A Dummies’ Guide to CSRD, TNFD, SBTN and the nature action alphabet soup
CSRD, ESRS, TNFD, LEAP, SBTN, EGD, EFRAG, CSDDD (aka CS3D), EUDR, ESPR, WFD & MSFD, EU ETS, CBAM, NFRD & SFRD, AAQD, ISSB, GRI — the ESG…
+CSRD, ESRS, TNFD, LEAP, SBTN, EGD, EFRAG, CSDDD (aka CS3D), EUDR, ESPR, WFD & MSFD, EU ETS, CBAM, NFRD & SFRD, AAQD, ISSB, GRI — the ESG alphabet soup can get a little overwhelming especially for us Americans. But this plethora of acronyms, while tedious, spells out one of the greatest transitions in human history. The world (or at least Europe) is beginning its journey towards a nature-positive future.
As the U.S. goes retrograde with dozens of anti-ESG bills being pushed through state legislatures, Europe is moving forward despite some setbacks. The package of new EU sustainability regulations, part of the European Green Deal (EGD), went into force in 2023, but in April a ‘Stop-the-clock’ directive was approved, delaying implementation to 2028. It now faces an ‘Omnibus 1 Simplification’ initiative, which seeks to limit the number of companies under the mandate while greatly reducing reporting requirements. A large group of investors, NGOs, and corporates are pushing back against this effort to preserve the core principles of the original regulation.
As we wait to see things how things shake out in Europe, I thought it will be helpful to pull together some charts explaining how all the pieces fit together, and what the implications might be for companies in the coming years, specifically focusing on environmental reporting. I’ll start with my own summary chart that breaks out the alphabet soup into a simple four-part grid — regulations and initiatives focusing on corporate ‘Transparency’ (i.e. reporting) and those focusing on ‘Transformation’ (i.e. mitigation), further divided into mandatory vs. voluntary initiatives:
The “alphabet soup” of nature-positive action organized by Mandatory regulations vs. Voluntary initiatives, divided into efforts to promote Transparency vs. those focused on Transformation (aka Transition). Note: CSDDD is a stand-alone directive and not directly linked to specific EU environmental regulations, color-coded here by the 5 ‘E’ reporting categories with which they thematically correspond. TNFD and GRI are both independent organizations that have contributed both to ISSB voluntary standards as well as EFRAG mandatory standards. BEES is a new biodiversity-focused standard led by ISSB with input from TNFD. Chart by Karl Burkart, One Earth (thanks to EcoAct for providing the ISSB portion of the top right quadrant), 2025.
Mandatory Transparency (top left). The evolution of the Corporate Sustainability Reporting Directive (CSRD), adopted by the EU at the end of 2022, is an interesting story (see below for the history). It attempted to solve problems associated with earlier reporting directives (NFRD and SFRD) by providing a uniform set of reporting standards to accompany a unified reporting directive. The first version of the European Sustainability Reporting Standards (ESRS) was developed by the European Financial Reporting Advisory Group (EFRAG), an independent NGO commissioned by the EU government with input from the Global Reporting Initiative (GRI), Taskforce on Nature-related Financial Disclosures (TNFD), and other key stakeholders.
It has three main sections — Environmental (E), Social (S), and Governance (G) — in addition to general, cross-cutting requirements. Here I’m most concerned with the ‘Environmental’ section which has five components — climate (E1), pollution (E2), water (E3), ecosystems (E4), and circularity (E5), described in more detail below. The CSRD is the legal directive describing which entities must report (the “who”), while the ESRS lays out a uniform system to organize the reports (the “how”). CSRD incorporates the principle of double materiality, requiring a company to disclose both the material risks that its operations pose to society and the environment, as well as associated financial risks. In addition to this, there is Green Claims Directive in development (GCD), which describes how a company should make environmental claims to the public.
Mandatory Transformation (lower left). Adopted last year, the second big directive of the EGD is the Corporate Sustainability Due Diligence Directive (CSDDD aka CS3D). While CSRD is all about transparency of risk, the CSDDD asks companies to take action on those risks, requiring them to “…adopt and implement effective due diligence policies for identifying, preventing, mitigating and bringing to an end potential and actual adverse impacts on human rights and environmental matters in these companies’ own operations, the operations of their subsidiaries and certain operations of their business partners.” Notably this includes a requirement for in-scope companies to publish and implement net-zero transition plans in line with the 1.5°C goal of the Paris Climate Agreement. It also covers a company’s entire supply chain, so if a supplier is polluting a river or using illegal timber, it is the company’s responsibility not only to report it but to take measures to correct it.
This is known as a lex generalis (a general law), which acts in some way as an umbrella regulation interacting with numerous other specific EU laws or lex specialis. These include:
- EU ETS — EU Emissions Trading Scheme pricing carbon emissions (ETS II coming soon)
- CBAM — Carbon Border Adjusted Mechanism taxing imports based on carbon intensity
- AAQD — Ambient Air Quality Directive regulating air pollution in line with WHO targets
- WFD & MSFD — requiring protection of freshwater supplies and the marine environment
- EUDR — EU Deforestation Regulation banning deforestation-linked commodities
- ESPR — Ecodesign for Sustainable Products promoting durable and recyclable goods
One of the implications of the conjoined adoption of CSRD and CSDDD is that companies will need to put into place extremely robust Monitoring Reporting & Verification (MRV) methods across their value chains (even covering beyond value chain investments) in order to accurately report on the progress being made by the company to achieve its sustainability goals.
Voluntary Transparency (top right). Way back in 2001 the IFRS Foundation was established as a public interest NGO to support the financial sector by developing “high-quality, understandable, enforceable and globally accepted accounting standards” alongside a new Accounting Standards Board (IASB). Twenty years later, at the UN Climate Conference in Glasgow, they established the International Sustainability Standards Board (ISSB) with the remit of developing a global baseline for sustainability-related financial disclosures (backed by the G7/G20) informed by the Carbon Disclosure Standards Board (CDSB), the Sustainability Accounting Standards Board (SASB), and the Taskforce on Climate-Related Financial Disclosures (TCFD).
In response to the growing complexity of existing sustainability frameworks, the IFRS consolidated its standards launching IFRS S2 focused on climate-related disclosures and IFRS S1 standard covering broader sustainability risks and opportunities (thanks to EcoAct for the handy overview chart). ISSB, in conjunction with GRI, TCFD, TNFD, and other key reporting organizations, influenced the development of the CSRD. They are now working on a new Biodiversity, Ecosystems, and Ecosystem Services initiative (BEES), which will help to inform standards specifically pertaining to E4 of the ESRS with input from TNFD.
The 5 steps of the Science Based Targets Network (SBTN) process for setting targets to transform corporate operations. Note: Biodiversity is not shown in Step 3 as a stand-alone set of standards, as specific biodiversity measures are included in the other three standards across Freshwater, Land, and Oceans. SeeSBTN. Chart by SBTN, 2023.
Voluntary Transformation (lower right). In the lead up to the UNFCCC Paris Climate Agreement in 2015, the Science-Based Targets initiative (SBTi) was formed. While government negotiations dragged on, companies wanted to get ahead of the game by setting their own net-zero aligned targets for decarbonizing their operations. There was no formalized method available at the time, so with a large array of stakeholders SBTi published the first set of guidelines called the Net-Zero Corporate Standard in the lead up to the Glasgow COP in 2021. One important thing the standard did was to recommend limits on offsets used by a company on its way to achieving net zero emissions by 2050, initially covering Scopes 1 and 2. Things got hairy when it came to Scope 3, and the standard is currently going through a major revision. Meanwhile over 10,000 companies now have targets or commitments in place, due in large part to SBTi’s efforts.
In 2019, the Global Commons Alliance launched a parallel initiative called the Science Based Targets Network (SBTN) to develop corporate target setting guidelines for nature in the lead up to the UN Convention on Biological Diversity (meant to be held in 2020 but delayed to 2023 due to COVID-19). Due to the many components of nature reporting, the SBTi standard is significantly more complex covering four other major categories of environmental impact beyond climate — freshwater, land, oceans, and biodiversity. The process is organized in five steps (I was a technical reviewer on Steps 1 and 2) and adds much-needed clarity for companies seeking to transform their operations in line with a nature-positive future.
Alongside SBTN, there are numerous other certifications and credentials that companies have used to align their operations towards environmentally friendly practices. As a young architect way back in 1999, I was a contributor to the first version of the Leadership in Energy and Environmental Design (LEED) standard for green buildings, and several years later a reviewer of the first B Corp standard in 2006 (right time, right place)! Fair Trade, Green Seal, Cradle to Cradle and many others focus on consumer products companies. 1% for the Planet helps companies contribute to nature beyond their value chains in the form of charitable donations to vetted organizations (currently 4800+ members who have donated close to $800 million). These efforts have really made a difference, and recently we proposed an ‘Internal Price on Nature’ to help accelerate voluntary corporate action.
Back to the substance of ESRS…
It’s important to point out that in Europe large companies (>500 employees and/or €50 million in revenue) and other Public Interest Entities (PIEs include banks and insurance companies) have already been subject to reporting requirements under the EU Non-Financial Reporting Directive (NFRD), which passed at the end of 2014. This was structured around the familiar ESG framework — Environmental, Social (including employee treatment, human rights, and diversity) and Governance. By 2018 all the member states had adopted NFRD, and a new separate standard was in development called the Sustainable Finance Disclosure Regulation (SFRD). Greenomy has a nice timeline of these events.
Timeline of the development of the CSRD starting with the passage of the EU Accounting directive in 2013 through 2023. Chart by Greenomy, 2024.
As the EGD was being developed, it sought to solve several shortcomings of these two reporting directives. It had become clear that (a) it didn’t make sense to have two separate directives — one covering material risk and one covering financial risk — and (b) that companies needed an official reporting standard to use, one that covered both material and financial risks. The Taskforce for Nature-Related Finance Disclosures was officially launched in 2021 backed by G20 countries, and starting in 2022 TNFD worked closely with EFRAG to ensure continuous exchange in the development of the ESRS Environmental ‘E’ standards in line with TNFD guidelines.
One of the big contributions in the TNFD Recommendations (PDF) is the LEAP framework, which stands for Locate-Evaluate-Assess-Prepare. Each of these steps have 4 parts..
The LEAP reporting process developed by TNFD, 2023.
The LEAP process gives us a sense of just what a daunting task nature-related reporting will be for companies. Right now, most companies are just working on ‘L’ for their owned facilities, which could require an enormous effort given some companies have hundreds, if not thousands, of sites. Then imagine doing the same for all the company’s subsidiaries and suppliers (remember the CDDD directs a company to mitigate the impacts across its entire value chain). L3 is particularly tricky because there is not currently one single publicly available data set at a decent resolution that maps the extent of natural ecosystems. So ‘L’ is going to take a while (and cost a lot of money). Then, and only then, can companies move on to ‘E’ and ‘A’. People have been a bit confused by these two terms because they are linguistic synonyms, but in my understanding ‘E’ is focused on the evaluation of nature-related dependencies and impacts on nature for each location, while ‘A’ is an assessment as to whether those, in totality, pose serious material and financial risks to the company, shareholders, and stakeholders.
Note: GRI and TNFD just published case studies of companies using the LEAP process and found that while the standard is still relatively new, many companies are proceeding onto the Evaluate ‘E’ process to map dependencies, impacts, risks and opportunities (DIROs).
This chart, a result of the TNFD-ESRS collaboration, shows how the two systems can be seen as working together, helping companies clarify the questions they need to have answered in order to prepare their reports for submission per ESRS (PDF):
Correspondence between the mandatory ESRS reporting standard and the voluntary LEAP reporting process developed by TNFD. Chart by EFRAG & TNFD, 2024.
There are numerous components of each of the ESRS environmental reporting categories. The London Stock Exchange research group (LSEG) created this handy chart to breakdown E1-E5 sub-topics and sub-sub-topics defined within the CSRD (not exhaustive but covers most of the main topics to report against). Under the requirements of the CSRD, any material impact, risk or opportunity within these topic areas should be reported (Note: this crops out E1 Climate Change, which has three main sub-topics — Energy, Mitigation, Adaptation):
A breakdown of sub-topics and sub-sub-topics by LSEG (E2-E5). Note E4 only shows a select few examples as there could be numerous sub-sub-topics depending upon location and type of operation. Chart by LSEG, 2024.
E2 Pollution has 7 sub-topics — air, water, soil, living organisms, substance of concern, hazardous substances, and microplastics. E3 Water has two main sub-topics — Freshwater and Marine Resources — with 5 sub-sub topics. E4 Biodiversity has four main sub-topics — Drivers of Biodiversity Loss, Impacts on Species, Impacts on Ecosystems, and Impacts/Dependencies on Ecosystem Services — with many potential sub-sub topics based on the sector. E5 Circularity has 3 main sub-topics — Resource Inflows, Resource Outflows, and Waste Management.
Zooming in a bit further into E4 Biodiversity, it’s useful to think about the synergies specifically between ESRS, TNFD, and SBTN. The more recent version of CSRD requires the disclosure of a broad range of qualitative and quantitative information, which is quite demanding albeit more flexible than the original version, according to I Care. The ESRS gives some latitude regarding the choice of metrics, while TNFD is a bit more prescriptive and also more comprehensive (or systemic) stating, “…nature refers to the natural world, emphasizing the diversity of living organisms, including humans, and their interactions with each other and with their environment.” SBTN goes further with a high level of precision, notably because the framework requires extensive data collection and detailed analysis of pressures across a company’s value chain with the ultimate goal of transitioning to a nature-positive business model.
Here is I Care’s comparison of the three framework in regards to ecosystems and biodiversity (E4) across 7 major themes:
Comparison of the ESRS Ecosystems & Biodiversity reporting Standard (E4) with TNFD and SBTN voluntary platforms across 7 major themes. Chart by I Care, 2024.
The rubber hits the road when we get to MRV. There are numerous ways a company could measure its specific impacts on ecosystems and biodiversity (and hopefully how those impacts are improving over time). One of the best references on this topic that I’ve found is Recommendations for a Standard on Corporate Biodiversity Measurement and Valuation (2022) by the Align Project, which was funded by the European Commission, and led by UNEP-WCMC, the Capitals Coalition, Arcadis, and ICF. It provides businesses and financial institutions with principles and criteria for biodiversity measurement and valuation (PDF). After a three-year consultation with leading experts on biodiversity measurement, they arrived at a framework with three main categories — Ecosystems, Species, and Genes — and 9 major metric types:
Figure E1 from the reportRecommendations for a Standard on Corporate Biodiversity Measurement and Valuation, showing 9 major metrics types organized in two main categories — Ecosystems and Species. A specific metric for the Genes category is not provided. Chart by Align, 2022.
One of the key recommendations is that indicators of ecosystem extent and condition should form the core of assessments of impact and dependencies (shaded blue). Given that biodiversity is multifaceted and difficult to capture in a single metric, ecosystem condition gives insight to the capacity of ecosystems to deliver ecosystem services, while allowing changes in biodiversity to be effectively valued. Species-level metrics (shaded green) can capture risks associated with species loss, extinction risk and population size. These are much more difficult to retrieve. Measuring genetic diversity (dark green), while potentially the most valuable, is even more difficult and expensive to retrieve and process.
I’ve taken you on a tour of the alphabet soup of nature-positive acronyms, a history of CSRD, TNFD, and SBTN with a special focus on Ecosystems & Biodiversity in the new ESRS standard (E4). Now the big question remains, how much will all of this cost as CSRD goes into force? That is tackled in the next post, How much will it cost companies to comply with the EU’s nature reporting standard?