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EU Taxonomy, NFRD, CSRD, SFDR and ESG Disclosure - The Flood of Sustainability Requirements for Financial Institutions

The issue of sustainability has become increasingly important across all sectors of society in recent years. In the light of this, legislators at national and European level have also recognized the need for action and passed a large number of environmental, social and governance (ESG) regulations on this subject. The aim of such legislation is to make a contribution to sustainable social development. For the companies concerned, this means new and additional requirements that have to be quickly implemented. The situation is aggravated on the one hand by the scope and multitude of regulations, and on the other hand by the close interrelationships between the requirements.

Due in particular to the interdependencies of the new requirements, many institutions are finding it difficult to keep an overview and to clearly delineate individual areas.

In this blog post, we show you how to identify the key fields of action for financial institutions and recognize existing interrelationships and differences.


To start, it makes sense to think of the individual regulations (EU Taxonomy, NFRD, SFDR) as building blocks that together form the EU's Sustainable Finance Framework (SFF).

The EU Taxonomy Regulation

One of the central building blocks is the EU Taxonomy Regulation, which came into force in July 2020. The EU Taxonomy defines criteria against which the sustainability of economic activities is measured. These general rules are supplemented by two delegated legal acts. The two regulations elaborate in particular on the technical assessment criteria and the disclosure requirements. Overall, the taxonomy is characterized by its dynamic structure, with the aim of being able to constantly adapt the requirements to prevailing circumstances.

The EU Taxonomy Regulation is required to be implemented by the institutions that the EU considers to have the greatest influence on sustainable development. The following institutions therefore have an obligation to report:

  • EU member states and the EU itself
  • Companies of public interest that are already subject to NFRD reporting obligations
  • Financial market participants that provide financial products according to Art. 2 No. 12 of the Sustainable Finance Disclosure Regulation (SFDR)

Banks and insurance companies are included in the last two points. The NFRD and SFDR regulations will be explained in more detail during the course of this blog.

The taxonomy requirements are being implemented in two phases. The first phase started back on 1 January 2022. The reporting requirements to be fulfilled depend on whether the company in question is a financial company or a non-financial company. This point is often not presented with sufficient clarity, which in turn is the cause of many ambiguities. The disclosure requirements applicable to financial companies are described below:

  • Percentage of risk items in taxonomy-relevant and non-taxonomy-relevant economic activities relative to the total assets (quantitative performance indicators)
    • A taxonomy-relevant risk items in the context of a bank, for example, could be a loan to an NFRD-reporting entity to finance one of the specified economic activities
  • The following items are not to be included in the determination of the quantitative performance indicators and must be disclosed separately:
    • Percentage of risk items vis-à-vis supranational issuers, central banks and states in the total assets, including the percentage of risk items in derivatives
    • Percentage of risk items vis-à-vis companies that are not obliged to publish non-financial information
  • In addition, further qualitative information is required. The provision of further background information on the asset items included in the performance indicators is intended to create an additional level of transparency.

The second disclosure phase will start for financial institutions on 1 January 2024. The following information must be disclosed in the second phase:

  • Assessment of risk items in total assets in terms of taxonomy compliance (previously only disclosure of taxonomy-relevant items)
  • The degree of taxonomy compliance is described using defined KPIs such as various green asset ratios


Non Financial Reporting Directive

The Non Financial Reporting Directive (NFRD) was initially developed as a European directive. In 2017, the directive was transposed into German law and has been in application since 2018 under the name CSR Directive Implementation Act. The NFRD regulates in particular how relevant companies are required to publish non-financial information and information relating to diversity. Relevant companies are large companies of public interest. These include:

  • Listed companies with more than 500 employees
  • Banks
  • Insurance companies
  • Other companies designated as companies of public interest by the EU member states.

From 2024, the NFRD Directive will be replaced and expanded by the Europe-wide Corporate Sustainability Reporting Directive (CSRD). The aim is to implement a uniform standard for non-financial reporting across Europe. This expansion not only increases the number of companies concerned, but also the reporting obligations. The CSRD will also be introduced in stages and, at the present time, is staggered as follows:

  • From January 2024 for companies already subject to NFRD reporting obligations
  • From January 2025 for large companies that to date have not fallen under NFRD reporting obligations. Large companies are companies meeting two of the following three criteria:
    • Balance sheet total > 20 million euros
    • Net sales > 40 million euros
    • At least 250 employees
  • From January 2026 for listed SMEs and also smaller credit institutions and captive insurance companies

The EU Taxonomy Regulation and the NRFD are therefore linked in two areas. On the one hand, NFRD-reporting companies are obliged to fulfill the requirements from the EU Taxonomy Regulation. On the other hand, the content from the EU Taxonomy Regulation is reported together with the NFRD requirements in the non-financial part of the annual financial statements. From 2024, the interrelationships between the EU Taxonomy Regulation and the NFRD described above will also apply between the EU Taxonomy Regulation and the CSRD.


Sustainable Finance Disclosure Regulation

Alongside the NFRD and CSRD, the SFDR forms the third pillar of the EU's Sustainable Finance Framework. The Regulation was adopted in 2019. The resulting reporting requirements are to be phased in from 2021 until 2023.

The Regulation applies to financial institutions that develop and offer financial products. The SFDR obliges financial institutions to disclose the negative sustainability impacts associated with the financial products, and to what extent sustainability factors were taken into account in the development.

The disclosure of this information relates in particular to “ESG financial products”. ESG financial products are characterized by the fact that they either aim to make a sustainable investment or actively promote environmental or social aspects of the financial product.

From 2023, the sustainability impacts of non-ESG financial products must also be published. The required reporting content must be collected at both product and company level and published on the provider's website and in the pre-contractual information on the financial products.

The connection between the EU Taxonomy Regulation and the SFDR is that for SFDR-relevant financial products, financial institutions must disclose the sustainable portion of the total investment. Disclosure is again based on the criteria of the EU Taxonomy Regulation.

ESG Disclosure

ESG disclosure requirements from the 7th Amendment to the German Minimum Requirements for Risk Management (MaRisk)

The 7th Amendment of the MaRisk issued by the German Federal Financial Supervisory Authority (BaFin) and the German Bundesbank presents German financial institutions with further ESG requirements. The name "ESG Disclosure Regulation" in itself may be one of the reasons why it is often confused with the similarly named regulations at EU level.

For this reason it is important to distinguish between the disclosure regulations at EU level (EU Taxonomy Regulation, NFRD/CSRD and SFDR) and the new requirements for risk management (ESG Disclosure Regulation from the 7th Amendment) at national level from the BaFin. Although the ESG Disclosure Regulation uses the definitions and classification systems from the EU Taxonomy Regulation, it forms a separate area of requirements.

The MaRisk Amendment focuses on improving the quality and performance of banks' internal risk management which requires ESG factors to be included in the risk assessment in the future.

The disclosure requirements of the Sustainable Finance Framework aim to channel capital flows into sustainable investments, thus making a significant contribution to sustainable development. This aim is to achieve this goal through the high transparency requirements, which in turn are taken into consideration by sustainable shareholders and stakeholders in their investment decisions.



In conclusion, it can be said that each of the four areas (EU Taxonomy Regulation, NFRD, SFDR and ESG disclosure requirements from the 7th Amendment to MaRisk) outlines and specifies areas of action that must be implemented by German financial institutions. A clear delineation of the individual regulations is simply not possible, especially within the Sustainable Finance Framework. It is therefore all the more important to understand the requirements from the individual areas, including the interfaces between the regulations. This understanding then forms the basis for your institution's sustainability strategy. Only by including all facets can efficient reporting and risk management processes be developed and implemented which enable you to efficiently meet the defined requirements. Do not hesitate to contact us at any time with any issues you may have.