It’s been another busy seven days for sustainable finance regulation in Europe, with big developments on the simplification agenda.
On Thursday, the European Financial Reporting Advisory Group (EFRAG), the body that is advising the European Commission on how it should revise the European Sustainability Reporting Standards (ESRS), revealed that it wants to reduce the standards by two thirds.
Originally, EFRAG was planning to propose a 50% reduction in the data points that companies and large asset managers must consider when complying with the Corporate Sustainability Reporting Directive (CSRD).
But as part of an internal consultation this week, it said that figure was now closer to 66%, and would include halving the number of data points the ESRS says entities “shall” disclose as part of the CSRD, and removing nearly 300 data points they currently say entities “may” disclose.
There will be a public consultation on the proposal starting 31 July, with a view to finalising the new ESRS by the end of the year.
Last week, the Commission granted EFRAG more time for that consultation, after complaints that the original 45-day feedback period planned over the summer was too short.
Taxonomy
On Friday last week, the Commission also published a revised set of rules for disclosure under the Taxonomy Regulation.
The changes include an estimated 90% reduction in the number of data points financial institutions have to report against, and quantitative materiality thresholds – meaning investors don’t have to evaluate certain assets and activities if they don’t contribute significantly to the overall portfolio.
They will also be allowed to delay detailed disclosures for two years.
“The proposed streamlining will cut compliance costs and will hopefully enhance clarity and usability, empowering institutions to focus more on sustainable investment strategies and less on administrative complexity,” explained Laura Houët, co-head of ESG at law firm CMS.
Helena Vines Fiestas, commissioner at the Spanish financial markets authority and former head of the Commission’s advisory body, the Platform on Sustainable Finance (PSF), told IPE the update to the Taxonomy reflected many of the recommendations made by the platform earlier this year.
“Measures such as introducing a materiality threshold, allowing operational expenditure reporting to be voluntary, and simplifying the reporting formats are all positive moves that should help reduce complexity and focus on the most relevant information,” she said.
However, she said, the Commission’s final version had not accounted for the importance of transparency about corporate spending on green research and development (R&D) activities.
“Encouraging companies with substantial R&D spending to report on these activities would enable investors to better recognise their innovation efforts and facilitate the alignment of green financing instruments like bonds and loans tied to such investments,” Vines Fiestas suggested.
The proposal is now open for scrutiny by the European Council and Parliament for between four and six months. It will come into force on 1 January 2026.
New PSF
To help it with the next phase of developments on the Taxonomy Regulation, the Commission is recruiting a new set of experts to the PSF.
The Platform’s mandate was extended by three months in December 2024, but now it will appoint a new set of experts. The 35-strong group will include 28 experts from non-EU bodies, including finance, corporates and civil society. They will have until December 2027 to support the Commission’s work on the taxonomy.
Specifically, they will advise on technical screening criteria for new economic activities to be included in the taxonomy and how to update existing activities.
They’ll also update policymakers on current trends in capital flows towards sustainable investment across Europe, suggest ways to improve transition finance, and identify relevant areas of policy incoherence.
EUDR
This week also saw calls for the Commission to extend its simplification agenda to more non-financial sustainability rules, in particular, the EU Regulation on Deforestation-free Products (EUDR).
Agricultural ministers from across member states penned a letter on Monday, calling for the law – which requires companies to do due diligence on certain goods imported from countries prone to deforestation – to be added to the current simplification package.
This was followed by a vote in European Parliament on Wednesday, passing a motion to formally object to the EUDR’s current list of risky countries.
The Commission does not legally have to respond to either request, but it may choose to.
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