Lawmakers Should Avoid Weakening the Sustainability Reporting Requirements of the CSRD as Warned by the President of ECB

The European Central Bank (ECB) is facing potential challenges in managing climate risks within the financial system, due to proposed changes and delays in the implementation of the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), as outlined in the European Commission's Omnibus I package.

ECB President Christine Lagarde has expressed concerns about the impact of these changes on the ECB's ability to implement climate-related measures effectively. She emphasized the importance of maintaining a balance between reducing the regulatory burden on companies and ensuring that the requirements are proportionate.

One of the key proposed changes is a reduction in the scope of the CSDDD, which would require full human rights and environmental due diligence only at the level of direct business partners, with less frequent monitoring. This could limit the availability of firm-level data for the Eurosystem, potentially weakening its ability to perform a granular assessment of climate-related financial risks on its balance sheet and within its collateral framework.

Lagarde has also highlighted the need for high-quality climate data for the Eurosystem to properly address the implications of climate change and nature degradation. She noted that the Eurosystem requires sufficient data to adequately consider these factors when implementing climate-related measures.

The ECB has been proactive in incorporating climate change considerations into its operations. In 2022, it began reviewing haircuts in its collateral framework with climate risks in mind. In 2024, it started incorporating climate change factors into national central banks' assessments of the creditworthiness of collateral. Additionally, in 2026, the ECB plans to introduce a "climate factor" within the Eurosystem's collateral framework to protect against potential decline in value of collateral in event of adverse climate-related transition shocks.

However, initiatives underway to reduce sustainability and due diligence reporting requirements may limit the ECB's ability to implement these climate-related measures. Proposed changes to the CSRD would increase the employee threshold to 1,000, removing an estimated 80% of companies from the regulation's sustainability reporting requirements.

Lagarde's concerns were further echoed in a recent letter, where she warned that the changes may pose a challenge to the Eurosystem's ability to manage climate risk effectively. She also noted that the proposed delays to the CSRD and CSDDD may exacerbate these challenges.

The specific names of the individual legislative initiatives within the Omnibus I package that could significantly reduce sustainability and due diligence reporting, and their impacts on the ECB's ability to manage climate risks in the financial system, are not explicitly listed in the provided search results. However, relevant initiatives mentioned for the energy and climate sectors include the planned EnWG-Omnibus-Gesetz, the flankierende Haushaltsfinanzierungsgesetz, and other specialized laws integrating about 49 points from the growth initiative related to energy and climate policy.

Several lawmakers, including Omnibus rapporteur Jörgen Warborn, have proposed even sharper cuts to the CSRD and CSDDD scopes, raising the threshold of companies covered to those with more than 3,000 employees and €450 million in revenue. These proposed changes could further limit the availability of high-quality climate data, potentially hindering the Eurosystem's ability to properly address the implications of climate change and nature degradation.

In conclusion, the Omnibus I package's proposed changes and delays to the CSRD and CSDDD could impact the ECB's ability to manage climate risks effectively. The need for high-quality climate data and continued due diligence monitoring is crucial for the Eurosystem to adequately consider the implications of climate change and nature degradation.

Lawmakers Should Avoid Weakening the Sustainability Reporting Requirements of the CSRD as Warned by the President of ECB