ECB President: Reducing CSRD scope would ‘weaken’ European financial system in the face of climate change

European Central Bank (ECB) President Christine Lagarde has warned that reducing the scope of the Corporate Sustainability Reporting Directive (CSRD) would weaken the European financial system and hinder its ability to protect itself against climate impacts.

In a letter addressed to members of the European Parliament, Lagarde explains that measures to make the Eurosystem more resilient to climate shocks – such as the ‘climate factor’ introduced in July to assess collateral in bank lending – depend on the availability of reliable and comparable sustainability information.

“The ECB’s planned climate-related measures may be affected by the proposed amendments to the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). In particular, the proposed reduction in the scope of undertakings subject to sustainability reporting requirements under the CSRD would limit the availability of firm-level data, thereby weakening the Eurosystem’s ability to perform a granular assessment of climate-related financial risks on its balance sheet and within its collateral framework,” she writes.

She then urges European legislators to “strike the right balance between retaining the benefits of sustainability reporting for the European economy and the financial system while also ensuring that the requirements are proportionate”.

Investors and businesses demand preservation of CSRD

Earlier this month, a group including 110 investors (such as Allianz SE, Nordea AM, LBPAM and P&V Verzekeringen) 55 companies (such as IKEA, ACCIONA, Nokia and Vattenfall), and 79 other organisations (such as Accountancy Europe, the Dutch Federation of Pension Funds, amfori and B Lab) published a joint statement calling on EU policymakers to preserve the core of the EU sustainable finance framework.

“CSRD/ESRS and CSDDD are essential for achieving the EU’s wider sustainability, growth and competitiveness ambitions. They contribute to reorienting investment towards the technologies and sectors that support the goals of the Clean Industrial Deal and can reinforce harmonisation efforts for EU capital markets, as set out in the Savings and Investment Union.The signatories of this statement consider that regulatory simplification can be achieved without compromising on the substance of sustainability rules or their significant benefits for businesses across the EU,” they argued.

Next steps for EU Omnibus

The fate of the CSRD and CSDDD will be decided when the European Parliament comes back in session in September. The European Council has already agreed its position on the Omnibus directive – seeking even greater deregulation than the European Commission’s original draft.

But in the European Parliament, opinions are highly divided, meaning there is still room for negotiation.