The EU rules: CSRD, ESRS, EU Taxonomy and SFDR

The European Union has the most detailed sustainability rules in the world. They matter to Indian companies in three ways:

• Directly: Indian groups with large EU businesses can fall under EU reporting rules.
• Through customers: EU companies must report on their value chains, so they ask Indian suppliers for data.
• Through investors: EU funds must classify and disclose the sustainability of what they hold, including Indian shares and bonds.

Since 2025, the EU has cut back many of these rules to reduce the burden on business, through a package of changes known as the Omnibus. The direction is still the same, but fewer companies are covered and the reporting is lighter.

CSRD (Corporate Sustainability Reporting Directive)

The CSRD, adopted in 2022, replaced the older Non-Financial Reporting Directive. It requires reporting on a double materiality basis, using the European Sustainability Reporting Standards (ESRS), with external assurance.

The Omnibus amendments were published in the EU's Official Journal on 26 February 2026 and entered into force on 18 March 2026. Member States must apply them in national law by 19 March 2027. The main changes:

• EU companies in scope: those with more than 1,000 employees and net turnover above €450 million
• Non-EU groups in scope: those with net EU turnover above €450 million in each of the last two years, and an EU subsidiary or branch with net turnover above €200 million
• Value chain cap: limits on the information covered companies can demand from value chain partners with fewer than 1,000 employees
• Sector-specific ESRS: dropped, replaced by guidelines
• Assurance: limited assurance only; the earlier plan to move to reasonable assurance was removed
• Transition: Member States may exempt companies that fall out of scope from reporting for FY 2025 and FY 2026

ESRS (European Sustainability Reporting Standards)

The first set has twelve standards: two cross-cutting (ESRS 1 general requirements and ESRS 2 general disclosures), five environmental (E1 climate, E2 pollution, E3 water and marine resources, E4 biodiversity, E5 resource use and circular economy), four social (S1 own workforce, S2 workers in the value chain, S3 affected communities, S4 consumers and end users) and one on governance (G1 business conduct).

On 3 December 2025, EFRAG delivered simplified ESRS to the European Commission, cutting the number of datapoints by about 70%, from about 1,073 to 320, removing all voluntary disclosures and making the double materiality assessment lighter. The Commission is to adopt them through a delegated act, with the revised standards targeted to apply from FY 2027.

EU Taxonomy

The EU Taxonomy Regulation of 2020 defines which economic activities count as environmentally sustainable. It has 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. An activity is "Taxonomy-aligned" if it makes a substantial contribution to one objective, does no significant harm to the others, meets minimum social safeguards and meets technical screening criteria.

Companies under the CSRD report the share of their turnover, capital expenditure and operating expenditure that is Taxonomy-aligned. A simplification act adopted in July 2025, applying from 1 January 2026, lets companies treat activities that together make up less than 10% of a KPI as not material, and cuts the datapoints per aligned activity from 78 to 28.

SFDR (Sustainable Finance Disclosure Regulation)

The SFDR has applied since March 2021. Funds are commonly described by the article under which they disclose: Article 6 (no sustainability claim), Article 8 (promotes environmental or social characteristics) and Article 9 (has sustainable investment as its objective).

On 20 November 2025, the Commission proposed an overhaul, often called SFDR 2.0. It would replace Articles 8 and 9 with three categories, each requiring at least 70% of investments to meet its test: Transition, ESG Basics and Sustainable. It would also remove entity-level disclosure of principal adverse impacts. The proposal must be agreed by the European Parliament and Council before it applies, which was expected to be around 2028.