The European Central Bank has said too many companies are being cut from the scope of sustainability reporting under proposals made by Brussels. The changes are intended to ease the regulatory burden on corporates and improve EU competitiveness.

The conclusion challenges proposals from the European Commission to remove 80% of the companies originally affected from the reach of the Corporate Sustainability Reporting Directive (CSRD).

In a letter signed by its president, Christine Lagarde, the European Central Bank (ECB) argues that cutting so many companies from the application of CSRD could cut the data available to “stakeholders”.

“As noted in the proposal,” the letter argues, “the number of undertakings subject to sustainability reporting requirements would be reduced by about 80%. This amendment could significantly limit stakeholders’ access to important information”.

The letter goes on to say that the cut in numbers “may even result in certain significant emitters—including fossil fuel companies—falling outside the scope of the reporting obligation”.

ECB officials also worry that the reform means one in eight “credit institutions” —banks, credit unions, building societies—could fall out of the scope of the reporting rules under the floated changes.

‘Incomplete’ data

“This would lead to an incomplete set of publicly available ESG information from the banking sector, thus impeding the objective of the [European] Union’s sustainable finance framework of guaranteeing comprehensive transparency to the financial markets.”

The ECB’s intervention will come as a significant moment for the Commission as it attempts to water down the demands of the CSRD and the Corporate Sustainability Due Diligence Directive (CSDDD) in what is known as the “omnibus” project.

It was announced at the end of February that the omnibus process would go ahead after lobbying from leading European Union member states.

The calls for reform were largely fuelled by a report on EU competitiveness from former ECB president Mario Draghi, published in September last year.

The report declared: “The EU’s sustainability reporting and due diligence framework is a major source of regulatory burden magnified by a lack of guidance to facilitate the application of complex rules and to clarify the interaction between various pieces of legislation.”

In a Financial Times editorial, Draghi argued that European internal rules would have a worse impact on trade that Donald Trump’s tariffs.

Part of the problem is in the Commission’s omnibus proposal that CSRD apply to companies of 1,000 employees or more, and with a turnover of €500m, thus excluding many smaller businesses that would have had to comply.

The ECB proposes that cutting the employee threshold to 500 or more employees would remedy the issue. Smaller companies could also be subject to a “simplified” sustainability reporting standard.

There is some way to go. The only omnibus proposal agreed so far is a delay to introducing the new rules for two years for the CSRD, and one year for CSDDD.

However, the rest of the proposals are on an accelerated timetable, with the final shape emerging either at the end of this year or early 2026. There is still time for debate, but it is short.