The European Central Bank (ECB) has published its opinion on the draft simplified ESRS. As a long\u2011standing supporter of the EU\u2019s sustainability reporting framework, it welcomes the simplification achieved, calling it \u201ca good starting point\u201d as reporting practices mature.<\/p>\n
ECB focused on the standards most relevant to the ECB\u2019s mandate: ESRS 1, ESRS 2, E1 (Climate Change) and E4 (Biodiversity and Ecosystems), essential for identifying, assessing and managing financial risks stemming from climate\u2011 and nature\u2011related physical and transition factors.<\/p>\n
Over 90% of ECB\u2011supervised banks have identified these factors as material sources of financial risk.<\/p>\n
Banks depend on reliable sustainability data to assess creditworthiness, price products and evaluate collateral.<\/p>\n
The ECB stresses that the revised ESRS must ensure transparency, high\u2011quality information and comparability to support sound risk management, financial stability and effective capital allocation.<\/p>\n
\u2b55 Reliefs, phase\u2011ins and exemptions<\/strong><\/p>\n A key challenge is balancing simplification with the EU\u2019s CSRD objectives. This could undermine investor confidence and place EU companies at a competitive disadvantage globally.<\/p>\n The ECB recommends time\u2011limiting reliefs and removing the additional 3\u2011year phase\u2011in for anticipated financial effects (AFEs), which would delay the data until 2030.<\/p>\n ECB also notes that, following Omnibus I, the revised ESRS will apply only to Europe\u2019s largest companies, which generally have the resources to meet these requirements.<\/p>\n \u2b55 Assurance standards<\/strong><\/p>\n 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.<\/p>\n \u2b55 VSME<\/strong><\/p>\n ECB staff highlight concerns about using the VSME as the voluntary standard for companies outside the CSRD scope.<\/p>\n The VSME was designed for non\u2011listed SME companies with fewer than 250 employees, whose sustainability risks and complexity differ significantly from larger companies (with up to \u20ac450m turnover and\/or 1 000 employees).<\/p>\n \ud83d\udc49 The revised ESRS are a more suitable voluntary option, as they can flexibly accommodate companies of different sizes and complexities thanks to their materiality\u2011driven approach, and the ESRS are now more streamlined in terms of datapoints.<\/p>\n While ECB staff support voluntary reporting under the revised ESRS, they stress the need for guidance and safeguards to limit greenwashing risks.<\/p>\n Voluntary use must not allow cherry\u2011picking, which could enable companies to disclose only favorable information while obscuring material negative impacts or risks.<\/p>\n \u2b55Additional information for the financial sector<\/strong><\/p>\n 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.<\/p>\n 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.<\/p>\n 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).<\/p>\n 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.<\/p>\n <\/p>\n
\nThe ECB warns that the permanent reliefs, phase\u2011ins and exemptions \u2014 many going beyond IFRS\/ISSB \u2014 risk creating data gaps, reducing comparability and weakening interoperability with international standards.<\/p>\n