ECB Warns ESRS Simplification Significantly Reduces Investor Transparency

The European Central Bank has published a staff opinion on the revised European Sustainability Reporting Standards, warning that several Omnibus simplification measures will significantly reduce transparency for investors and other market participants. The ECB staff also suggested using the revised ESRS as the basis for voluntary sustainability reporting for large companies removed from mandatory CSRD scope.

The ECB's concerns centre on several changes introduced through the Omnibus revision of the ESRS, including a long list of permanent reliefs, phase-in provisions, and exemptions, particularly for the financial sector. The staff warned these changes will reduce availability and comparability of financial risk-relevant information needed for risk management and financial stability. Specifically, the revised ESRS substantially reduced climate change and biodiversity-related topical standards, which the ECB considers particularly important for assessing physical and transition risks. The Omnibus removed approximately 90% of companies from the scope of the CSRD by raising thresholds to 1,000 employees and €450 million in revenue.

The ECB staff also flagged that some new reliefs introduced under the simplification process go beyond IFRS standards and represent a loss of interoperability with global frameworks. This divergence could weaken comparability of EU corporate data, reduce investor confidence, and hamper EU firms' ability to attract sustainable finance. Separately, the ECB staff noted concerns about the appropriateness of the revised ESRS for bank disclosures, warning that curtailed value chain disclosure dimensions could be detrimental to the quality of bank reporting. These concerns echo findings from an EFRAG study in which a majority of investors raised similar alarms about reduced climate data quality.

The ECB staff issued several recommendations, including time-limiting reliefs on metric disclosures to avoid permanent data blind spots, and reducing the six-year phase-in for quantitative disclosure of anticipated financial effects. On the positive side, the ECB acknowledged several simplifications that add clarity and ease implementation. The publication also addressed the expanded role of voluntary sustainability reporting, noting that the current VSME standard was designed for small non-listed companies but will now potentially apply to more than 40,000 companies, including large listed ones. The ECB suggests the revised ESRS would be better suited to serve this population.

Key figure — 90% of companies removed from CSRD scope