As the regulatory landscape for sustainability reporting evolves, companies and financial entities must navigate multiple frameworks and requirements. The European Sustainability Reporting Standards (‘ESRS’) under the Corporate Sustainability Reporting Directive (‘CSRD’) and the Sustainable Finance Disclosure Regulation (‘SFDR’) requirements concerning Article 8 of the EU Taxonomy Regulation have areas of overlap but also key differences. Understanding these differences and identifying where data can be leveraged across both frameworks is crucial for effective compliance.

ESRS vs. Article 8 of the EU Taxonomy

The methodologies underlying ESRS and Article 8 sustainability disclosures diverge significantly, reflecting their distinct objectives and approaches.

If we take a look at the form, ESRS disclosures are largely standard-based, providing flexibility in how information is presented within sustainability statements. Companies can tailor their reporting to better reflect their unique circumstances. On the contrary, Article 8 disclosures follow a rigid, template-based format. This was done to enhance comparability and standardisation across entities, leaving little room for customisation.

But what about the content? ESRS disclosures emphasise narrative information. CSRD reports are mostly filled with qualitative information and explanations. SFDR prospectus and periodic disclosures, on the other hand, are predominantly quantitative. The qualitative parts are there to explain the data results and historical comparison. In fact, including additional information going beyond the questions provided in the templates is strictly prohibited, as it would hinder comparability.

Opportunities for Leveraging Data Across ESRS and Article 8

While the methodologies and data focus differ, there are opportunities for companies subject to both frameworks to "recycle"data:

• Common Data Collection: Portfolio companies required to comply with CSRD and ESRS must collect certain sustainability data that can also support fund     managers’ SFDR EU Taxonomy disclosures. This reduces duplication of effort and streamlines reporting processes.
• Alignment in Narrative Context: Although ESRS prioritises qualitative disclosures, the narrative elements often align with the supplementary context required in Article 8 disclosures.

A key feature of the CSRD is its requirement for a double materiality assessment, where companies must evaluate both:

1. How their operations impact sustainability: This includes understanding and disclosing the environmental and social effects of their activities.
2. How sustainability impacts their business: Companies must assess risks and opportunities arising from sustainability issues that could affect their     financial performance.

Under the SFDR, firms undertake a similar exercise through the assessment of Principal Adverse Impact (PAI) indicators. These indicators measure the impacts of investments on sustainability and must be assessed for each portfolio company. However, if firms have already conducted the double materiality assessment required by the CSRD, they may have already collected much of the necessary data for PAI reporting under the SFDR. This overlap presents an opportunity to streamline data collection and reporting processes.

Navigating the intersection of ESRS and Article 8 can be complex, but identifying overlaps and leveraging shared data is a practical way to enhance efficiency and reduce reporting burdens.

414 specialises in helping organisations map out these connections and ensure compliance with the SFDR and the EU Taxonomy. By understanding your specific reporting obligations, we can pinpoint areas of overlap and help you maximise the use of your sustainability data.

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