Quick Comparison
| EU Taxonomy | CSRD | |
|---|---|---|
| Scope | Classification system for environmentally sustainable economic activities | Comprehensive sustainability reporting directive |
| Applicability | Companies subject to CSRD plus financial market participants | ~50,000 companies meeting EU size/listing thresholds |
| Required/Voluntary | Mandatory for in-scope entities | Mandatory EU regulation |
| Geography | European Union | European Union (with extraterritorial reach) |
| Key Focus | Whether specific activities are "green" based on technical criteria | Full ESG disclosure under double materiality |
| Assurance | Covered under CSRD assurance | Mandatory limited assurance, moving to reasonable |
What is the EU Taxonomy?
The EU Taxonomy Regulation, adopted in June 2020, establishes a classification system that defines which economic activities qualify as environmentally sustainable. It is a tool for transparency — a shared language for investors, companies, and policymakers to determine whether an economic activity makes a substantive contribution to environmental objectives.
The Taxonomy evaluates activities against 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. For an activity to be Taxonomy-aligned, it must (1) substantially contribute to at least one objective, (2) do no significant harm to any other objective, (3) comply with minimum social safeguards, and (4) meet the technical screening criteria set out in delegated acts.
Companies subject to the Taxonomy must report three key metrics: the proportion of their turnover, capital expenditure (CapEx), and operating expenditure (OpEx) derived from Taxonomy-eligible and Taxonomy-aligned economic activities. These KPIs give investors a standardized measure of how "green" a company's business activities are.
What is the CSRD?
The Corporate Sustainability Reporting Directive mandates comprehensive sustainability disclosure for companies meeting defined EU thresholds. Through the European Sustainability Reporting Standards (ESRS), companies report on environmental, social, and governance topics under a double materiality framework — covering both their impacts on people and planet and how sustainability issues affect their financial position.
The CSRD applies in phases beginning with fiscal year 2024, ultimately covering approximately 50,000 companies. It requires mandatory assurance, digital XBRL tagging, and integration of sustainability information into the management report. The directive establishes the legal framework; the ESRS provide the detailed reporting content.
Critically, the CSRD and the EU Taxonomy are not alternatives — they are complementary components of the EU's sustainable finance architecture. The CSRD's ESRS explicitly reference Taxonomy disclosures, and Taxonomy reporting is a required element of CSRD-compliant sustainability statements.
Key Differences
1. Purpose: Classification vs Disclosure
The EU Taxonomy is a classification tool — it answers the question "Is this economic activity environmentally sustainable?" The CSRD is a disclosure framework — it answers the question "What are this company's sustainability impacts, risks, and opportunities?" The Taxonomy provides a binary assessment (aligned/not aligned) for specific activities. The CSRD provides comprehensive narrative and quantitative disclosures across all material sustainability topics.
2. Scope of Subject Matter
The EU Taxonomy addresses only environmental sustainability, evaluated against six environmental objectives. It says nothing about social issues, governance, or human rights (beyond minimum social safeguards as a compliance threshold). The CSRD covers the full ESG spectrum — ten topical ESRS standards spanning environmental, social, and governance dimensions. The Taxonomy is a narrow, deep assessment; the CSRD is broad.
3. Unit of Analysis
The Taxonomy evaluates individual economic activities — specific revenue-generating or cost-incurring activities classified according to NACE codes. The CSRD evaluates the entity as a whole — its governance, strategy, risk management, and performance across material sustainability topics. A company might have some Taxonomy-aligned activities and some not; the CSRD assesses the entire organization.
4. Output Format
Taxonomy reporting produces three quantitative KPIs: Taxonomy-aligned turnover, CapEx, and OpEx as percentages. These are precise, comparable numbers. CSRD reporting under ESRS produces a comprehensive sustainability statement with both quantitative metrics and qualitative disclosures across multiple topics. The Taxonomy's output is intentionally narrow and comparable; CSRD's output is broad and multidimensional.
5. Technical Screening Criteria
The Taxonomy's technical screening criteria are highly specific and science-based. For example, an electricity generation activity must emit less than 100g CO2e per kWh to substantially contribute to climate mitigation. These bright-line criteria leave little room for interpretation. ESRS disclosure requirements, while prescriptive, involve more judgment in materiality assessment and narrative disclosures.
6. Relationship to Each Other
Taxonomy disclosures are a component of CSRD reporting, not a separate obligation. ESRS E1 (Climate Change) requires disclosure of Taxonomy-related information, and the CSRD specifies that Taxonomy KPIs must be included in the sustainability statement. Companies don't choose between Taxonomy and CSRD — they comply with Taxonomy reporting as part of their CSRD obligations.
Which One Do You Need?
Both, if you're CSRD-subject. Taxonomy reporting is embedded within the CSRD framework. Every company required to report under CSRD must also prepare Taxonomy disclosures as part of its sustainability statement.
The EU Taxonomy specifically is also relevant for financial market participants (asset managers, pension funds, banks) under the Sustainable Finance Disclosure Regulation (SFDR), even if some financial entities face different CSRD thresholds.
Neither, if you're outside EU scope. However, the Taxonomy concept is influencing other jurisdictions — the UK, Singapore, South Africa, and others are developing their own taxonomies. Understanding the EU model prepares organizations for similar requirements elsewhere.
Can You Use Both?
You don't have a choice — they work together by design. The EU's sustainable finance framework was built as an interconnected system. The Taxonomy defines what counts as green. The CSRD requires companies to disclose how much of their business is green (using the Taxonomy) alongside their broader sustainability performance (using ESRS). The SFDR requires financial products to disclose Taxonomy alignment.
The practical implementation challenge is that Taxonomy assessment is technically demanding. Companies must map their activities to NACE codes, evaluate each against the technical screening criteria for the relevant environmental objectives, assess do-no-significant-harm compliance, and verify minimum social safeguards. This analysis then feeds into the Taxonomy KPIs reported as part of the CSRD sustainability statement.
Council Fire's Perspective
We see the Taxonomy as the backbone of the EU's sustainable finance architecture, but also one of the most operationally challenging elements for companies to implement well. The technical screening criteria require engineering-level analysis that most sustainability teams aren't equipped to perform alone — energy efficiency calculations, lifecycle assessments, and emissions intensity measurements that demand cross-functional collaboration with operations, engineering, and finance teams.
Our advice is to start Taxonomy assessment early and treat it as a strategic exercise, not just a compliance checkbox. Understanding your Taxonomy alignment gives leadership a clear picture of where the business stands on the EU's definition of environmental sustainability and where investment might improve alignment. Companies that use Taxonomy analysis to inform capital allocation — not just to report percentages — extract the most value from the exercise.
Frequently Asked Questions
Can a company be CSRD-compliant without Taxonomy reporting?
No. Taxonomy disclosures are a required element of CSRD sustainability statements. Companies must report their Taxonomy-eligible and Taxonomy-aligned percentages of turnover, CapEx, and OpEx as part of their ESRS reporting, even if the percentages are zero.
What if none of my activities are Taxonomy-eligible?
You still must report this fact. Companies report Taxonomy-eligibility (whether their activities are covered by the Taxonomy at all) and Taxonomy-alignment (whether eligible activities meet the technical criteria). If none of your activities are currently covered by the Taxonomy's delegated acts, you report 0% eligibility and explain which activities you assessed.
Is the EU Taxonomy the same as a "green list"?
Not exactly. The Taxonomy doesn't label companies as green or brown — it evaluates specific economic activities against environmental criteria. A company might have a mix of Taxonomy-aligned and non-aligned activities. The Taxonomy also doesn't cover all economic activities; it focuses on sectors with the greatest potential for environmental impact. Activities not covered by the Taxonomy are not necessarily harmful — they may simply not be assessed yet.
How does the Taxonomy affect my access to green financing?
The Taxonomy is increasingly used by financial institutions to define "green" for purposes of green bonds, sustainability-linked loans, and ESG fund classification. Higher Taxonomy-aligned percentages can improve access to green financing instruments and favorable lending terms. The EU Green Bond Standard, for instance, requires that proceeds be allocated to Taxonomy-aligned activities.
Need help with EU Taxonomy vs CSRD: Key Differences Explained?
Our team brings decades of sustainability consulting experience. Let's talk about how Council Fire can support your goals.