Reducing the scope of the Corporate Sustainability Reporting Directive (CSRD) would result in several major financial institutions and the ‘majority’ of smaller banks not being required to disclose their ESG information, which could negatively impact the overall sustainability reporting landscape, ING has said.
In a briefing note, Marine Leleux, sector strategist, financials at ING, noted that the European Commission, Council, and Parliament are set to enter Trilogue negotiations to agree on a common legislative text for the Omnibus proposal, which aims to simplify ESG reporting by merging and revising the CSRD, the Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy.
The Commission has proposed reducing the number of entities in scope by 80%, targeting a 25% decrease in overall reporting burden, while the Parliament is putting forward suggestions to limit ESG reporting to companies with over 3,000 employees and a turnover exceeding €450 million. The Council’s proposal suggests a 1,000-employee threshold for CSRD and a 5,000-employee, €1.5 billion turnover threshold for the CSDDD.
Scope threshold
‘Naturally, the higher the scope threshold, the larger the impact on data availability for banks,’ Leleux commented, noting that both the Council and the Parliament’s draft proposal go against a recent European Central Bank opinion that ‘sustainability-related data is necessary for banking supervision’.
The ECB ‘stressed the importance of sustainability data in making informed investment decisions and ensuring considerations for sustainability-related risks,” said Leleux. ‘The ECB also highlighted the role these data points play in the central bank’s supervision activities as well as for financial stability and monetary policy.
‘Overall, the ECB estimates that the Commission’s scope reduction would result in one-eighth of significant institutions and the majority of smaller banks not being required to disclose their ESG information. While this would translate into a lighter reporting burden for the institutions falling out of scope, the ECB underlines that it would make the set of ESG information incomplete.’
Sustainability-related data
Overall, the impact on the banking sector from the Omnibus proposal depends on the final, agreed thresholds, ING noted.
‘The exact threshold will be a central question during the Parliament’s discussions and the Trilogue negotiations, but one thing remains certain: the number of undertakings in scope of the CSRD, CSDDD and Taxonomy will dramatically drop,’ said Leleux. ‘As pointed out by the ECB, this will represent a challenge not only for banks’ reporting but also for the regulator, as sustainability-related data is necessary for banking supervision.
‘While those ESG-reporting Directives were designed to allow investors to make informed decisions, one wonders if the shift away from comprehensive and rigorous reporting standards will slow down the EU’s path towards a sustainable transition.’ Read more here.
