1. The EU ESG Architecture - 3 Pillars

You cannot understand one without others.

Flow: Company does activity -> Checks if activity is Taxonomy-aligned -> Reports alignment % in CSRD/ESRS report -> Investor uses that data to report under SFDR to its investors.

2. CSRD - The Core - Detailed

A. Scope - Who must report? - Phased from 2024

• Wave 1 - FY 2024 (Report in 2025): Companies already under NFRD - EU listed with >500 employees
• Wave 2 - FY 2025 (Report in 2026): All large EU companies meeting 2 of 3: >€50M turnover, >€25M assets, >250 employees
• Wave 3 - FY 2026 (Report in 2027): Listed SMEs
• Wave 4 - FY 2028 (Report in 2029): Non-EU companies - This is critical for India - If your group has >€150M revenue in EU for 2 years and has at least one EU subsidiary / branch with >€40M turnover, entire group must report at consolidated level. TCS, Infosys, Wipro, Tata Steel Europe, Bharat Forge Europe are already in scope.

B. What CSRD Requires:

1. Report must be in Management Report, not separate CSR report
2. Must be in ESEF XBRL digital format - Machine readable
3. Must have Mandatory Limited Assurance from 2024-2028, Reasonable Assurance from 2028 onwards - Big 4 audit required
4. Must report on full value chain - upstream and downstream - Your Indian suppliers to EU company must give data

3. ESRS - 12 Standards - What Data to Report

Adopted 31 July 2023. This is the actual reporting template.

2 Cross-Cutting Standards (Mandatory for all):

ESRS 1 - General Requirements: Double Materiality, Value chain, Time horizons (short, medium, long)
ESRS 2 - General Disclosures: Governance, Strategy, IROs - Impacts, Risks, Opportunities, 9 disclosure requirements

10 Topical Standards (Based on Double Materiality Assessment):

Environment - 5 Standards:

• ESRS E1 - Climate Change: The biggest. Requires Scope 1,2,3 GHG (GHG Protocol), GHG intensity, Energy consumption, % renewable, Transition plan for 1.5°C aligned - CAPEX for transition, Internal carbon price, Physical and transition risk scenario analysis (must use NGFS scenarios)
• ESRS E2 - Pollution: Air, water, soil pollutants, microplastics
• ESRS E3 - Water and Marine Resources: Water withdrawal, consumption, discharge in water-stressed areas
• ESRS E4 - Biodiversity and Ecosystems: Impact on biodiversity, deforestation, protected areas
• ESRS E5 - Resource Use and Circular Economy: Waste, circularity, product design

Social - 4 Standards:

• ESRS S1 - Own Workforce: 17 data points - Gender pay gap, CEO-worker pay ratio, % collective bargaining, Health & Safety - fatalities, LTIFR, Training hours, % with disabilities
• ESRS S2 - Workers in Value Chain: Child labour, forced labour audit of suppliers - This hits Indian suppliers directly
• ESRS S3 - Affected Communities: Human rights, free prior informed consent
• ESRS S4 - Consumers and End-Users: Data privacy breaches, product safety

Governance - 1 Standard:

• ESRS G1 - Business Conduct: Anti-corruption, Political influence, Whistleblower, Payment practices - Must report average time to pay SME suppliers - EU wants to stop late payments

Total: ∼1,100 data points if all topics material. Average company reports ∼600-700.

4. Double Materiality - The Heart of EU - Most Difficult Part

This is unique to EU. Indian BRSR also adopted it, but EU is stricter.

You must do assessment in 2 directions:

1. Impact Materiality (Inside-Out): How does your company impact people and environment? Example: Your factory pollutes river - Material even if no financial loss to you.

2. Financial Materiality (Outside-In): How do ESG factors impact your financials? Example: Carbon tax will increase your cost.

If topic is material from EITHER perspective, you must report it.

Process mandated by ESRS 1:

• Identify stakeholders
• Identify impacts across value chain
• Score impacts on Scale, Scope, Irremediable character
• Threshold: If impact score > certain level, material
• Must be documented and auditable - Assurance provider will check your assessment process

Common mistake: Many companies say "Climate not material for IT company" - Auditor will reject. For EU, Climate E1 is presumed material - you must justify with evidence if you say not material.

5. EU Taxonomy and SFDR - How They Link

EU Taxonomy - 6 Environmental Objectives:

1. Climate mitigation, 2. Climate adaptation, 3. Water, 4. Circular economy, 5. Pollution prevention, 6. Biodiversity

To be Taxonomy-aligned, activity must:

• Contribute substantially to one objective (Technical Screening Criteria - e.g., for cement, <0.72 tCO2/t)
• Do No Significant Harm to other 5
• Meet Minimum Social Safeguards (OECD Guidelines)

Reporting: Must report % of Turnover, CAPEX, OPEX that is Taxonomy-eligible and Taxonomy-aligned.

SFDR - For Financial Institutions:
If a European bank lends to you, it must report under SFDR Article 6, 8, 9. It will ask you for ESRS data to calculate its Principal Adverse Impact (PAI) indicators - 64 indicators - GHG, Biodiversity, Gender pay gap. If you don't give data, bank cannot give you green loan.

6. Case Laws / Enforcement - EU is Already Penalizing

A. Greenwashing Cases Under CSRD Precursors:

1. KLM Royal Dutch Airlines vs. ClientEarth, Amsterdam District Court, 20 March 2024 - ECLI:NL:RBAMS:2024:1513 - Landmark
KLM campaign "Fly Responsibly" claimed customers can fly CO2 neutral by buying offsets. Court held: Claim violates EU Unfair Commercial Practices Directive and upcoming CSRD ESRS E1 because:

• Offsets do not reduce aviation emissions
• No disclosure of Scope 1,2,3 methodology
• Violates double materiality - Impact not disclosed

Order: KLM must stop advertising, publish correction. First case where Court used ESRS E1 logic before CSRD effective date.

2. TotalEnergies vs. ClientEarth & Others, Paris Judicial Court, 2023 - Case No. 22/03472
NGOs sued TotalEnergies that its CSRD predecessor report (Vigilance Plan) did not include Scope 3 emissions from burning its oil. Court held: Under ESRS E1, Scope 3 Category 11 (use of sold products) must be included. TotalEnergies must report full lifecycle emissions. Applies to all oil companies.

3. Deutsche Bank DWS - ESG Fraud - Frankfurt Public Prosecutor Case 2022-23 - $25M SEC + $8M BaFin penalty
DWS claimed €719B AUM is ESG-integrated under SFDR Article 8. Internal review found only €115B had ESG integration. Whistleblower Desiree Fixler. Prosecutor raided headquarters. CEO Asoka Woehrmann resigned. This case led to ESRS requirement of assurance and clear definition of SFDR Article 6 vs 8 vs 9.

B. Taxonomy Cases:

4. ClientEarth vs. European Commission - EU Taxonomy Inclusion of Gas and Nuclear - ECJ Case T-319/22 (Filed 2022, Pending)
Austria, Luxembourg and NGOs challenged Commission Delegated Act that included natural gas and nuclear as green in Taxonomy. Argument: Gas is not sustainable per ESRS E1 technical criteria. Case will decide what is "green" - outcome will affect all Taxonomy reporting.

C. SFDR Cases:

5. Goldman Sachs Asset Management - SFDR Enforcement - AFM (Dutch Regulator) Fine 2023 - €1.9M
Goldman Sachs claimed two funds as SFDR Article 9 (dark green - sustainable objective). AFM audit found funds invested in fossil fuels, did not meet PAI indicators. Fine for misclassification under SFDR.

Lesson: If you claim Taxonomy alignment 10%, you need proof.

D. Non-EU Company in Scope:

6. EU Commission Q&A on CSRD - July 2024 - Clarification on Indian Companies
Commission clarified: If Indian parent has EU subsidiary with >€40M turnover, Indian parent must publish ESRS report at consolidated level covering Indian operations also, not just EU subsidiary. This extra-territorial effect challenged by US Chamber but upheld. Means Infosys must publish ESRS for India operations if its EU revenue >€150M.

7. Penalties

• CSRD Non-Reporting: Member states set penalties - Germany: Up to €10M or 5% global turnover, France: €75k + publication of non-compliance, plus criminal liability for directors
• SFDR Misclassification: Up to €5M or 3% turnover
• Greenwashing under UCPD linked to ESRS: Up to 4% turnover

8. How to Comply if You Are Indian Company with EU Exposure

Step 1 - Scoping: Do you have >€150M EU revenue + EU subsidiary >€40M? If yes, you are in Wave 4 - Start now, because data collection takes 18 months.

Step 2 - Double Materiality Assessment: Conduct as per ESRS 1 Appendix - Document stakeholder engagement, impacts, thresholds.

Step 3 - Gap Assessment vs BRSR: Map BRSR Core 9 KPIs to ESRS E1-S4 - BRSR covers ∼45% of ESRS. Major gaps: Scope 3 upstream/downstream full value chain, Biodiversity E4, Circular Economy E5, Workers in Value Chain S2, Taxonomy alignment.

Step 4 - Taxonomy Calculation: Map your NACE codes to Taxonomy activities - Calculate Turnover, CAPEX alignment.

Step 5 - Assurance Readiness: Appoint ESRS assurance provider - Must be accredited under EU - Big 4 EU arm.