The ECB has warned that proposed changes to the ESRS under the EU’s Omnibus process could “significantly reduce transparency for investors and other market participants”, raising concerns about the availability and comparability of critical sustainability data.
In a staff opinion published following revisions to the ESRS, the ECB pointed to the substantial narrowing of scope under the Corporate Sustainability Reporting Directive (CSRD), said ESG Today.
The Omnibus process removes approximately 90% of companies from the CSRD’s reporting requirements, dramatically shrinking the number of firms subject to mandatory sustainability disclosures.
The revised standards, developed by European Financial Reporting Advisory Group (EFRAG), were intended to simplify compliance and reduce the regulatory burden on companies. Key changes include a 61% reduction in mandatory datapoints, the elimination of all voluntary disclosures and expanded flexibility for companies to rely on estimates rather than direct data collection, particularly from suppliers. The revisions also introduce a series of permanent relief measures and extended phase-in provisions.
While the ECB acknowledged that certain simplifications could ease implementation and improve clarity, it warned that the balance may have tipped too far. In particular, it expressed concern about what it described as a “long list of permanent reliefs and phase-in provisions applicable to many disclosure requirements, as well as certain explicit and implicit exemptions for the financial sector,” cautioning that these changes “will significantly reduce transparency for investors and other market participants, as well as negatively affecting the overall availability and comparability of financial risk-relevant information necessary for adequate risk management and financial stability purposes.”
The ECB also highlighted the scaling back of climate change and biodiversity standards, which it said are “particularly important for assessing and managing physical and transition risks.” According to the staff opinion, the combination of reduced topical standards and extensive relief measures “can significantly weaken the availability, comparability, and decision-usefulness of the topical disclosures considered most relevant by the ECB.”
Interoperability with international frameworks was another area of focus. Although the revised ESRS improves alignment with global standards in some respects, the ECB noted that some of the newly introduced reliefs “go beyond IFRS and hence constitute a loss of interoperability with IFRS,” adding that the changes “could weaken the comparability of EU corporate data, reduce investor confidence and hamper the ability of EU firms to attract sustainable finance.” The comments refer in part to standards developed by the IFRS Foundation, including those of its International Sustainability Standards Board (ISSB).
The ECB further questioned whether the revised ESRS are appropriate for banks and financial institutions. It warned that changes limiting the value chain dimension of disclosures “could be detrimental to the quality of disclosures by banks,” potentially affecting risk assessment and supervisory oversight.
The staff opinion also addressed the implications of the reduced CSRD scope for voluntary reporting. The existing voluntary sustainability reporting standard for SMEs (VSME) was designed for non-listed companies with fewer than 250 employees. However, following the Omnibus changes, it may now apply to more than 40,000 companies, including large listed firms with complex global operations. The ECB suggested that the revised ESRS could instead serve as a basis for voluntary reporting, arguing that they are better suited to companies of varying sizes due to their materiality-based approach.
The ECB’s concerns echo findings from a recent EFRAG study, which reported that a majority of investors were worried about the impact of simplification on data quality, citing reduced comparability, loss of critical climate-related information and diminished metric disclosures.
Commenting on the release of the staff opinion, ECB head of the climate change centre Irene Heemskerk said: “Sustainability information is not a nice to have. It provides important insights in the risks and resilience of corporates, as well investment opportunities and how corporates are preparing for the future.”
The debate highlights the tension between reducing compliance burdens and preserving robust sustainability disclosures, as EU policymakers seek to maintain competitiveness while safeguarding financial stability and investor confidence.
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