CSRD for Financial Services
Financial services companies face unique CSRD challenges — their primary sustainability impacts occur through the companies they finance rather than direct operations. ESRS disclosures must cover both the institution's own operations and its financed activities, making CSRD more complex for banks, insurers, and asset managers than for most non-financial companies.
Financial services companies face unique CSRD challenges — their primary sustainability impacts occur through the companies they finance rather than direct operations. Financial institutions in CSRD scope must apply all 12 ESRS standards — the same framework as non-financial companies.
How ESRS applies to financial institutions
Financial institutions in CSRD scope must apply all 12 ESRS standards — the same framework as non-financial companies. The key difference is how the standards are applied given the nature of financial sector business models.
ESRS E1 (climate): Financial institutions' Scope 1 and 2 emissions are typically small — office buildings, data centres, company vehicles. The material climate disclosure is Scope 3 Category 15 (financed emissions) — the GHG emissions of companies the institution lends to, invests in, or insures. PCAF (Partnership for Carbon Accounting Financials) methodology is the applicable standard for financed emission calculation.
ESRS S2 (value chain workers): For banks, the value chain includes portfolio companies' supply chains — where adverse labour impacts in financed companies' operations are within the bank's ESRS S2 scope through the downstream value chain. This is analogous to the CSDDD downstream scope challenge.
ESRS E4 (biodiversity): Financed activities in agriculture, mining, and real estate create biodiversity impacts — material for banks with significant exposure to these sectors.
Double materiality for financial institutions: The impact materiality dimension is particularly significant for financial services — the institution's impacts on society occur primarily through what it finances. A bank that finances fossil fuel extraction has significant impact materiality from that financing, even if its own operations are low-emission. This creates a broader materiality assessment scope than a simple operational footprint analysis.
Financed emissions — the central ESRS E1 challenge
Scope 3 Category 15 (financed emissions) is the most significant and most complex ESRS E1 disclosure for financial institutions — representing 99%+ of a typical bank's total GHG footprint.
PCAF methodology: The PCAF standard provides the calculation methodology for financed emissions by asset class — listed equity, corporate bonds, business loans, commercial real estate, mortgages, project finance, and insurance-associated emissions. Each asset class has a different attribution approach based on the financial institution's proportionate ownership or exposure.
Data quality challenge: Financed emission calculations require investee/borrower GHG data. As of 2026, most portfolio companies are not CSRD reporters — so financial institutions rely on estimated data from third-party providers (MSCI, Sustainalytics, Bloomberg). PCAF data quality scores (1–5) must accompany financed emission figures, quantifying the estimation uncertainty.
The CSRD improvement trajectory: As CSRD Wave 1 and Wave 2 companies report actual GHG inventories through 2025–2028, the quality of financed emission data will improve dramatically. Financial institutions should build systems to ingest CSRD-reported GHG data from portfolio companies — progressively replacing estimated data with actual company disclosures.
Portfolio alignment targets: Many financial institutions have committed to net zero portfolios by 2050 through NZBA or NZAM. ESRS E1-4 target disclosure requires these portfolio alignment commitments to be disclosed alongside the financed emission baseline — including interim 2030 targets by sector.
EU Taxonomy Green Asset Ratio in CSRD
EU Taxonomy disclosure is mandatory for all CSRD companies — for financial institutions, the primary KPI is the Green Asset Ratio (GAR).
GAR definition: The proportion of a bank's total assets that finance taxonomy-aligned economic activities. Calculated as: (Taxonomy-aligned loans + debt securities + equity exposures + green bonds) ÷ (Total covered assets — excluding sovereign exposures, central bank reserves, and derivatives).
GAR data dependency: GAR calculation requires knowing each corporate borrower's Taxonomy-aligned revenue, CapEx, and OpEx KPIs — which only CSRD-reporting companies disclose. For non-CSRD-reporting borrowers (smaller companies, non-EU companies), financial institutions must use estimated Taxonomy alignment — flagged as estimated in the disclosure.
Current GAR levels: Early GAR disclosures (2024–2026) show most large European banks reporting GARs of 3–10% — reflecting limited Taxonomy disclosure from borrowers. As CSRD Wave 2 reporting matures from 2028, GAR figures are expected to increase significantly as more borrower Taxonomy data becomes available.
For insurance companies: Taxonomy disclosure focuses on the investment portfolio (equivalent to GAR) and the underwriting portfolio — what proportion of insured assets are Taxonomy-aligned. The underwriting Taxonomy KPI is less developed than the investment KPI — monitor EIOPA guidance for the applicable methodology.
Frequently asked questions
Do all 12 ESRS standards apply to a bank, even ESRS E4 biodiversity?
All 12 standards apply if the topic is material following the bank's double materiality assessment. For banks with significant exposure to agriculture, mining, or real estate, ESRS E4 biodiversity is likely material through financed activities. A bank with no such sector exposure may assess E4 as not material — but the double materiality assessment must support this conclusion.
How does CSRD interact with SFDR for an asset manager subject to both?
CSRD covers the asset manager's own sustainability performance (entity-level). SFDR covers the sustainability characteristics of the investment products the asset manager offers (product-level). Both are required simultaneously. CSRD ESRS E1 financed emission data feeds SFDR PAI indicator calculations. CSRD ESRS 2 governance disclosures satisfy SFDR Article 3 sustainability risk integration disclosure requirements.
What is the materiality assessment approach for a diversified financial group?
Conduct the double materiality assessment at group level — assessing all material impacts, risks, and opportunities across all business lines (banking, insurance, asset management). Then assess materiality for each ESRS topic across the consolidated group. Business-line-specific materiality variations can be noted in the disclosure — a banking division may have material climate financed emissions while the insurance division may have different material topics.