Greenomy’s Glossary: Navigating Key Taxonomy and ESG Acronyms

• CSR - Corporate Social Responsibility 🌍

Corporate Social Responsibility is a form of self-regulation whereby companies incorporate social and environmental aspects into their business operations and strategy. It contributes to a company’s reputation and therefore CSR strategies must align with or be integrated into the company's business models. 

• CSRD - Corporate Sustainability Reporting Directive 🇪🇺

The CSRD will be the revision and improvement to the Non-Financial Reporting Directive (NFRD). It will set a specific and more detailed structure and content for all companies to disclose and will extend compliance to smaller companies, and eventually to SMEs (small and medium sized enterprises). It will also ensure alignment between the Taxonomy and SFDR with respect to how ESG data is defined, measured, and disclosed. The more comprehensive CSRD reporting requirements will be expected at the end of 2022 and take effect in 2023. This means that companies must submit their CSRD aligned report on the 1st of January, 2024, for the 2023 financial year.

• DNSH - Do no significant harm 🇪🇺

The DNSH principle states that no measure or activities should lead to significant harm to any of the six environmental objectives outlined by the EU Taxonomy.  

• EET - European ESG Template 🇪🇺

The European ESG Template (EET) is a data-exchange template, created by FinDatEx that will simplify the ESG data exchange process between financial market participants. So far only a first draft has been released as of February 2022. The goal of the EET is to provide an overview of the regulatory requirements from the Regulatory Technical Standards (RTS) under the Sustainable Finance Disclosure Regulation (SFDR) level 1, which will apply throughout the European Economic Area on January 1, 2023. This will both ease the process for financial market participants when exchanging ESG data, as well as facilitate compliance to the delegated acts complementing MiFID II (Markets in Financial Instruments Directive), and IDD (Insurance Distribution Directive).
 

• EFRAG - European Financial Reporting Advisory Group 🇪🇺

The European Financial Reporting Advisory Group is an association that was established with the support of the European Commission. EFRAG has two pillars: one is focused on financial reporting whereby EFRAG works to influence the development of IFRS Standards from the European lens and providing efficiency to capital markets and advice on the IFRS Standards to the European Commission. The other pillar focuses on sustainability reporting, whereby EFRAG helps to develop draft EU Sustainability Reporting Standards and related amendments for the European Commission – a role that was assigned to EFRAG in the CSRD proposal.
 

• ESG - Environmental, social and governance 🌍

The ESG criteria provide companies with an approach to evaluating and analysing their business operations. The environmental criterion looks at how a company considers and protects the environment, whereas the social aspect evaluates how a company considers its social environment, including employees, communities, clients, and customer relationships. The governance aspect looks at a company’s governance approach and leadership. 

• ESMA - European Securities and Markets Authority 🇪🇺

Known as the EU Markets’ watchdog, the European Securities and Markets Authority is an independent authority that aims to uphold the stability of the EU’s financial system by protecting investors and encouraging organised financial markets. In doing so, ESMA focuses on four areas: (1) assessing risks to investors, markets, and financial stability, (2) completing a single European rulebook for EU financial markets, (3) supervising credit rating agencies, trade rand securitisation repositories, and finally (4) promoting supervisory convergence.
 

• EU Green Deal - European Green Deal 🇪🇺

Approved in 2020, the European Green Deal provides a roadmap to transform the EU’s economy by making it more sustainable, resource efficient and competitive and in turn meet the EU’s target to become climate neutral by 2050. To enable a just and inclusive transition for all, the European Green Deal aims to ensure that there are no net emissions of greenhouse gases by 2050, that economic growth is decoupled from resource use and that no person and place is left behind. As part of this effort, the EU Taxonomy was established to give companies and financial institutions a comprehensive sustainability framework and classification system to change and transition and prevent greenwashing.
 

• EU Taxonomy - European Union Taxonomy 🇪🇺

The EU Taxonomy is a science-based classification system that defines whether an economic activity can be considered environmentally sustainable. By legislating the conditions for claiming that an economic activity is sustainable, the Taxonomy creates a common language that can be used to measure, calculate, and compare sustainable performance. Further, by requiring claims of sustainable activity to be evidenced, the regulation aims to combat greenwashing and incentivize both green activities and green investment.

• GRI - Global Reporting Initiative 🌍

The Global Reporting Initiative is an independent organisation that strives to enable decision-makers to act and foster a more sustainable economy and future. The GRI has developed Sustainability Reporting Standards (GRI Standards) that enable organisations to report on its impacts to the economy, environment, and society. All of the disclosure requests outlined by the European Directive are also covered by the GRI Standards and Disclosures and many common themes and areas of alignment exist between the two. 

• IFRS - International Financial Reporting Standards 🌍

The IFRS Foundation was established to create a single set of clear, quality, enforceable and internationally accepted accounting, and sustainability disclosure standards. The IFRS Accounting Standards are developed by the International Accounting Standards Board (IASB) and IFRS Sustainability Disclosure Standards are set by the new International Sustainability Standards Board (ISSB). The Accounting Standards outline how a company prepares its financial statements, whereas the Sustainable Disclosure Standards outline how a company discloses their sustainability-related information.

• ISSB - International Sustainability Standards Board 🌍

The ISSB aims to provide a comprehensive global baseline of sustainability-related disclosure standards and help meet investors and financial markets’ demand for quality, understandable and reliable ESG information from companies. The ISSB will build on the work of existing reporting initiatives focused on investors, including the Task Force on Climate-related Financial Disclosures (TCFD). The ISSB will first go through public consultations with the aim to eventually develop standards that can be required and linked with jurisdiction-specific requirements.
 

• NFRD - Non-Financial Reporting Directive 🇪🇺

The NFRD is an extension to annual financial reporting requirements (Accounting Directive) for large corporations that requires them to publish extra-financial information (here, ESG data). It sets guidelines for companies on how to disclose their approach to managing environmental and social challenges and requires companies to include the environmental and social factors in their annual reports, along with their financial reporting. While the NFRD is beneficial to the point that it provides some loose framework about what non-financial factors can be reported, it only applies to large companies, it does not require a specific structure and content, and it is not fully aligned with the EU Taxonomy and SFDR. The NFRD will be replaced by the CSRD in 2023.

• PAI - Principal Adverse Impact Indicators 🇪🇺

The PAIs are an element of the EU’s SFDR and probably one of its most challenging aspects. Article 4 of the SFDR requires Fixed Maturity Plans (FMPs) to ensure transparency in terms of consideration of principal adverse impacts of investment decisions on sustainability factors. FMPs need to provide extensive disclosures on various ESG related matters including environmental and social indicators. They are subject to two types of disclosures: (1) entity level disclosures (Article 4 SFDR), which are based on a “comply or explain” principle urging FMPs  to indicate whether they consider the PAIs on sustainability factors of their investment and include a statement on their due diligence policies with respect to such impacts, and (2) product level disclosures (Article 7 SFDR) whereby FMPs have to disclose how each of their financial products considers such impacts in their pre-contractual disclosure documents. FMPs which do not consider PAI will be required to explain the reasons for that decision.

• PRI - Principles for Responsible Investment 🌍

The UN supported Principles for Responsible Investment help to understand the investment implications of environmental, social and governance (ESG) factors and support its investor signatories to integrate these factors into their investment decisions. Developed by investors, the PRI outlines six principles to integrate ESG into investment strategies.

• SASB - Sustainability Accounting Standards Board 🌍

The SASB’s Standards allow companies to ascertain, manage and convey financially-material sustainability data to their investors. The SASB has created 77 globally-applicable Industry Standards, which are designed to be cost-effective and decision-useful for companies and investors. 

• SFDR - Sustainable Finance Disclosure Regulation  🇪🇺

The Sustainable Finance Disclosure Regulation was designed to increase transparency on sustainability among financial institutions and market participants and, subsequently, encourage capital to flow towards more sustainable investment options. It requires financial market participants to provide standardised disclosures on how ESG factors are integrated at both an entity and product level. In addition, every investment fund marketed in Europe must be labelled as either Article 6: not integrating sustainability into its investment process, Article 8: promoting environmental and/or social characteristics, Article 9: specifically targeting sustainable investments. The SFDR is one of the pillars of the EU Action Plan on Sustainable Finance, which also includes the EU Taxonomy and the Low Carbon Benchmarks Regulation.

• TCFD - Task Force on Climate-related Financial Disclosures 🌍

The Task Force on Climate-related Financial Disclosures was established in 2015 by the Financial Stability Board (FSB) to provide corporates and finance institutions recommendations on how to disclose their climate change-related financial risks and opportunities. The recommendations cover four thematic areas that target core elements of companies’ operations: governance, strategy, risk management, and metrics and targets. The Taskforce has 31 members and is one of the most adopted global standards. TCFD reporting became mandatory for signatories to the UN Principles for Responsible Investment (UN PRI).
 

• TNFD - Taskforce on Nature-related Financial Disclosures 🌍

The TNFD aims to deliver and establish a risk management and disclosure framework that enables organisations to report on nature-related risks and in turn shift finance flows away from nature-negative outcomes and toward nature-positive ones. The TNFD is comprised of financial institutions, companies and market service providers and aims to provide these players with the information needed to understand how nature impacts their immediate financial performance and long-term financial risks.

• TSC - Technical Screening Criteria 🇪🇺

Set out by the EU Taxonomy, the TSC define the criteria or conditions for meeting the substantial contribution to one or more environmental objectives such as climate change mitigation or adaptation, while avoiding significant harm to the other environmental objectives including the sustainable use of water and marine resources, transition to a circular economy, pollution prevention control and the protection and restoration of biodiversity and ecosystems.  

The Greenomy Platform

Greenomy aims to be an inclusive ESG data management platform and a one-stop-shop ESG data marketplace for all. In doing so, Greenomy closely maps and follows the development of these various standards, regulations, disclosures, and initiatives to ensure clarity, consistency and if needed integration in our platform. We aim to enable our clients to get access to the full range of services for the successful implementation of their own SFDR and EU Taxonomy requirements. 

Greenomy has already developed a SaaS based digital solution to help you tackle the EU Taxonomy/SFDR/NFRD/CSRD challenge: try it yourself, book a demo here.