Europe's banks warn of hidden credit risk in sudden ESG retreat

Proposed rollback of rules will make it harder for lenders to analyse credit risk

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The European Banking Federation (EBF) is warning that the sheer scale of a proposed rollback of the bloc's environmental, social and governance (ESG) rules will make it harder for lenders to analyse credit risk.

Banks in Europe have been waiting for years for their clients to start providing hundreds of data points under new ESG reporting rules.

But as the European Union now looks set to dramatically water down planned regulations, banks fear they will be left without the necessary tools to conduct proper credit risk analyses, according to the EBF, whose members include BNP Paribas, UniCredit and Deutsche Bank.

The EBF's warning came as the European Commission prepared to unveil its long-awaited omnibus proposal on Feb 26.

The EU's executive arm is proposing that key ESG rules, including the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive, be scaled back so that 85 per cent of the companies originally intended to be in scope will no longer be required to comply, Bloomberg reported.