This article has been published on RankiaPro Italy

The European Commission’s recent “Omnibus” proposal – published without a much-needed impact assessment – has rightly drawn some criticism for its procedural shortcomings.  Yet, the broader Simplification Package represents a pivotal opportunity to revisit the EU’s overly complex and bureaucratic sustainable disclosures framework. As the proposal moves through the European Parliament and Council, it is becoming clear that the Commission’s suggested amendments to the Corporate Sustainability Reporting Directive (CSRD) fall short of European lawmakers’ simplification ambitions. 

This backlash to sustainable finance reflects the shifting broader geopolitical environment. The parallel challenges in the bloc’s relations with the US Administration and Russia’s ongoing war against Ukraine have shifted the EU’s priorities away from the sustainability agenda of the previous 5-year mandate. 

Incorporating ESG factors into portfolio analysis enables financial institutions to better assess the impacts, risks, and opportunities of their investments. For asset managers, ESG integration is not just a matter of ethics—it is a fiduciary responsibility that supports long-term market stability and growth. 

At the heart of this process lies the availability of reliable sustainability-related data. The problem remains as the EU’s sustainable finance framework has been in near-constant flux, reshaped with each political cycle. This, unfortunately, undermines the reliability of our institutions and the growth of our economy. The current geopolitical developments must not compromise the financial sector’s commitments to the European Green Deal, and consequently, the availability and quality of meaningful sustainability-related information. 

Striking the right balance between simplification and substance is essential. Reducing reporting requirements without a clear strategy for maintaining data integrity will undoubtedly lead to data gaps, leaving asset managers increasingly dependent on third-party, and mostly non-EU, providers, selling proxy ESG data. Ironically, a reform designed to cut the administrative burden for companies could instead raise costs for investors.

Ongoing negotiations in the Council and the European Parliament suggest that the scope of the CSRD may be narrowed even further than initially proposed by the European Commission. Excluding companies with fewer than 1,000 employees and turnover less than €50 million already reduces the number of reporting firms to around 10,000. If further diluted, there is a clear and present risk not only limiting the future flow of data promised under the CSRD but also undermining the continuity of disclosures established since 2018 under the Non-Financial Reporting Directive (NFRD).

Instead of narrowing the number of reporting firms, EFAMA advocates for an overhaul of disclosure standards. We believe the European Sustainability Reporting Standards (ESRS) can be significantly streamlined – by as much as 70% – without compromising the quality or usefulness of information available to investors. 

While technical in nature, achieving balanced simplification is critical. Done right, it not only eases reporting burdens but also strengthens European competitiveness and the EU’s global leadership in sustainable finance. The goal should be simple and clear: focus on essential, decision-useful information, without sacrificing the reliability, consistency, and accessibility of sustainability-related information.

Author: Ilia Bekou, Regulatory Policy Advisor, EFAMA