ECB staff raise concerns on simplified EU sustainability reporting
The European Central Bank staff have published an opinion on the revised European Sustainability Reporting Standards (ESRS), appreciating the significant simplification but raising critical concerns. They emphasize the need for sufficient transparency and high-quality data for financial risk management and stability purposes.
Simplification welcomed, but transparency risks
ECB staff appreciate the very significant simplification of the standards achieved by EFRAG, noting that the revised ESRS are more focused and streamlined, facilitating their application.
This includes clearer distinctions between disclosure requirements and methodological instructions, and improved visibility on materiality filters.
However, staff identified three critical points for improvement.
First, numerous permanent relief measures, phase-ins, and exemptions, along with the removal of critical data points, will limit data availability and comparability.
This also removes incentives for better data collection, contrary to the CSRD's goal of a reliable data ecosystem.
Second, while interoperability with international standards like IFRS/ISSB has improved, critical deviations exist, particularly regarding reliefs beyond those in international frameworks.
Third, clarification is needed to ensure the revised ESRS are appropriate for meaningful disclosures by the financial sector.
ESRS disclosures underpin ECB mandates
High-quality sustainability reporting is essential for monitoring economic impacts and financial risks from climate- and nature-related factors.
ESRS disclosures enable the ECB to adequately consider these risks across its mandates, including banking supervision, financial stability, monetary policy, and statistical information collection.
This support extends to analyzing and monitoring financial risks, enhancing risk management in the Eurosystem's balance sheet, incorporating climate considerations into monetary policy operations, and compiling climate change indicators.
Furthermore, reliable and comparable sustainability information is crucial for banks themselves, serving as key input for risk management, transition strategies, and product development, especially as over 90 percent of ECB-supervised banks identify climate and nature factors as material financial risks.
Simplification at a cost
While the drive for simplification is understandable, the proposed reliefs and exemptions in the ESRS risk undermining the very transparency and comparability they aim to achieve.
This could create permanent blind spots for users and hinder effective financial risk management, especially for climate and nature-related exposures.
Ultimately, the current revision sacrifices crucial data quality for ease of reporting, potentially compromising the EU's long-term sustainable finance objectives.