EU Taxonomy + CSRD: What companies need to know

CSR, ESG, CSRD, ESRS, EU Taxonomy could also be phrases from the song "Mit freundlichen Grüßen" by Die Fantastischen Vier. These abbreviations are all related, yet they have very different meanings. What exactly do these terms entail? And how does the EU Taxonomy connect with other regulatory measures and concepts? This post explores the EU taxonomy and how it relates to the CSRD (Corporate Sustainability Reporting Directive).

Basics of the EU taxonomy

A taxonomy is a standardized procedure for classifying objects according to certain criteria. The EU taxonomy is more than just another term in the jumble of financial and sustainability terminology. It forms the foundation for sustainable finance in Europe and defines the criteria according to which activities can be classified as environmentally friendly.

What is the EU taxonomy?

The EU Taxonomy is a classification system developed to determine which economic activities can be considered environmentally sustainable. The main objective is to steer financial flows and investments towards sustainable projects by establishing clear and binding criteria for environmental sustainability. It serves as a guide for companies and investors to ensure they act in accordance with sustainability goals such as the European Green Deal. Companies can achieve up to 100 points depending on how closely their business activities match the taxonomy.

History and development of the EU taxonomy

The idea of a taxonomy for sustainable finance in Europe arose in response to the growing realization that the financial sector plays a crucial role in meeting global and European environmental goals.

The EU Taxonomy was introduced as part of the European Commission's Action Plan for Financing Sustainable Growth, which was presented in 2018. Since then, it has gone through several stages of development, with stakeholders, experts and policymakers working together to create a robust system.

The EU taxonomy is related to the CSR Directive Implementation Act (CSR-RUG), which is the German implementation of the Non-Financial Reporting Directive (NFRD) requirements. The taxonomy also provides the classification system used in the Sustainable Finance Disclosure Regulation (SFDR) and the CSRD.

EU Taxonomy 2023: What changed?

On June 13, 2023, the EU Commission presented a new package of measures to strengthen the foundations of the EU sustainable finance framework. It approved a new set of EU taxonomy criteria for economic activities that make a significant contribution to one or more of the non-climate-related environmental objectives:

Changes were also made to objectives covering climate change mitigation and adaptation. Including more economic activities across all six environmental objectives means more sectors and companies can demonstrate sustainable investment alignment. Further information can be found in the EU Commission's factsheet on Sustainable Finance.

Relevance of the EU taxonomy in the European context

Pressure on companies and financial institutions to act more sustainably and transparently is increasing across Europe. The EU taxonomy provides a uniform language and a clear framework for this. It helps avoid greenwashing and ensures that investments actually have a positive ecological impact. In a continent becoming a global pioneer in sustainability, the taxonomy plays a central role in creating clarity, trust and credibility in the green financial market.

Main elements and key aspects of the EU Taxonomy Regulation

The main purpose of the regulation is to provide a clear and consistent basis for defining sustainability, so that investments labeled as "green" or "sustainable" actually meet such criteria. Four main elements stand out:

Which companies are affected by the EU taxonomy reporting obligation?

Since January 1, 2022 (for the 2021 financial year), the EU taxonomy regulation applies to:

With the CSRD now in force, more companies are also subject to Taxonomy Regulation reporting under its Article 8. The CSRD's new scope (since March 2026) covers companies with more than 1,000 employees AND more than 450m euros net turnover. If you fall within the CSRD scope, EU Taxonomy alignment reporting is part of your obligations.

The EU taxonomy and which companies are affected is briefly explained in the following video:

What specifically needs to be reported?

How companies can ensure their compliance

When does the EU taxonomy apply?

One common misconception about the EU taxonomy is that it applies immediately and in full to all companies. In fact, implementation was planned in stages to give companies time to adapt.

Timeline of taxonomy implementation

1. Introduction and adoption: The EU Taxonomy Regulation was adopted in June 2020 and provides the legal framework for the taxonomy's development.
2. Technical screening criteria: After adoption, work began on technical screening criteria for various economic activities.
3. First mandatory application: Since 2022, affected companies have reported on the extent to which their activities meet the taxonomy criteria. This initially covered climate protection and adaptation objectives. A transition period ran from 2022 to the end of 2023.
4. Expanding the taxonomy: Since 2023, the taxonomy covers four more environmental objectives: sustainable use and protection of water and marine resources, circular economy transition, pollution prevention and biodiversity protection.
5. Full application: By end of 2023, all affected companies were expected to have fully aligned their reporting with the regulation, including the additional environmental targets.

Relationship between CSRD and EU taxonomy

Sustainability in the corporate world is complex, and instruments like the EU Taxonomy and the CSRD play a crucial role in bringing clarity to this area. A key feature of the CSRD is its double materiality. How exactly are these two instruments connected?

The EU taxonomy provides a classification system to determine what qualifies as an environmentally sustainable economic activity. The CSRD ensures that companies report transparently on these activities. They work hand in hand:

EU Taxonomy key figures form part of companies' CSRD reporting obligations. Further reporting obligations arise from the European Sustainability Reporting Standards (ESRS).

Sources and further information

For those who want to delve deeper into the EU taxonomy, a range of resources provide both overview and detail.

• Wikipedia: A good starting point for a comprehensive overview: EU taxonomy on Wikipedia.
• Official EU resources: The European Commission's taxonomy pages include official documents, FAQs, a taxonomy calculator and technical guidelines.
• Specialist literature and studies: Numerous publications, studies and white papers address the taxonomy, its market impact and implementation challenges.
• Webinars and seminars: Many organizations, consulting firms and universities offer training and information events on taxonomy compliance.

Conclusion and outlook

The introduction and implementation of the EU Taxonomy marks a turning point in Europe's push towards a more sustainable economy. With clear criteria and vision, the taxonomy sets standards that companies, investors and consumers can use as a guide.

The taxonomy provides a framework for defining environmentally sustainable economic activity, sets out clear reporting requirements and helps pave the way for a greener economy. Its long-term value is undeniable: it helps transform Europe's economy and could serve as a model for other regions. In a world facing the effects of climate change and pollution, the EU Taxonomy represents a meaningful step towards a more sustainable future.

Frequently asked questions about EU taxonomy and CSRD