Why EU Taxonomy & CSRD/ ESRS come with “buy-one-get-one-free” synergies:
Many companies will need to report according to both regulatories, but that does not mean double effort. The EU Green Deal of the EU Commission aims for modernizing and transforming the EU economy into a climate-neutral sustainable one. EU Taxonomy and CSRD/ESRS are key standards making this transition happen. Here is how:
1️⃣ 𝗘𝗨 𝗧𝗮𝘅𝗼𝗻𝗼𝗺𝘆
EU Taxonomy aims to redirect private capital into sustainable assets. Banks need to report how many assets are invested sustainably. It defines what is a sustainable investment, classifying relevant sectors starting with six environmental and a social safeguard criteria. Investments meeting these criteria can be labeled as “green”.
2️⃣ 𝗘𝗨 𝗧𝗮𝘅𝗼𝗻𝗼𝗺𝘆 𝗖𝗿𝗶𝘁𝗲𝗿𝗶𝗮 𝗶𝗻 𝗖𝗦𝗥𝗗/𝗘𝗦𝗥𝗦
CSRD/ESRS is the designated reporting regulation in the EU and covers all relevant environmental, social, and governance disclosure requirements. Luckily, CSRD/ESRS integrates EU Taxonomy criteria into the reporting standard so that companies have synergies in reporting and consistency in frameworks.
3️⃣ 𝗧𝘄𝗼 𝗠𝗮𝗶𝗻 𝗚𝗼𝗮𝗹𝘀: 𝗖𝗹𝗶𝗺𝗮𝘁𝗲 𝗠𝗶𝘁𝗶𝗴𝗮𝘁𝗶𝗼𝗻 𝗮𝗻𝗱 𝗖𝗹𝗶𝗺𝗮𝘁𝗲 𝗔𝗱𝗮𝗽𝘁𝗮𝘁𝗶𝗼𝗻
Both, Climate Mitigation and Climate Adaption as main goals are backed-up with measurable criteria in the EU Taxonomy, e.g. CO2 criteria for green steel or solar investments. Both aspects are also included in the CSRD/ESRS with actions and indicators on CO2 reduction for mitigation and climate risks relevant for adaptation.
4️⃣ 𝗗𝗼 𝗡𝗼𝘁 𝗦𝗶𝗴𝗻𝗶𝗳𝗶𝗰𝗮𝗻𝘁 𝗛𝗮𝗿𝗺: 𝗙𝗼𝘂𝗿 𝗙𝘂𝗿𝘁𝗵𝗲𝗿 𝗘𝗻𝘃𝗶𝗿𝗼𝗻𝗺𝗲𝗻𝘁𝗮𝗹 𝗚𝗼𝗮𝗹𝘀
Next, investments according to the EU Taxonomy need to make sure that they don’t do damage in four other environmental goal areas: water and marine resources, pollution, ecosystems and biodiversity, resource use, and circular economy. Consistently, those four areas are also included in the CSRD/ESRS with specific reporting disclosure requirements e.g. water consumption, resource consumption, or pollution indicators.
5️⃣ 𝗦𝗼𝗰𝗶𝗮𝗹 𝗦𝗮𝗳𝗲 𝗚𝘂𝗮𝗿𝗱𝘀: 𝗘𝗻𝘀𝘂𝗿𝗲 𝗦𝗼𝗰𝗶𝗮𝗹 𝗦𝘁𝗮𝗻𝗱𝗮𝗿𝗱𝘀 𝗮𝗻𝗱 𝗛𝘂𝗺𝗮𝗻 𝗥𝗶𝗴𝗵𝘁𝘀
Finally, Human Rights and international social minimum standards e.g. from International Labour Organization or OECD – OCDE guidelines need to be ensured in investments to be EU taxonomy conform. Those are called “social safeguard criteria”. Consistently, CSRD/ESRS has reporting requirements on social standards for the own workforce and workforce in the value chain.
Mid-sized companies are often not at the first front of the EU Taxonomy, which are financial institutions and stock-listed large corporates. But they get reporting requirements for the EU Taxonomy and CSRD/ESRS passed over by investors/banks and the supply chain. So it is important that mid-sized companies establish a pragmatic and synergetic reporting delivering on both instruments.