EU supervisors unite against proposed ESRS reliefs

EBA, ESMA and EIOPA warn that permanent concessions would hinder flow of sustainability information to markets

The EU’s most influential financial watchdogs have all come out against plans to introduce long-term reliefs to the European Sustainability Reporting Standards (ESRS). 

The European Commission had asked the region’s banking authority (EBA), markets authority (ESMA) and insurance and pensions authority (EIOPA) to provide feedback on proposals to make the ESRS more manageable for firms covered by the Corporate Sustainability Reporting Directive (CSRD). 

All three expressed broad support for the new framework, but flagged major concerns about the introduction of a number of ‘permanent reliefs’: carve-outs for companies that can demonstrate “they do not have the skills, capabilities or resources to provide” particular information. 

This includes the duty to explain the anticipated financial effects of key sustainability issues on their business.    

The supervisors agree that more burdensome parts of the ESRS should be phased in over time, but object to reliefs that could be used indefinitely.

For example, the EBA and ESMA both suggest disclosures on financial effects should be mandatory for all firms in scope of CSRD by the 2029 financial year. 

The EBA warns that the cumulative impact of all the proposed reliefs could “significantly reduce” the amount of information being provided to lenders and other financial institutions.   

“Simplification should not lead to a situation of permanent unavailability of relevant quantitative sustainability data, which would have negative implications to mispricing of risks and financial stability and to the flow of lending to the real economy,” it states. 

EIOPA and ESMA argue that, without a clear end-point, the reliefs offer little incentive for companies to improve their disclosures over time.  

The supervisors point out that, as CSRD now only applies to the largest and best-resourced companies in Europe, there should be little need for long-term carve-outs.

The Commission is expected to launch a public consultation on the revised ESRS in April, with a view to formally adopting the standards by the end of June.