The SFDR introduces reporting rules to make the sustainability profile of funds more comparable to investors. Eligible companies must disclose pre-defined metrics that assess environmental, social and governance outcomes. The regulation requires asset managers to provide standardized reporting on how ESG factors integrate at both company and product levels.
The green taxonomy is primarily a classification system to clarify which economic activities can be considered environmentally sustainable. The EU Taxonomy provides a framework to define when a company operates in ways benefiting society and the environment, thus limiting greenwashing and creating a level playing field for sustainable investing.
The EU Taxonomy Regulation applies to the following three groups:
Companies with more then 500 employees that fall under the Non-Financial Reporting Directive (NFRD)
Players in the financial sector including occupational pension providers that offer offer and distribute financial products in teh EU, even if they are based outside the EU
EU and member states institution when setting public measures, standards or labels for green financial products and corporate bonds
Requirements for companies from outside and within the financial sector differ, though some companies may fall into both categories.
Applicable to companies meeting two of the following three conditions: EUR 40 million in turnover, EUR 20 million in assets, or 250 employees. Companies with more the EUR 150 million turnover in the EU. SMEs with securities listed on regulated markets also are liable to the directive.
The newly-adapted directive extends the scope of the 2018 Non-Financial Reporting Directive. The EU legislation requires companies in scope to report their sustainability performance in a standardized digital format, allowing for better comparability between different entities. Given their size, listed SMEs can report using simplified standards that non-listed SMEs are encouraged to use. The CSRD reporting aligns with the EU Taxonomy and the Sustainable Finance Disclosure Regulation.