Since the entry into force of the CSRD (Corporate Sustainability Reporting Directive) in Europe, companies must thoroughly rethink the implementation of their sustainability reporting in their CSR strategy. La European green taxonomy adds an additional level of requirement : by completing the CSRD, this regulation raises major new challenges in order to build reporting that is both effective and compliant. These two texts are closely linked since the CSRD now requires the publication of detailed information onalignment of economic activities with the strict criteria of the Taxonomy.

What investments are considered sustainable? What part of CapEx and OpEx is linked to sustainable activities? How do you incorporate this data into the sustainability report? This article offers you a complete guide to understand everything and anticipate the concrete implementation of the Taxonomy.

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What is the Green Taxonomy and how does it complement the CSRD?

The Taxonomy Regulation is not an isolated standard as it directly complements the CSRD by strengthening the financial component of the directive. Mastering Taxonomy is therefore a prerequisite for produce compliant and credible sustainability reporting in the eyes of stakeholders and authorities.

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What are the fundamental principles of the European Green Taxonomy?

Anxious to strengthen its regulatory arsenal as part of the Green Deal, the European Union adopted the Taxonomy Regulation in 2020. It aims to determine which economic activities can be considered sustainable. The aim is to enable businesses to positioning ourselves in relation to Europe's sustainable transition trajectory but also ofHelp financial actors to prioritize the allocation of funding to the assets and projects most aligned with this trajectory. For an activity to be qualified as sustainable, it must meet several conditions, including contribute to one of the six environmental goals defined by the EU while respecting the principle of “Do No Significant Harm” (do not seriously harm other objectives).

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What are the links between CSRD and Taxonomy Regulation?

The CSRD and the Green Taxonomy are two major pillars of the European regulatory framework for sustainability.. Although distinct, these two texts intertwine and are closely linked. The CSRD requires companies to publish a detailed report covering all of their ESG information, according to the principle of double materiality. In other words, the financial world is finally included in discussions related to the environmental or societal impacts of companies. In this logic, the Green Taxonomy is a additional tool to connect finance and sustainability by presenting the proportion of economic activities considered sustainable according to specific criteria.

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How do CSRD and taxonomy fit together?

Taxonomy-related data must be integrated directly into the sustainability report required by the CSRD. Indeed, ESRS 1 states that the information relating to the Taxonomy Regulation is in the environmental part of the CSRD report. In summary, there is no need to prepare a separate report specific to Taxonomy, lThese two requirements are combined in a single reporting document. In addition, several requirements in the other ESRS refer to the Taxonomy. We have summarised them here:

• ESRS 2 - SMB 1: if the company is active in the fossil fuel sector, it must publish the turnover generated by activities aligned with the taxonomy related to fossil gas.
• ESRS E1 - 1: regarding the information relating to the company's transition plan for climate change mitigation, the company should give more details on financial amounts allocated in accordance with the taxonomy.
• SERS 2 - 2: the company can show how its actions aim to meet the criteria for the prevention and reduction of pollution linked to the principle of “Do No Significant Harm” in accordance with the taxonomy.
• SERS 4TH - 3: concerning actions related to biodiversity and ecosystems, the company can publish the significant monetary amounts of CapEx and OpEx required for their implementation, in particular by publishing the KPIs required by the taxonomy.

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The 4 steps to implement the Taxonomy under the CSRD

To successfully integrate Green Taxonomy requirements into the CSRD report, businesses must follow a structured approach. Here is an approach in several steps to ensure the compliance and reliability of published data.

To clarify the point, we suggest using the example of a car manufacturer to illustrate each step.

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Step 1: map the economic activities concerned

For this stage, we advise you to do a complete inventory of all your lines of activity. The objective is then to compare them to the activities listed in the delegated acts of the Taxonomy Regulation. (Delegated act for both climate goals and delegated act for the 4 other environmental objectives) in order to identify which ones are said “eligible”, i.e. covered by the Green Taxonomy framework. Refer to the NACE code for your activities because it determines whether you are eligible or not!

As a car manufacturer, my NACE code is C29.1, so my business is “eligible”!

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Step 2: check the alignment of eligible activities with the Taxonomy criteria

Now that You have the list of “eligible” activities, you must assess the alignment of these activities with the 6 environmental objectives. It will be said that the activities are “lined up” if they meet the following criteria:

• they contribute substantially (i.e. significantly) to the achievement of at least one objective by complying with the technical alignment criteria defined for each activity (for example for the automotive sector: manufacturing vehicles with zero CO2 emissions at the exhaust).
• they do not harm any of the other five goals (Do No Significant Harm)
• minimum guarantees in terms of human rights and labor law (e.g.: guidelines of the OECD, United Nations, etc.) are also respected in the activities analyzed.

As a car manufacturer, I manufacture a range of light electric vehicles. This activity contributes to the achievement of the climate change mitigation objective because my vehicles do not emit CO2 directly. This activity also does not harm other environmental objectives that do not have significant negative impacts on each of them. In addition, as my factory is in France, I respect the minimum guarantees in terms of human rights and labor law. My business is “aligned”!

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Step 3: financial data collection and indicator calculation

Once the “eligible” and “aligned” activities identified, the challenge for you is to collect the financial data necessary to calculate the indicators required by the Taxonomy. We advise you to centralize and document this collection in order to anticipate the next step. After this step you should be able to provide the following indicators:

• Turnover : amount generated by aligned activities in relation to total turnover.
• CapEx : investments made in direct connection with aligned activities.
• OpEx : amount of operational expenses that support aligned activities.

The range of electric vehicles required me to invest €10 million in a new production line. This new line also incurs operational expenses (salaries, raw components, energy, maintenance, etc.) of an annual amount of €5 million. In addition, this range of electric vehicles generated €50M in turnover. The indicators required by the Taxonomy are percentages of totals. In other words, I have to divide my turnover, my CapEx and my aligned OpEx respectively by my total turnover, my total CapEx and my total OpEx. My indicators will finally be ready!

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Step 4: prepare to publish information in the CSRD report

Before you finish your work, make sure that all the information transmitted complies with the criteria of the Taxonomy Regulation but also of the CSRD. We recommend that you take the time to check the accuracy of the financial data used as well as the consistency of the calculations. Also, make sure you have a robust documentation of all your work in order to anticipate the audit phase. Once the validations have been carried out, theThe results should be integrated transparently into the CSRD report. by complying with the requirements of the ESRS (in particular ESRS 1) on the qualitative characteristics of the information. The Taxonomy also imposes a regulatory format for publication by requesting a table with all the KPIs.

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Conclusion

The CSRD and the Green Taxonomy establish new transparency requirements for European businesses. They must now combine their financial information with their extra-financial information in their sustainability report, fully illustrating the principle of double materiality. While this exercise may seem vague at first, it represents a strategic opportunity to demonstrate the alignment of business models with ecological and social transition requirements. Adopting these requirements today means preparing ourselves sustainably for the expectations of tomorrow's market!

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