EU Sustainable Regulation Simplification Proposal
European Central Bank (ECB) issues its opinion on EU sustainable regulation simplification proposal, aiming to provide recommendations on the rules for corporate sustainable information disclosure and due diligence requirements.
In February 2025, the European Union issued a proposal to amend the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD) to reduce the compliance burden on businesses.
Related Post: European Commission Released a Proposal to Simplify Multiple Sustainable Regulations
EU Sustainable Regulation Simplification Proposal Background
The European Central Bank believes that sustainable disclosure will have an impact on the way central banks fulfill their responsibilities, including:
- Banking Supervision: Regulatory agencies need to ensure that banks can identify, measure, manage, and monitor short-term, medium-term, and long-term ESG risks, and assess the financial risks that banks may face during their transition process. High quality sustainable information is crucial in this process.
- Financial Stability: Consistent, reliable, and comparable sustainable information is a prerequisite for accurately assessing climate and nature related financial risks. Sustainable disclosure regulatory policies will provide brief and clear information to help regulatory agencies monitor and respond to potential risks throughout the financial system.
- Monetary Policy: In July 2022, the European Central Bank announced the inclusion of climate factors in its monetary policy, and in March 2024, it announced the inclusion of climate factors in its structural monetary policy operations. Sustainable information can provide information on carbon emissions, transition plans, green financing, etc., providing reference for the central bank’s monetary policy.
- Collection of Statistical Information: The European Central Bank can obtain sustainable information from numerous enterprises to compile statistical indicators such as sustainable finance and carbon emissions.
Suggestions from the European Central Bank
The European Central Bank provides recommendations on two sustainable regulations:
Corporate Sustainability Reporting Directive
The proposal reduces the scope of application of CSRD, and the European Central Bank believes that this change may reduce information disclosure by 80%, making it difficult for stakeholders to access information. For example, after this modification, more than 10% of large banks will no longer be required to disclose sustainable information, which may reduce the transparency of financial market information. The European Central Bank recommends that all systemically important financial institutions should continue to comply with the directive, rather than being screened based on their numbers and other factors.
The proposal encourages companies to voluntarily disclose information using their own sustainable standards system. The European Central Bank believes that if more companies adopt voluntary standards, it may have an impact on data quality and availability. Enterprises may selectively disclose information, resulting in greenwashing. The European Central Bank suggests applying the European Sustainability Reporting Standards (ESRS) and selecting important data points to standardize information disclosure.
Corporate Sustainability Due Diligence Directive
The proposal revises the enterprise transition plan in CSDDD, which the European Central Bank believes may lead to misunderstandings among enterprises, believing that they have an obligation to develop transition plans but not to implement them. The transition plan is an important source of information for the European Central Bank in the field of prudent supervision, and an important basis for financial institutions, investors, and others to evaluate their investment portfolios. The European Central Bank suggests adding clauses to the directive to ensure the application of the transition plan.
The proposal removes the provision for regulated financial institutions to establish additional sustainable due diligence requirements. The European Central Bank believes that regulated financial institutions should incorporate sustainability issues into their business decisions, and therefore recommends retaining this provision, but may consider establishing a longer buffer period to provide more time for financial institutions.
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