Joint Statement from the ECB and EBA
Quick Summary
In January 2023, the European Central Bank (ECB) and the European Banking Authority (EBA) released their opinions on the first set of European Sustainability Reporting Standards (ESRS). The ECB praised the ESRS as a “significant improvement” as it promotes enhanced guidance for companies performing environmental materiality assessments and disclosures of certain sustainability metrics. The ESRS also aligns with the disclosure requirements under the EBA’s Pillar 3 Framework and international standards set by the International Sustainability Standards Board (ISSB). The ECB suggested a “limited number” of “beneficial” recommendations, such as more granular and clearer guidance on materiality assessments and for processing data-compilations. The EBA echoed that the ESRS promoted “significant improvement” in climate-related disclosures and demonstrated “overall consistency” with relevant EU Law.
Full Story – European Central Bank and European Banking Authority Comment on Revised European Sustainability Reporting Standards
In January 2023, the European Central Bank (ECB) and the European Banking Authority (EBA) released their opinions on the first set of European Sustainability Reporting Standards (ESRS). As we have previously discussed, a revised version of the ESRS was approved by the European Financial Reporting Advisory Group (EFRAG) in November 2022, providing enhanced guidance for companies performing environmental materiality assessments and disclosures of certain sustainability metrics.
The ECB stated that the ESRS appears to “substantially” improve the “quantity, quality, reliability and comparability of corporate sustainability disclosures” and will otherwise assist ECB in its efforts to set monetary policy, promote financial stability, and collect a wide range of environmental metrics. In particular, the ECB highlighted how the ESRS relies on quantitative metrics and estimations of physical and transition risks, proposes disclosure obligations to promote transition plans in line with the Paris Agreement’s goal of limiting global temperature increases to 1.5 degrees Celsius and includes “well-defined” greenhouse-gas emissions targets. The ECB also commented that the ESRS would enhance the ability of financial institutions to gather and disclose relevant information under Basel Pillar III (which sets out disclosure requirements for permitting market participants to assess an institution’s material risks and capital adequacy). As we have written, climate-related disclosures under Pillar III would require around 150 European banks to semi-annually publish both qualitative and quantitative information related to climate risks and green-lending. The ECB praised the ESRS as a “significant improvement compared with the status quo.”
Still, the ECB proposed a “limited number” of “beneficial” recommendations. For example, the ECB pointed out that the “materiality assessment would benefit from more granular and clearer guidance on the process to be followed by compilers,” as well as clearer guidance for processing data-compilations, including the appropriate use of estimates and “further specification” for calculations of greenhouse-gas emissions. Additionally, the ECB suggested that the ESRS removed the exemption allowing for subsidiaries to be included in consolidated reporting by the controlling entities and commented that it “firmly” supports revisions focusing the ESRS on specific sectors, and in particular the financial sector due to its “key role…in the transition to a sustainable economy.” The ECB observed that there is an “urgent need” for guidance on the definition of “value chain for financial institutions” and recommended that future revisions to the ESRS take into account the experience of those tasked with preparing disclosure reports to promote a streamlined process in addressing questions and interpretation of ESRS provisions.
The European Banking Authority echoed that the ESRS promoted “significant improvement” in climate-related disclosures and demonstrated “overall consistency with international standards and relevant EU Law.” Most notably, the EBA recognized how the ESRS “better align[ed] with the disclosure requirements under the EBA’s Pillar 3 Framework.” Here, the ECB “welcomed” the ESRS’s requirements imposing the “mandatory publication of all indicators and qualitative information needed for banks to comply with the Pillar 3 ESG disclosures.” The ECB also recommended that the ESRS “enhance the alignment” with environmental standards set by the International Sustainability Standards Board (ISSB), including using similar…
