In 2025, the number of companies expected to fall within the scope of the Corporate Sustainability Reporting Directive (CSRD) will expand to around 50,000, coming from all industries. This represents a significant increase from the original 11,000 in 2024. This expansion underscores the growing importance of corporate transparency and accountability in sustainability. The CSRD, along with the EU Taxonomy and the Sustainable Finance Disclosure Regulation (SFDR), is set to revolutionise how businesses report on their environmental, social, and governance (ESG) metrics.
What is the CSRD?
The CSRD is an EU Directive which has been developed to expand the scope of the NFRD (Non-Financial Reporting Directive) and aims to improve corporate transparency and accountability in sustainability. It requires companies to disclose detailed information on their ESG metrics, ensuring that stakeholders have access to reliable and comparable data. This directive applies to a wide range of companies, including large public-interest entities and listed SMEs Its implementation commenced in 2024, with the first reports being published in 2025, with a phased rollout based on company size, employee count, and financial assets.
What is the EU Taxonomy?
The EU Taxonomy is a classification system for environmentally sustainable economic activities. It defines criteria for activities that contribute to environmental objectives such as climate change mitigation and water protection. By providing a clear framework, the EU Taxonomy helps investors identify sustainable investments and supports companies in aligning their activities with environmental goals.
What is the SFDR?
The Sustainable Finance Disclosure Regulation (SFDR) is a European Union regulation designed to elevate transparency in the realm of sustainable investments. It mandates that Financial Market Participants (FMPs) and Financial Advisors (FAs) disclose information pertaining to their ESG activities. This regulation aims to combat greenwashing and ensure that financial products meet stringent sustainability criteria.
CSRD, EU Taxonomy, and SFDR: How They Work Together
The CSRD, EU Taxonomy, and SFDR are interconnected, creating a coherent and efficient framework for sustainable finance and corporate reporting. The CSRD requires companies to disclose information aligned with the EU Taxonomy, while the SFDR mandates that financial market participants disclose how their products align with the EU Taxonomy. This alignment is crucial for both financial and non-financial reporting, ensuring that companies’ sustainability efforts are transparent and verifiable. Compliance with these regulations not only enhances corporate accountability but also drives sustainable investment and reporting.
Practical Examples of CSRD, EU Taxonomy, and SFDR Integration
- Climate Change Mitigation: A company involved in renewable energy projects, such as wind or solar power, must report how these activities align with the EU Taxonomy’s criteria for climate change mitigation. This includes demonstrating significant contributions to reducing greenhouse gas emissions and meeting specific technical screening criteria.
- Water Protection: A manufacturing company implementing water-saving technologies must disclose how these initiatives align with the EU Taxonomy’s objectives for sustainable use and protection of water resources. This involves providing data on water usage, recycling rates, and compliance with relevant environmental standards.
- Circular Economy: A company in the waste management sector must report on its efforts to transition to a circular economy. This includes activities such as recycling, reusing materials, and reducing waste generation, all of which must meet the EU Taxonomy’s criteria for circular economy practices.
How ARQ Can Help
At ARQ, we understand the complexities of navigating new regulatory standards. Our team of experts is currently assisting clients with the implementation of software to ease data collection and ensure compliance with the CSRD, EU Taxonomy, and SFDR. We have a proven track record of helping businesses align with these regulations, providing insights and solutions tailored to their specific needs.
The CSRD, EU Taxonomy, and SFDR are pivotal in shaping the future of corporate sustainability reporting. By ensuring transparency and accountability, these regulations drive sustainable investment and foster a more sustainable economy. For more information, please speak to Martina Cutajar – Senior ESG Advisor – Risk and Compliance.
