting point” as reporting practices mature.
ECB focused on the standards most relevant to the ECB’s mandate: ESRS 1, ESRS 2, E1 (Climate Change) and E4 (Biodiversity and Ecosystems), essential for identifying, assessing and managing financial risks stemming from climate‑ and nature‑related physical and transition factors.
Over 90% of ECB‑supervised banks have identified these factors as material sources of financial risk.
Banks depend on reliable sustainability data to assess creditworthiness, price products and evaluate collateral.
The ECB stresses that the revised ESRS must ensure transparency, high‑quality information and comparability to support sound risk management, financial stability and effective capital allocation.
⭕ Reliefs, phase‑ins and exemptions
A key challenge is balancing simplification with the EU’s CSRD objectives.
The ECB warns that the permanent reliefs, phase‑ins and exemptions — many going beyond IFRS/ISSB — risk creating data gaps, reducing comparability and weakening interoperability with international standards.
This could undermine investor confidence and place EU companies at a competitive disadvantage globally.
The ECB recommends time‑limiting reliefs and removing the additional 3‑year phase‑in for anticipated financial effects (AFEs), which would delay the data until 2030.
ECB also notes that, following Omnibus I, the revised ESRS will apply only to Europe’s largest companies, which generally have the resources to meet these requirements.
⭕ Assurance standards
ECB staff stress the importance of swiftly adopting assurance standards, as these will be essential for improving the quality and comparability of disclosures under the revised ESRS.
⭕ VSME
ECB staff highlight concerns about using the VSME as the voluntary standard for companies outside the CSRD scope.
The VSME was designed for non‑listed SME companies with fewer than 250 employees, whose sustainability risks and complexity differ significantly from larger companies (with up to €450m turnover and/or 1 000 employees).
👉 The revised ESRS are a more suitable voluntary option, as they can flexibly accommodate companies of different sizes and complexities thanks to their materiality‑driven approach, and the ESRS are now more streamlined in terms of datapoints.
While ECB staff support voluntary reporting under the revised ESRS, they stress the need for guidance and safeguards to limit greenwashing risks.
Voluntary use must not allow cherry‑picking, which could enable companies to disclose only favorable information while obscuring material negative impacts or risks.
⭕Additional information for the financial sector
For credit institutions, most ESG risks, impacts and opportunities are concentrated in the downstream part of the value chain, as they are related to the activities of the clients that they fund.
ECB recommend the addition of guardrails so that the new DMA value chain flexibilities do not lead to the non-identification of material IROs which would ultimately compromise a fair presentation and lead to financial risks not being disclosed and managed by banks.
Regarding greenhouse gas emission reduction targets under ESRS E1-6: complementing the disclosure of a GHG intensity target with information on the associated absolute figure as per ESRS Set 1 is necessary to achieve a fair presentation, to enable a better understanding of the target and to avoid misleading users (given that intensity targets might show a decrease whereas in fact absolute emissions are expected to increase).
Exempting the financial sector from providing transparency on their emissions reduction commitments could give rise to systemic greenwashing risk and create opacity, possibly resulting in an underestimation of risks by investors and the misallocation of funds.
The link to full opinion: https://www.ecb.europa.eu/pub/pdf/other/ecb.staffopinion_europeansustainabilityreportingstandards202602.en.pdf