5.5 The CSRD within the Sustainable Finance Framework and Taxonomy
The CSRD ensures alignment with other EU initiatives on sustainable finance, the SFDR, and the Taxonomy Regulation (Taxonomy), which are the key pillars of the package of measures implementing the EU Action Plan on Sustainable Finance and the EU Green Deal.
By introducing sustainability-related disclosure obligations for financial market participants and advisors, the SFDR aims to provide greater transparency, prevent greenwashing, and ensure comparability in the European financial markets. The SFDR is highly interconnected with the EU Taxonomy, which introduces additional Taxonomy-related transparency obligations for SFDR funds.
Under the Taxonomy Regulation, EU companies falling within the scope of the CSRD are required to report on the sustainability of their business activities. These disclosures, in accordance with Art. 8 of the Taxonomy Regulation, must be included in the annual CSRD sustainability statement. The company must ensure that the disclosures are clearly distinguishable within the sustainability statement. They should be presented together in a clearly identifiable section of the environmental part of the CSRD sustainability statement.
The resulting data will then be made available to banks and asset managers – essentially the entities covered by the SFDR – to enable them to disclose the portion of their investments in environmentally sustainable economic activities. This disclosure would be conducted at both the company level and the fund level: It covers Art. 8 and 9 SFDR funds (excluding Art. 6 products) and requires disclosure on how and to what extent the investments underlying these funds are in economic activities that qualify as environmentally sustainable under the Taxonomy Regulation.
The EU Taxonomy describes a uniform European classification system that calls for a common understanding of “green” or environmentally sustainable economic activities under the new reporting requirements in the EU. In this regard, economic activities are environmentally sustainable if they:
Substantially contribute to one of the six defined environmental objectives pursued by the Taxonomy, based on detailed technical screening criteria (specified in delegated acts);
Do not significantly harm the other five objectives (based on the criteria and thresholds defined in the delegated acts);
Are carried out in compliance with the minimum safeguards (including the OECD Guidelines for Multinational Enterprises, those of the International Labor Organization, etc.).
The Taxonomy Regulation establishes six environmental objectives:
Climate change mitigation
Climate change adaptation
The sustainable use and protection of water and marine resources
The transition to a circular economy
Pollution prevention and control
The protection and restoration of biodiversity and ecosystems