EU Taxonomy and CSRD are two cornerstone regulatory frameworks under the European Green Deal aimed at advancing corporate sustainability transparency and environmental accountability. The EU Taxonomy Regulation (EU) 2020/852 is a classification system that defines which economic activities qualify as environmentally sustainable based on six environmental objectives, while the Corporate Sustainability Reporting Directive (CSRD) Directive 2022/2464/EU mandates large companies to disclose sustainability information, including their alignment with the EU Taxonomy, using the European Sustainability Reporting Standards (ESRS). This page explains the key differences, overlaps, and compliance requirements for companies subject to these regulations.
Key Difference Between EU Taxonomy and CSRD
The EU Taxonomy is primarily a classification system that sets technical screening criteria to determine whether an economic activity is environmentally sustainable, focusing on six environmental objectives: climate change mitigation, climate change adaptation, sustainable use of water and marine resources, transition to a circular economy, pollution prevention and control, and protection of biodiversity and ecosystems. In contrast, the CSRD is a reporting directive that requires companies to disclose comprehensive sustainability information, including how their activities align with the EU Taxonomy criteria, using standardized reporting frameworks. In essence, the Taxonomy defines what is sustainable, and CSRD requires companies to report their sustainability performance, including Taxonomy alignment.
Comprehensive Comparison: EU Taxonomy vs CSRD
| Dimension | EU Taxonomy Regulation (EU) 2020/852 | CSRD Directive 2022/2464/EU |
|---|---|---|
| Purpose | Defines criteria to classify economic activities as environmentally sustainable | Mandates sustainability reporting by large companies, including Taxonomy alignment disclosures |
| Scope | All economic activities within the EU and those conducted by companies subject to CSRD; focuses on six environmental objectives | Large companies with >250 employees, >€40M turnover, or >€20M assets; includes listed SMEs from 2026 |
| Key Requirements |
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| Timeline for Compliance | Effective since 1 January 2022 for financial market participants; non-financial undertakings from 1 January 2023 | Reporting from financial year 2024 (reports published in 2025) for large companies; listed SMEs from 2026 |
| Penalties for Non-Compliance | Penalties vary by Member State; can include fines up to 5% of annual turnover | Fines and sanctions up to 5% of global annual turnover for inaccurate or missing reports |
| Enforcement Authority | National competent authorities designated by Member States; coordinated by European Supervisory Authorities (ESAs) | National competent authorities for financial and non-financial reporting; coordinated by European Securities and Markets Authority (ESMA) |
| Financial Sector Specifics | Requires disclosure of Green Asset Ratio (GAR) and Banking Book Taxonomy Alignment Ratio (BTAR) | Requires sustainability reporting including Taxonomy disclosures aligned with ESRS |
Where EU Taxonomy and CSRD Overlap and Diverge
Overlap: The CSRD requires companies to disclose their alignment with the EU Taxonomy by reporting the proportion of their turnover, capital expenditure (capex), and operational expenditure (opex) that meets the Taxonomy’s sustainability criteria. This creates a direct link between the classification system and sustainability reporting obligations. Both regulations aim to increase transparency and drive capital towards sustainable investments.
Divergence: The EU Taxonomy is a technical framework focused on defining sustainability criteria for economic activities, whereas the CSRD is a broad reporting directive that covers a wide range of sustainability topics beyond environmental aspects, including social and governance factors, as structured in the ESRS standards. The Taxonomy sets the "what" (which activities are sustainable), and CSRD sets the "how" (how to report sustainability performance).
Who Must Comply With Each Regulation?
Understanding which regulation applies to your company depends on size, sector, and activity:
- EU Taxonomy: Applies to companies subject to CSRD and financial market participants operating in the EU. It also affects non-EU companies with significant EU operations or listings.
- CSRD: Applies to all large companies with more than 250 employees, annual turnover exceeding €40 million, or total assets over €20 million. It also applies to all companies listed on EU regulated markets, including SMEs starting from 2026.
Financial institutions such as banks and asset managers have additional disclosure obligations under both frameworks, including the Green Asset Ratio (GAR) and Banking Book Taxonomy Alignment Ratio (BTAR) under the Taxonomy, and comprehensive sustainability reporting under CSRD.
Practical Steps for Compliance
- Assess whether your company falls under CSRD scope by evaluating employee count, turnover, and asset thresholds.
- Identify economic activities subject to EU Taxonomy classification within your operations.
- Evaluate Taxonomy alignment by verifying if activities substantially contribute to at least one environmental objective, do no significant harm to others, and meet social safeguards.
- Prepare sustainability disclosures according to ESRS standards, including detailed Taxonomy alignment percentages for turnover, capex, and opex.
- Submit reports within deadlines: CSRD reports for financial year 2024 must be published by 30 April 2025; Taxonomy disclosures align with these timelines.
Truth Anchor: The CSRD Directive 2022/2464/EU requires companies to include EU Taxonomy Regulation (EU) 2020/852 alignment disclosures in their sustainability reports starting from the financial year 2024, with reports due by 30 April 2025. Non-compliance can result in fines up to 5% of global annual turnover. Source: EUR-Lex Directive 2022/2464/EU.
Frequently Asked Questions (FAQ)
What is the main difference between EU Taxonomy and CSRD?
The EU Taxonomy is a classification system defining which economic activities are environmentally sustainable, while CSRD is a reporting directive requiring companies to disclose sustainability information, including their Taxonomy alignment.
Do all companies subject to CSRD have to report EU Taxonomy alignment?
Yes, companies within CSRD scope must disclose the percentage of their turnover, capex, and opex aligned with the EU Taxonomy criteria as part of their sustainability reporting obligations.
What are the six environmental objectives covered by the EU Taxonomy?
The six objectives are: 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 restoration of biodiversity and ecosystems.
What penalties apply for failing to comply with CSRD or Taxonomy disclosure requirements?
Penalties vary by Member State but can reach up to 5% of global annual turnover for CSRD non-compliance and similar fines for Taxonomy disclosure failures.
Where can I find detailed guidance on how to report Taxonomy alignment under CSRD?
Detailed guidance is provided in the European Sustainability Reporting Standards (ESRS) developed by EFRAG, which specify how to disclose Taxonomy alignment within CSRD reports.
Related Resources
Ready to ensure your company’s compliance with CSRD and EU Taxonomy? Use our CSRD and EU Taxonomy Alignment Compliance Tool to assess your reporting obligations and generate tailored disclosure templates. When you click the link, you will be guided step-by-step through your company’s specific compliance requirements based on size, sector, and activities, helping you avoid penalties up to 5% of your global turnover.