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📚 Background Documents
📚 Background Documents

This article allows you to do some background reading on the SFDR, the CSRD and the EU Taxonomy from reliable sources.

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Written by Rutger
Updated over a year ago

The Sustainable Finance Disclosure Regulation (SFDR) is part of the legislative package announced by the Commission in 2018 through its introduction of the action plan on financing sustainable growth.

The action plan includes the creation and implementation of a regulation on sustainability disclosures by institutional investors and asset managers, namely the SFDR. The latter was built to be supplemented by the Commission through delegated acts and ensuing technical regulatory standards. Find more information about the SFDR and its legislative progress here.

The Regulation is supplemented by the creation of a Regulation establishing a framework to facilitate sustainable investment, called the EU Taxonomy Regulation.

The EU Taxonomy provides a classification system for business activities which are considered 'sustainable' in the various industries.

The Taxonomy establishes six environmental objectives, namely:

i) climate change mitigation

ii) climate change adaptation

iii) the sustainable use and protection of water and marine resources

iv) the transition to a circular economy

v) pollution prevention and control

vi) the protection and restoration of biodiversity and ecosystems.

The Taxonomy ensures activities are tangibly sustainable by providing a specific framework in which the activity must make a substantial contribution to one (or more) sustainable objective(s), and do no significant harm to the remaining five objectives identified by the Taxonomy Regulation. Find out more information on the EU Taxonomy here.

As part of the ten step action plan on sustainable finance, one of the actions identified as a necessity is to strengthen the sustainability disclosure regulatory requirements.

This resulted in the proposal for the amendment of the Non-Financial Reporting Directive (NFRD) into the Corporate Sustainability Reporting Directive (CRSD) which was first adopted by the Commission in April 2021. Find out more information on the CSRD here.

The political agreement between the Council of the EU and the European Parliament on the proposal was achieved on the 21 June 2022, with the provisional document being available here.

The timeline of the interconnected legislation and its varying timeframes for entry into force and referencing period can be found below:

Find a general overview of what the SFDR is in the following brief summaries:

  • JP Morgan Asset Management's explanation here;

  • KPMG's Snapshot explanation of the SFDR here;

  • EY's (semi-)deep dive on the SFDR here.

For a more in-depth understanding of the SFDR and the various implications of the requirements emanating from those, please consult the following resources:

  • Morningstar's Guide to the SFDR here;

  • Morningstar's Guide to the EU Action Plan here.

For a better overview of the EU Taxonomy, and how it relates to the SFDR and the CSRD, please go through the following materials:

  • Ramboll's EU Taxonomy Quickguide here;

  • KPMG's Quick Guide for Corproates here.

Finally, to get a better understanding of what the CSRD will entail once it is finalised and enters into force, please refer to the following articles:

  • Simmons-Simmons' brief yet comprehensive explanation here;

  • KPMG's Quickguide here;

  • Latham and Watkin's White Paper on the CSRD here.

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