Revised European Sustainability Reporting Standards: A Joint Commentary from the European Central Bank and European Banking Authority
European Central Bank and European Banking Authority Release Opinions on 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). The 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.
ECB’s Opinion on ESRS
The ECB stated that the ESRS appear 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 rely on quantitative metrics and estimations of physical and transition risks, propose 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 include “well-defined” greenhouse-gas emissions targets. The ECB also commented that the ESRS would enhance the ability of financial institutions to gather and disclose information relevant under Basel Pillar III (which sets out disclosure requirements for purposes of 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. Overall, the ECB praised the ESRS as a “significant improvement compared with the status quo.”
ECB’s Recommendations
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.”
Related Facts
- The revised version of the ESRS was approved by the European Financial Reporting Advisory Group (EFRAG) in November 2022.
- The ESRS rely on quantitative metrics and estimations of physical and transition risks.
- The ESRS include “well-defined” greenhouse-gas emissions targets.
- 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.
Key Takeaway
The ECB and the EBA have released their opinions on the European Sustainability Reporting Standards. The ECB praised the ESRS as a “significant improvement compared with the status quo,” while also proposing a “limited number” of “beneficial” recommendations. The ESRS rely on quantitative metrics and estimations of physical and transition risks, and include “well-defined” greenhouse-gas emissions targets. 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.
Conclusion
The ECB and the EBA have released their opinions on the European Sustainability Reporting Standards, which appear to 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. The ESRS rely on quantitative metrics and estimations of physical and transition risks, and include “well-defined” greenhouse-gas emissions targets. 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.
