Lagarde warns EU omnibus risks cutting too much from climate rules

Christine Lagarde, president of the European Central Bank (ECB), has warned members of the European Parliament against going too far in their plans to trim corporate sustainability reporting requirements.

Lagarde wrote to European parliamentarians to note that plans to amend corporate sustainability reporting had significant implications for the ECB’s attempts to incorporate climate change considerations into its monetary policy framework for the Eurosystem.

“Climate change has profound implications for price stability through its impact on the structure and cyclical dynamics of the economy and financial system,” she wrote. “To adequately consider the implications of climate change and nature degradation, the Eurosystem requires sufficient high-quality climate data.”

The European Commission has proposed an EU omnibus regulation to simplify many of the bloc’s corporate sustainability reporting requirements. The omnibus proposal is part of the EU’s broader efforts to become more competitive as the political tide has turned in Europe to the right, mirroring US president Donald Trump’s anti-ESG and deregulation push.

The proposed changes move to align the corporate sustainability reporting directive (CSRD), which covers reporting rules, closer to the corporate sustainability due diligence directive (CSDDD), a legal obligation to look at and mitigate climate and social risks.

The EU omnibus proposal removes around 80% of companies from the scope of the CSRD rules, as reporting would only apply to companies with over 1,000 employees and a turnover of €50mn or a balance sheet of more than €25mn.

It also postpones reporting requirements for companies set to report in 2026 or 2027 by two years. Instead, companies could report on a voluntary basis using sustainable reporting standards developed by the EU’s standards body, the European Financial Reporting Advisory Group. Sector-specific reporting standards were also removed.

Lagarde’s letter expressed her concern about the plans.

“The proposed reduction in the scope of undertakings subject to sustainability reporting requirements under the CSRD would limit the availability of firm-level data, thereby weakening the Eurosystem’s ability to perform a granular assessment of climate-related financial risks on its balance sheet and within its collateral framework,” she wrote.

The ECB recently added a climate factor into its collateral framework to better manage financial risk from climate change. The collateral framework gives banks the means to pledge assets to guarantee loans. Eligible assets are determined by EU national central banks under criteria set out by the Eurosystem.

Lagarde said the amendments to the CSRD and CSDDD could hinder the Eurosystem’s ability to implement measures, as could delays to the adoption of the CSRD into the national laws of member states.

“It is therefore important that these amendments strike the right balance between retaining the benefits of sustainability reporting for the European economy and the financial system while also ensuring that the requirements are proportionate,” she said.

The European Commission says the regulations are burdensome for companies and need to be simplified. But some investors and companies are concerned that the EU’s reporting rules could be rolled back and weaken transparency. There are also concerns that it could curb the EU’s ambitions to spur private investment in green projects.

The omnibus regulation process started in November when European Commission president Ursula von der Leyen announced a process to streamline and align ESG reporting rules. While the EU’s corporate reporting rules are being looked at first, other omnibus packages to streamline other rules may follow later this year.