13.12.2024

EU Taxonomy, CSRD, ESRS, CSDDD - Similarities and Differences at a Glance

 

In recent years, the European Union and other international regulatory authorities have developed a large number of guidelines and frameworks to promote sustainability and responsible corporate governance. These include the EU Taxonomy, the Corporate Sustainability Reporting Directive (CSRD), the European Sustainability Reporting Standards (ESRS), the Corporate Sustainability Due Diligence Directive (CSDDD), the Non-Financial Reporting Directive (NFRD), the Sustainable Finance Disclosure Regulation (SFDR), the regulations of the US Securities and Exchange Commission (SEC) and the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

These initiatives play a central role in fostering sustainability and corporate accountability in a global economy increasingly focused on environmental, social, and governance (ESG) matters. In this blog article, we will take a look at the most important similarities and differences between these regulations.

 

 

EU Taxonomy

The EU Taxonomy is a classification system that sets out clear criteria for which economic activities are considered environmentally sustainable. The aim is to provide investors, companies and political decision-makers with a uniform definition of sustainable investments, helping to guide investment decisions in alignment with the European Green Deal.
 

Key features of the EU Taxonomy:

1. Categorization: The Taxonomy categorizes economic activities in terms of their environmental friendliness.

2. Technical criteria: Specific thresholds and conditions for processes to qualify as sustainable.

3. Transparency: Companies must disclose the extent to which their activities meet the criteria of the EU Taxonomy.

 

 

Corporate Sustainability Reporting Directive (CSRD)

The CSRD is an EU directive that aims to improve the transparency and comparability of corporate sustainability reporting. It replaces its predecessor regulation, the Non-Financial Reporting Directive (NFRD), and significantly expands its requirements.

 

Key features of the CSRD:

1. Extended scope: applies to all large companies and listed companies in the EU.

2. More detailed reporting: Companies must provide more comprehensive information on their environmental, social and governance (ESG) practices.

3. External verification: Data reported by companies must be externally audited and verified.

4. Uniform standards: Reporting must comply with the standards developed by the EU, which improves comparability and transparency.

 

 

European Sustainability Reporting Standards (ESRS)

Developed by EFRAG and linked to the CSRD, the ESRS provide specific guidelines and requirements for corporate sustainability reporting, ensuring consistency and alignment with other EU frameworks.

Key features of the ESRS:

1. Detailed requirements: The ESRS provide comprehensive specifications on how companies should record and report their sustainability data.

2. Sector-agnostic and sector-specific standards: The ESRS cover a wide range of topics, including environmental, social and governance.

3. Mandatory application: Companies covered by the CSRD must apply the ESRS in their reports.

 

 

Corporate Sustainability Due Diligence Directive (CSDDD)

The CSDDD enhances corporate accountability, focussing on respect for human rights and environmental stewardship throughout value chains. This directive requires companies to fulfill due diligence obligations in order to avoid negative social and environmental impacts.
 

Key features of the CSDDD:

1. Obligations for due diligence: Risk identification, prevention, and mitigation of potential negative impacts of business activities on human rights and the environment.

2. Reporting: Regular reporting on due diligence obligations and the measures taken.

3. Liability and enforcement: Establishing of penalties for non-compliance and legal accountability for adverse impacts​​.

 

 

Non-Financial Reporting Directive (NFRD)

The NFRD is a former EU directive that set the groundwork for ESG disclosures. It required large companies to disclose non-financial information relating to environmental, social and employee matters, human rights and anti-corruption.
 

Key features of the NFRD:

1. Scope of application: large public stakeholders such as listed companies, banks and insurance companies.

2. Reporting obligation: Disclosure of non-financial and diversity-related information.

3. Transition to CSRD: The NFRD is gradually being replaced by the more comprehensive CSRD.

 

 

Sustainable Finance Disclosure Regulation (SFDR)

The SFDR is an EU regulation that requires financial market participants and financial advisors to disclose sustainability information. Its aim is to increase transparency about sustainable investments and prevent greenwashing.
 

Key features of the SFDR:

1. Product disclosures: Financial market participants must provide information on the sustainability of their products and services.

2. Transparency: Increasing transparency about sustainability risks and supporting their consideration in investment decisions.

3. Prevention of greenwashing: Ensuring that products advertised as sustainable actually meet sustainability criteria.

 

 

Securities and Exchange Commission (SEC)

The SEC is developing regulations on sustainability reporting for US companies. These regulations aim to improve the disclosure of ESG risks and opportunities of companies listed on US stock exchanges.

Key features of the SEC guidelines:

1. ESG disclosures: Companies must disclose material ESG risks and opportunities in their annual reports.

2. Focus on investors:  Objective to enable better assessment of companies' sustainability performance.

3. Alignment with global standards: The SEC is working to harmonize its regulations with other international frameworks.

 

 

Task Force on Climate-related Financial Disclosures (TCFD)

The TCFD was set up by the Financial Stability Board (FSB) to develop recommendations for the disclosure of climate-related financial risks. The TCFD aims to support companies in reporting on their climate-related risks and opportunities in order to better inform investors and other stakeholders.

Key features of the TCFD:

1. Recommendations for disclosure: The TCFD provides specific recommendations for the disclosure of climate-related risks and opportunities in the areas of governance, strategy, risk management, metrics and targets.

2. Cross-industry application: The TCFD recommendations are applicable across industries and can be implemented by companies of all sizes and sectors.

3. Integration into existing reporting: The TCFD recommendations can be integrated into existing sustainability and financial reports, which improves the consistency and comparability of the reports.

Overview Chart

Feature	EU Taxonomy	CSRD	ESRS	CSDDD	NFRD	SFDR	SEC	TCFD
Focus on	Classification of sustainable economic activities	Sustainability reporting	Detailed reporting standards	Human rights and environmental due diligence	Non-financial reporting	Disclosure of sustainability information	Disclosure of ESG risks and opportunities	Disclosure of climate-related financial risks
Scope of Application	All economic activities	Large companies and listed companies	Companies covered by the CSRD	Companies with supply chain responsibility	Large public stakeholders	Financial market participants and financial advisors	Companies listed on US stock exchanges	Companies of all sizes and sectors
Objectives	Promote transparent and comparable sustainable investments	Increase transparency and comparability of sustainability practices	Provide clear reporting standards	Protection of human rights and the environment in supply chains	Increasing transparency about non-financial information	Increasing transparency and avoiding greenwashing	Improving investor information on ESG risks and opportunities	Improving information on climate-related financial risks
Requirements	Disclosure of the sustainability of activities	Comprehensive reporting and external auditing	Application of detailed reporting standards	Compliance and reporting on due diligence obligations	Disclosure of non-financial information	Disclosure of sustainability information	Disclosure of material ESG risks and opportunities	Disclosure of climate-related risks and opportunities
Technical Criteria	Yes	No	Yes	No	No	No	No	No
External Audit	No	Yes	Yes	No	No	No	Yes	No

 

Conclusion

These frameworks collectively establish a robust foundation for advancing sustainability and corporate accountability. While the EU Taxonomy and SFDR provide guidance for financial markets, the CSRD and ESRS underpin corporate disclosures, complemented by global standards like the TCFD. Together, they signal a significant leap towards a sustainable and transparent global economy.