Response to consultation on draft Guidelines on the management of ESG risks
Question 26: Do you have other comments on the draft guidelines?
SMEunited represents Carfts and SMEs in Europe. We do not want to respond to this consultation from the perspective of financial institutions but add the perspective of the real economy. All requirements defined for financial institutions ultimately impact the real economy. Therefore, we consider our feedback, although it does not address the banking regulatory details, should be taken into account.
The principle of proportionality emphasized in the consultation should not only be applied to financial institutions but also to their business partners. The significance for the ESG risks of financial institutions is different regarding size, sector, and other factors. Financial institutions' ESG risk management should be forced to consider this unequal distribution of risks. Broad and general reporting requirements are therefore for most of the companies problematic as it leads to high and unnecessary reporting burden for the customers of the financial institutions.
Given the general complaint about an alleged lack of ESG data, e.g. by the ECB, the efforts involved in data collection, which can be substantial, should not be overlooked. Therefore, in all cases, it should be clear beforehand what purpose the data serve and whether they are actually necessary.
In addition, there is an effect that is already causing significant problems for small and medium sized enterprises (SMEs). Larger companies with direct reporting obligations, as well as financial institutions, pass on their reporting requirements to SMEs (trickle-down effect). These requirements lack standardisation, request very different data, and can entail a significant scope and effort for SMEs. For this reason, the European Commission, in the SME Relief Package (September 2023), tasked EFRAG with developing proportional and voluntary sustainability reporting standards (VSME, until May 2024 in the consultation).
The ESG risk management of financial institutions, not only pillar 3, should be based only on this data for SMEs. This ensures that uniform and proportionate ESG data are used without disproportionately increasing the reporting burden on SMEs.