The European reporting system is to be harmonised
On the one hand, the European Single Access Point (ESAP) was recently enshrined in European law (see TSI compact dated 16 January 2024. As a central European access portal for highly granular information, including ESG data from companies and issuers, it is intended to facilitate compliance with investors’ due diligence obligations. Ideally, it will become a cornerstone for ensuring market transparency and market integrity in the European capital markets.
The other side of the same coin is the Integrated Reporting Framework (IReF), which aims to centralise reporting and notification in the banking sector from 2027. Here too, centralisation should help to ensure consistency in statistical and regulatory data, including ESG information, and systematically reduce the data-related workload of financial institutions.
The guiding principle of IReF and ESAP is: “Define Once – Report Once”
Against the backdrop of these ambitions, however, the EBA’s recent consultation on the reporting of ESG risks and the SSM’s banking supervisory priorities for the years 2024-2026 regarding the recording of so-called climate-related and environmental (C&E) risks raise questions.
The EBA consultation focuses on risk management in the banking sector and aims to find out whether and to what extent the institutions it supervises take ESG risks into account in their risk management. The systemically important banks supervised by the SSM are expected to fulfil the expectations regarding the integration of C&E risks in risk management and beyond by the end of 2024. The background to this is the results of the 2022 climate stress tests, according to which banks do not yet sufficiently incorporate ESG information into their stress test frameworks and internal models.
It appears that the plans of the EBA and SSM are not very harmonised here. Given the great European ambition to create a harmonised framework for capital markets and banking, this is regrettable. Regulatory authorities should do justice to the efforts of European legislators regarding the ambition of IReF and ESAP – so that things don’t get worse in financial reporting before they get better.
To the EBA consultation:
Reporting of ESG risks
To the ECB Banking Supervision reports:
SSM supervisory priorities
2022 climate risk stress test (PDF)