The CSRD in context: Its links with the EU Taxonomy, CSDDD and financial regulations

As the European Union intensifies its efforts toward sustainable development, the Corporate Sustainability Reporting Directive (CSRD) establishes itself as a cornerstone for integrating sustainablity reporting across various sectors. Here you can see how the CSRD is linked to other important EU laws and directives that regulate environmental sustainability and corporate responsibility.

EU Taxonomy

The EU Taxonomy functions as a classification system that defines what constitutes an environmentally sustainable economic activity. It plays a crucial role in helping companies determine which activities can be labeled as sustainable under the CSRD guidelines. Companies must include relevant information from the EU Taxonomy in specific sections of their annual reports.

European Climate Law

This law mandates companies to develop and disclose climate transition plans that support the global goal of limiting warming to 1.5°C and achieving climate neutrality by 2050. Under the CSRD, companies must include these climate transition plans in their Environmental and Social Reporting Standards (ESRS) E1 and align with the Corporate Sustainability Due Diligence Directive (CSDDD).

Corporate Sustainability Due Diligence Directive (CSDDD)

The CSDDD requires companies to actively manage and report the negative impacts of their operations on the environment and society. Unlike the CSRD, which focuses on the disclosure of due diligence processes, the CSDDD obliges companies to take corrective actions in their supply chains.

EU Climate Benchmark and Paris-Aligned Benchmark

The EU Climate Benchmark (EU Climate Transition Benchmark, CTB) and Paris-Aligned Benchmark (PAB) set minimum standards for activities considered sustainable and guide companies to align their operations with the Paris Agreement goals. These benchmarks are essential for companies reporting on climate-related activities according to the European Financial Reporting Advisory Group (EFRAG) guidelines.

Sustainable Finance Disclosure Regulation (SFDR)

This regulation requires financial institutions to disclose how they integrate sustainability factors into their investment decisions. The data for these disclosures often relies on the information provided under the CSRD, making accurate and comprehensive reporting essential.

European Single Access Point (ESAP)

Planned for introduction by 2028, ESAP will centralize access to a wide range of financial and sustainability data, increasing the visibility and accessibility of information. This includes the integration of the Electronic Single Reporting Format (ESRF) and XBRL, which are crucial for standardizing reporting formats under the CSRD.

This overview provides a comprehensive picture of how the CSRD is woven into the broader framework of EU regulations, enhancing corporate accountability and sustainability practices across the continent.

Legislative changes due to the CSRD

The introduction of the CSRD has brought about significant changes in existing EU directives and regulations. These changes are crucial for implementing stricter sustainability reporting standards and ensuring their credibility.

Accounting Directive: This directive has been expanded to include sustainability-related disclosures. This adjustment ensures that companies transparently present not only their financial performance but also their environmental and social responsibilities. Such disclosures are increasingly important for investors, customers, and the public, as they allow for a more holistic assessment of corporate activities.

Transparency Directive: The update has led to the establishment of clear and standardized standards for sustainability reporting. These standards promote consistency and comparability of reported information across different industries and countries, which is essential for building trust in the reported data.

Audit Directive and Regulation: This requires sustainability information to be audited by independent third parties. This measure aims to enhance the integrity and objectivity of sustainability reports. Additionally, a prohibition has been introduced, preventing audit firms from offering certain non-audit services, such as consulting, to the same clients they audit. This is intended to avoid conflicts of interest and ensure the auditors’ independence.

These changes underscore the EU’s strengthened commitment to promoting a sustainable and transparent business environment. They help ensure that sustainability is not just a buzzword but is integrated into core business practices.