ESG Omnibus: Throwing the baby out with the bathwater

The massive reduction of the CSRD scope will therefore directly benefit banks that were included in the first wave of enforcement but are now falling out of scope of the disclosures. These institutions will see their reporting burden drop. For the tinyer financial institutions that were going to start reporting with the second implementation wave, this also results in a reduction in their reporting requirements and puts an finish to a year of regulatory uncertainty.

That being declared, for banks still in scope, this will have the opposite impact by complicating compliance through more complex data collection. We further discuss this point in the next section.

More complex data collection

Considering that banks inherently rely on their client’s data for their own sustainability disclosure, the significant scope reduction will adversely affect institutions still reporting. Research estimates that only about 6,000 companies will still be required to disclose their sustainable information under the CSRD following the Omnibus. This represents a 92% drop from the initial scope of the Directive.

While corporates that are not required to report on their ESG data can still do so through voluntary disclosures, the modify implies that the bulk of banks’ corporate clients will not have to gather or share their information. That is specifically true as the ‘value chain cap’ protects any entity not in scope of the CSRD from being forced to disclose information to any business partner requesting it (thus including banks).

In the event that the banks’ clients are collecting and willing to share data gathered through the voluntary disclosure framework, this doesn’t ensure that it will cover all necessary data points and can imply major disparities between disclosures in terms of both data points collected and the reporting quality.

To address this, banks have two solutions: Firstly, they can develop bilateral agreements with their clients to gather and share the necessary data points. However, considering the data collection cost for clients, it remains difficult to imagine this as a viable solution.

Secondly, financial institutions could create utilize of more proxies in their report to compensate for the lack of data from their clients. While this solution would offer the benefit of limiting costs, the current state of the Directive limits the utilize of such proxies. To be a realistic option, the regulator should review and loosen those limits to allow a broader utilize of these methods. Additionally, relying on proxies could raise questions about the reliability of the data, as it would not accurately reflect the true state of banks’ books.

To conclude, even if some corporates may still choose to voluntarily collect and disclose ESG data, the sustainability Omnibus increases the reporting complexity for banks still in scope. This could translate into both higher costs and lower quality disclosures.

Regulatory discrepancies

The finalisation of the Omnibus I answers questions related to the enforcement scope after a year of legislative uncertainty. However, it raises new questions for banks.

It is now clear that most banks will not have to disclose their ESG data under the CSRD. It is also certain that institutions still in scope will have to disclose fewer data points and that reporting standards will be simplified by mid-2026. That being declared, the simplification did not affect all ESG disclosures that credit institutions are subject to.

Indeed, under the Capital Requirement Regulation (CRR), banks are also required to disclose sustainability-related information. More specifically, the Pillar 3 reporting requires banks to collect and share a significant amount of ESG data. Unlike the CSRD and the Taxonomy, these requirements were not part of the sustainability Omnibus and therefore not subject to any simplification yet.

The European Banking Authority (EBA) proposed some modifys to the Pillar 3 requirements and launched a consultation in 2025 with the aim of aligning Pillar 3 disclosures with the Omnibus package, reflecting the scope reduction. While the consultation concluded, the EBA hasn’t implemented modifys to reflect the Omnibus simplification, at this point in time.

Banks are therefore left stuck between a rock and a hard place with, on one side, fewer and simplified requirements and on the other side, unmodifyd regulations. As long as a discrepancy between the various ESG disclosures exists, banks will have to collect the same amount of ESG data. This occurs while banks receive less information from their clients – and when data is provided, it is often of lower quality.

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