Financial services companies face two overlapping EU sustainability frameworks: CSRD governs what companies disclose about their own sustainability performance; SFDR governs what financial institutions disclose about the sustainability characteristics of their products. Understanding the distinction — and how they interact — is essential for banks, fund managers, insurance companies, and fintech firms.
What CSRD Does
CSRD requires large EU companies (and some non-EU companies) to publish annual sustainability reports covering their own environmental, social, and governance performance. Reports must follow the European Sustainability Reporting Standards (ESRS) and be subject to third-party assurance.
For financial services companies: CSRD applies when the company itself meets the size thresholds. A bank, asset manager, or insurance company with 250+ employees and €40M+ turnover is subject to Wave 2 CSRD reporting — disclosing their own GHG footprint, workforce data, business conduct, and financed emissions.
What SFDR Does
The Sustainable Finance Disclosure Regulation (SFDR) governs how financial market participants (FMPs) and financial advisers disclose the sustainability characteristics of their products. It creates a classification system for investment products:
Article 6: No sustainability claims — standard investment products with no ESG integration Article 8: "Light green" — products that promote environmental or social characteristics Article 9: "Dark green" — products that have sustainable investment as their objective
SFDR also requires:
- PAI disclosures: Principal Adverse Impact indicators — mandatory for FMPs above certain thresholds, disclosing how their investments negatively affect sustainability
- Entity-level disclosures: How the FMP integrates sustainability risks into investment decisions
SFDR applies to financial product disclosures — what the fund says about its ESG characteristics — not to the underlying investee companies.
How They Interact for Financial Services Companies
CSRD Data Flows into SFDR
For FMPs making PAI disclosures, CSRD data from portfolio companies is the most reliable source:
PAI indicators require data about investee companies:
- GHG emissions (Scope 1, 2, 3)
- Carbon footprint
- GHG intensity of investee companies
- Companies with activities in fossil fuels
- Board gender diversity
- Exposure to controversial weapons
When investee companies report under CSRD/ESRS, FMPs gain standardised, assured, machine-readable sustainability data for PAI calculations. Before CSRD, this data was either unavailable or inconsistently reported.
The data pipeline: CSRD companies publish ESRS disclosures in ESEF format → FMPs extract standardised metrics → PAI calculations become more accurate → SFDR disclosures improve.
CSRD and Article 8/9 Fund Due Diligence
Fund managers running Article 8 or Article 9 strategies use investee company sustainability data to assess portfolio alignment. CSRD-reported ESRS data provides:
- Verified climate metrics for portfolio carbon footprint
- Social performance data for ESG scoring
- Governance disclosures for ESG factor integration
As CSRD reporting matures, fund managers will increasingly expect CSRD-compliant data from investee companies. Companies that cannot provide CSRD-quality data may be excluded from Article 8/9 fund mandates.
The Financed Emissions Challenge
For financial institutions subject to CSRD, Scope 3 Category 15 (investments / financed emissions) is typically their largest emission category — often 98–99% of total footprint.
What this means: A bank or fund manager reporting under CSRD must estimate the GHG emissions associated with their loan book, equity holdings, and underwriting activities. This is calculated using PCAF (Partnership for Carbon Accounting Financials) methodology.
The data dependency: Financed emission calculations depend on the quality of underlying data from investee/borrower companies. CSRD improves this data quality — but for the current transition period, many portfolio companies are below CSRD thresholds or in earlier reporting waves.
ESRS E1 for financial institutions: Banks and fund managers must:
- Disclose total financed emissions (Scope 3 Category 15)
- Apply PCAF methodology (or equivalent)
- Set targets for reducing financed emissions aligned with a net-zero pathway
EU Taxonomy: The Third Framework
EU financial services companies face a third dimension: the EU Taxonomy Regulation requires disclosure of the proportion of assets that are taxonomy-aligned — supporting climate change mitigation, adaptation, or other environmental objectives.
CSRD and Taxonomy for financial services: CSRD-reporting financial institutions must disclose their Green Asset Ratio (GAR) — the proportion of assets aligned with the EU Taxonomy — as part of their ESRS E1 disclosures.
Data dependency: GAR calculation requires Taxonomy alignment data from counterparties and investee companies. As CSRD reporting matures, this data will improve.
Summary: Who Needs What
| Company type | CSRD? | SFDR? | EU Taxonomy? |
|---|---|---|---|
| Bank (large, Wave 2) | Yes — own performance incl. financed emissions | If offering investment products | Yes — Green Asset Ratio |
| Asset manager | Yes — own operations | Yes — product disclosures, PAI | Yes — if marketing as Article 8/9 |
| Insurance company | Yes — own operations | Yes — unit-linked products | Yes — own investment portfolio |
| Fintech (payments, lending) | Yes if large enough | Not typically unless licensed as FMP | Not typically |
| SME seeking institutional investment | No (below thresholds) | No | No — but investor demands will mirror these frameworks |