Key Considerations for CSRD Sustainability Reporting and EU Taxonomy

The EU Taxonomy and the Corporate Sustainability Reporting Directive (CSRD) are pivotal in guiding companies towards sustainable practices. Companies subject to CSRD sustainability reporting must also report on how their activities align with the EU Taxonomy.

As of 1.1.2025 the second wave of companies, the large companies (as defined in the CRSD), become subject to the CSRD reporting requirements. These companies also report now for first time on the EU Taxonomy. In addition to the CSRD and the ESRS, companies must understand the regulatory framework, assessment criteria, and reporting requirements of the EU Taxonomy to comply with their reporting obligations.

The EU Taxonomy is a classification system for sustainable economic activities, aiming to promote transparency and comparability for companies and investors. It sets criteria for activities that significantly contribute to the EU's climate and environmental objectives: climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control and protection and restauration of biodiversity and ecosystems.

The Taxonomy Regulation (852/2020) and Climate Delegated Act and Environmental Delegated Act lay down the technical screening criteria for sustainable activities. These criteria are detailed listings of requirements for activities considered sustainable.

The Taxonomy Regulation entered into force in 2020, with obligations relating to Climate Objectives applied as of 1.1.2022​ and the obligations relating to Environmental Objectives applied as of 1.1.2024​. ​

The Disclosures Delegated Act applied as of 1.1.2022 lays down detailed rules on Taxonomy reporting. This includes​ the rules and templates for the methodology, content and presentation of Taxonomy information by financial and non-financial companies. ​

Assessment of Taxonomy-eligibility and -alignment consists of four steps:

1. Identify Taxonomy-eligible activities: Companies must identify which of their economic activities are covered by the EU Taxonomy. These include sectors like forestry, manufacturing, energy, water supply, construction, etc. and are listed in the Delegated Acts.

2. Assess Taxonomy-alignment: Taxonomy-eligible economic activities must meet the technical screening criteria for substantial contribution and "Do No Significant Harm" (DNSH) to other environmental objectives.

3. Check Compliance with Minimum Safeguards: Companies claiming to have sustainable activities classified under the EU Taxonomy must comply with social and governance safeguards. Companies must ensure and demonstrate that they have in place a set of processes and policies to ensure good corporate governance, and to address human rights, labor rights and social rights and impacts.

4. Reporting: Companies subject to CSRD reporting obligations must report on how their activities align with the EU Taxonomy. This includes disclosing key performance indicators (KPIs) related to turnover, capital expenditure (CapEx), and operational expenditure (OpEx) for taxonomy eligible and taxonomy-aligned activities.

Data Collection: Identify data requirements and sources, ensure data quality, and document the Taxonomy-eligibility and -alignment assessment process step by step. This is important to ensure reliable reporting as well as a proper audit trail for verification.

Policy Implementation: Ensure that policies and procedures are in place to comply with minimum safeguards and document their implementation.

Disclosure: Use the templates provided in the Disclosures Delegated Act and report on taxonomy-eligible and aligned activities.

Companies must integrate the EU Taxonomy into their sustainability reporting processes. This involves identifying Taxonomy-eligible activities, assessing Taxonomy-alignment, ensuring compliance with minimum safeguards, and accurately reporting KPIs.

Proper documentation and transparency are crucial for ensuring reliable reporting and verification and demonstrating commitment to sustainability.

Consider also the manner in which the information shall be presented as part of the annual reporting. Taxonomy reporting is separate from CSRD-template/ESRS reporting, but is part of the management report.

Do you need help with CSRD sustainability reporting or EU-taxonomy? Don't hesitate to contact our ESG and sustainability law experts.