Mr Schaefer, Ms Buck, in the discussion about reducing the administrative burden on companies, there are many calls to reduce reporting obligations. At the same time, banks need sustainability data for their lending business. How does that fit together?

Schaefer: We must differentiate between risk management requirements arising from supervisory laws – something that falls under BaFin's area of responsibility – and disclosure obligations related to general sustainability objectives. The public debate is primarily centred around broad sustainability-related disclosure obligations, such as those provided for in the European Corporate Sustainability Reporting Directive (CSRD). When it comes to sustainability reporting, many things are currently in flux. The CSRD has not yet been transposed into national law. The EU Commission is also planning to simplify sustainability reporting, which is something we welcome. Ultimately, the extent of future disclosure requirements will be decided by politicians.

What is BaFin's focus here?

Schaefer: Our focus is on supervisory reporting and risk management for the companies under our supervision. Of course, there is also a debate about how granular and complex the requirements here should be. One current example is the European Banking Authority's (EBA) Guidelines on the management of ESG risks at banks. In this area, we are attaching even greater importance to proportionality in national implementation. But essentially, banks must be able to assess the likelihood that a company will no longer be able to service its loan. Climate and environmental risks might play an important role here. Climate change is progressing and the physical risks are increasing. We expect banks to take a close look at whether their business is affected by environmental risks and what the relevant risk drivers are. To do this, they need comprehensive data. That is simply part of good risk management.

Buck: Large institutions that have issued securities that are admitted to trading on a regulated market already need sustainability data to meet the disclosure requirements under European banking regulation. All other banks will be subject to supervisory reporting and disclosure requirements in future. For this reason, the EBA is currently revising the existing Implementing Technical Standard (ITS) on ESG disclosures. We pay particular attention to proportionality – and we continually ask what data is really needed for supervisory purposes and what data can perhaps be dispensed with.

Small and medium-sized companies in the real economy in particular are likely to find it difficult to provide their banks with comprehensive sustainability data.

Buck: It is indeed difficult for many of these companies to collect the relevant data. For one, they may have difficulties obtaining some data. What's more, there are currently no standardised market-wide requirements or templates from banks that companies could use as a guide. It is not uncommon for different banks to request different information. Market participants and associations have recognised this problem and are working to establish clear industry standards. We expressly welcome this.

The European Financial Reporting Advisory Group (EFRAG), recently published a voluntary sustainability reporting standard for non-listed micro, small and medium enterprises (VSME). Could this be a viable solution for banks?

Schaefer: From a supervisory perspective, there would ideally be disclosure standards for small and medium-sized enterprises that also cover the relevant information requirements for banks' risk management. We will see whether the VSME issued by EFRAG meets the information needs of banks. As part of our participation in European committees, we are working to ensure a high level of consistency between the data banks need for supervisory reporting and the data published by companies in the real economy. From our perspective, it would of course be very welcome if the European legislator were to use the omnibus package to simplify ESG reporting obligations so that sustainability-related disclosure requirements could be aligned with the information requirements of financial companies.

Buck: And of course, banks will still need the option of requesting additional information from small and medium-sized companies in individual cases. For example, when it comes to specific business models where climate and environmental risks might be particularly relevant. In our view it is important, however, that institutions do not overburden companies with such requests.

What should the banks do in such cases? They need sustainability data from the companies...

Buck: Supervisory law offers institutions various options if they lack the required sustainability data from companies. It is important to us that they take a risk-orientated approach: in what areas do they actually need additional information from a company? Let’s take the physical risks of climate change as an example: this is an area we are focussing on this year. Here in particular, it is worth asking where institutions can draw on information that is publicly available. There is a lot of publicly available information that can be helpful in assessing physical risks, such as flood hazard maps, drought monitors or data on heavy rainfall risks. If no suitable data is available, credit institutions are explicitly permitted to make estimates, for example on the basis of data from comparable customers.

Schaefer: Responsibility remains with the banks. They have to decide what data and information are key for their risk management. They must obtain this information from their borrowers – and they must do so in the most uncomplicated way possible. We will not dictate to the banks exactly how they should do this.