ECB warns EU rollbacks put climate oversight at risk
The European Central Bank has cautioned that the European Union’s push to cut red tape may clash with financial stability, warning that proposed rollbacks to sustainability reporting would impair the assessment of climate risk.
In an August 15 letter to members of the European Parliament, ECB President Christine Lagarde said the Commission’s February 2025 “omnibus” package would have “significant implications” for the Eurosystem if it erodes access to standardized climate data needed to gauge risks from climate change and nature degradation.
The omnibus aims to simplify EU rules to support industrial competitiveness and reduce compliance burdens. But the plan also pares back two cornerstone regimes - the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive.
Under the proposal, only companies with more than 1,000 employees or €50 million in turnover would report, exempting more than 80% of firms currently in scope.
That carve-out could blind risk watchers, experts warned.
“No data for 80 per cent of companies hinders the ECB’s ability to assess more precisely climate risks in the economy and spot the systemic risk they can represent for the financial system,” said Pierre Monnin of the Council on Economic Policies in remarks to Sustainable Views.
The ECB’s own opinion, published in May, warned that the “resulting lack of data may mask climate-related financial risk.”
The bank estimates companies now covered by CSRD account for roughly 37% of the EU’s CO₂ emissions, meaning a sharp reduction in coverage would both lower the share of reported emissions and exclude some of the region’s largest emitters. Banks would also be affected.
“Due to the lack of regulatory-mandated disclosures for the corporate sector, supervised entities such as banks will have more difficulty assessing the extent to which their lending books are exposed to climate risks,” said Silvia Merler, a fellow at Bruegel, to Sustainable Views.
Data gaps have already constrained ECB tools. In 2022, the central bank announced climate concentration limits for its collateral pool but could not launch the measure in 2024 due to insufficient granular data.
Instead, in July 2025 it introduced a “climate factor” to adjust collateral haircuts for corporate bonds, scheduled to take effect in the second half of 2026.
Even that fix has limits, analysts said, because it applies only to corporate bonds. Monnin noted the ECB still must manage risk on other collateral - bank bonds, asset-backed securities and credit claims - which rely more on smaller companies likely to be exempt from reporting.
Andrew Garraway of Risilience warned that without comparable, robust, and granular data, adjustments under the climate factor risk being incomplete or distorted, weakening its effectiveness as a stability tool.
The ECB also questioned the proposal’s size-based approach for banks. Today all credit institutions must report under CSRD.
The draft would exclude about one in eight significant institutions and most smaller ones, creating gaps in publicly available ESG data and, the ECB argued, masking risks that are “not necessarily proportionate to an institution’s size.”
As lawmakers weigh competitiveness against transparency, the ECB’s message is clear: scaling back disclosure could save compliance costs now but raise the price of unseen risk later.