EBA issued ‘no-action’ letter while sustainability disclosures are reviewed in boon to smaller banks
EU banks will not have to meet certain climate and other sustainability disclosure rules after the European Banking Authority told national regulators not to enforce them.
The EBA, in a “no-action” letter issued on August 6, told national authorities not to prioritise enforcing new disclosure rules until ongoing sustainability reporting reviews have concluded.
The European Commission and EBA are now reviewing how to streamline environmental, social and governance disclosure requirements, with both expected to have “a direct impact on the structure and content of ESG risk-related disclosures”.
This no-action letter means EU banks that have become subject to ESG reporting requirements this year will not have to meet their first deadline of December 31 2025.
Large institutions that trade securities on an EU market have been subject to these requirements since the beginning of 2024, under Article 449a of the Capital Requirements Regulations.
The 2024 changes to the CRR extended the scope of annual ESG risk-related disclosures to “all institutions” for 2025, in line with Basel III reforms.
These disclosures are intended to give users “sufficiently comprehensive and comparable information” to assess the risk profile of institutions.
However, enforcing these reporting requirements while potential changes are still being reviewed would require smaller banks to comply with disclosure obligations that may yet change considerably.
The EBA stated that this would place a “disproportionate compliance burden” on smaller institutions.
Larger banks will also benefit from legal certainty while conflicting disclosure requirements from different EU legislative frameworks remain in place.
The no-action letter, said the EBA, was introduced to “address legal and operational uncertainties linked to the evolving ESG disclosure framework”.
The European Commission announced its omnibus I initiative in February, with proposals to simplify sustainability reporting and reduce the burden of compliance.
The omnibus initiative contains possible changes to various regulations, including the Corporate Sustainability Reporting Directive and the Carbon Border Adjustment Mechanism, and aims to deliver more than €6bn in administrative relief.
The EBA is also consulting on amendments to the ESG disclosure framework, simplifying requirements for small and medium banks to make it more proportionate.
The consultation was launched on May 22 and runs until August 22.
The EBA issues no-action letters if it considers the application of a legislative act as liable to “raise significant issues”.
With this announcement, member state financial regulators have been told not to prioritise enforcing all ESG disclosures for the smaller companies added to the framework in 2025.
Large institutions that have securities traded on an EU market were already required to disclose their ESG risk exposures, and they remain subject to this.
However, companies with traded securities are also excluded from disclosure requirements by the letter, with regulators instructed not to enforce disclosure templates 6-10, as well as “column c” in templates 1 and 4, from the 2024 Commission Implementing Regulation.
In its official statement, the EBA said it “remains committed to delivering a coherent and streamlined ESG disclosure framework”.
While there have been attempts to standardise sustainability reporting, such as the International Sustainability Standards Board Standards and the European Sustainability Reporting Standards, inconsistencies remain.
This article was first published in The Banker