EU Sustainability Data Vulnerability: ECB Warns of Risks Under New Omnibus Plan

The European Central Bank (ECB) has raised significant concerns regarding the European Commission’s proposed amendments to sustainability reporting laws, particularly the potential removal of 80% of companies from the Corporate Sustainability Reporting Directive (CSRD). This change could undermine financial stability and impede the EU’s climate objectives.

ECB’s Concerns Over CSRD Amendments

In a recent opinion published by ESG Today, the ECB recognized the Commission’s intent to alleviate regulatory burdens through the Omnibus I package. However, they expressed that the proposed changes would drastically limit the availability of essential environmental, social, and governance (ESG) data.

Key Changes Proposed in the CSRD

Among the most contentious changes is the revision of the CSRD’s coverage threshold. The new proposal suggests:

• Raising the employee threshold from 250 to 1,000 employees.
• Requiring firms to have a net turnover exceeding €50 million.

This adjustment may exclude tens of thousands of companies from the mandatory sustainability reporting framework, which was designed to replace the Non-Financial Reporting Directive (NFRD).

Impact on Corporate Transparency

The CSRD was established to significantly enhance corporate transparency, aiming to increase the number of companies required to report from 12,000 to over 50,000. Grounded in detailed European Sustainability Reporting Standards (ESRS), the directive seeks to provide investors with a comprehensive understanding of how businesses are influenced by and impact climate change, biodiversity loss, and social issues.

However, the Omnibus reforms threaten to dilute these objectives. The ECB has warned that major greenhouse gas emitters, including fossil fuel companies, might fall outside the new reporting scope, potentially leading to:

• Impaired market participants’ ability to evaluate sustainability-related risks.
• Limited access to standardized ESG data, hindering informed investment decisions.
• Increased risks of transparency erosion regarding greenhouse gas emissions and ESG risk exposure in financial institutions.

Recommendations from the ECB

The ECB stressed that ESG risk is not necessarily tied to the size of a company. Thus, excluding smaller firms could prevent regulators and investors from identifying emerging risks. They recommended revising the threshold to include companies with 500 to 1,000 employees under simplified yet mandatory sustainability reporting standards, tailored to their operational capacities.

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