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ESRS and the EU Taxonomy: How to Connect Eligibility, Alignment and Sustainability Disclosures

A practical guide to activity classification, environmental objectives, CapEx plans, financial-statement links, evidence controls and cross-references without treating Taxonomy KPIs as ESRS replacements.

Who this is for A 15-minute read for reporting teams working through ESRS alongside GRI, IFRS S1/S2, the EU Taxonomy and CSDDD, and for reviewers testing whether the evidence behind it holds.

Published passport

Current as at 10 August 2026
RK Reviewed by Dr Ross KurinkoLinkedIn Strategic ESG Advisor · IFRS S1 & S2 / GRI / ESRS expert GRI Certified Global Trainer · PhD, University of Cambridge · ESG-AI expert 15+ years on FTSE 100 & Fortune Global 500 disclosures Canary Wharf, London LRA educational guidance · Not issued or endorsed by European Commission

Edition written against

—

Published

10 Aug 2026

Knowledge Hub guide

Last reviewed

10 Aug 2026

Short answer

The answer, before the reasoning

ESRS and EU Taxonomy disclosures should use a connected activity, financial and evidence model, but they are not substitutes. The Taxonomy classifies economic activities and measures the proportion of turnover, CapEx and OpEx - or the relevant financial-undertaking KPIs - associated with Taxonomy-eligible and Taxonomy-aligned activities.

ESRS reports material impacts, risks and opportunities, policies, actions, targets, metrics and financial effects. The same activities, assets, projects and financial accounts can support both. Eligibility or alignment does not make an ESRS topic automatically material, and a Taxonomy KPI does not replace the related ESRS E1-E5 or other topical disclosures.

Teams often build Taxonomy tables and ESRS disclosures in parallel, even though both depend on the same legal entities, activities, sites, assets, projects, environmental objectives and finance accounts. This duplicates work and produces inconsistent CapEx, transition-plan and financial-effect narratives. The opposite shortcut is equally risky: copying a Taxonomy-aligned percentage into ESRS as if it proved environmental performance, or applying ESRS materiality to omit a legally required Taxonomy table.

Technical status

EDITORIAL STATUS

<p>Connect the systems, but keep the legal tests separate The revised ESRS were adopted by the European Commission on 3 July 2026. At the review date they had not yet entered into force; the legally applicable ESRS remained Delegated Regulation (EU) 2023/2772 as amended by the 2025 Quick Fix. Before publication, confirm Official Journal publication, entry into force, any early-application route and the reporting period addressed. EU Taxonomy eligibility, alignment, KPI and CapEx-plan rules also depend on the consolidated delegated acts and technical screening criteria applicable to the reporting period. Revalidate them before publication.</p>

Quick orientation

Figure 1. EU Taxonomy and ESRS use connected data but retain separate legal tests and outputs. London Reporting Academy learning visual.

Quick orientation

Applies to
Undertakings preparing Article 8 EU Taxonomy disclosures and ESRS sustainability statements, and groups connecting CapEx and environmental data.
Primary decision
How to share activity and financial data while maintaining separate Taxonomy eligibility/alignment tests and ESRS materiality/disclosure requirements.
Key source
Taxonomy Regulation Articles 3, 8 and 9; Article 8 Delegated Regulation and annexes; revised ESRS 1 paragraph 106 and applicable topical standards.
Common confusion
Assuming that “Taxonomy-aligned” means an activity has no material negative impacts or that Taxonomy KPIs replace ESRS environmental disclosures.

In practice

1. Two systems, two questions

Question EU Taxonomy ESRS
What is assessed? Whether economic activities are Taxonomy-eligible and, if so, whether they meet the conditions for Taxonomy alignment. Whether sustainability matters and information are material under impact and/or financial materiality.
Primary output Turnover, CapEx and OpEx KPIs and activity tables for non-financial undertakings; specified KPIs for financial undertakings. Sustainability statement covering material IROs, policies, actions, targets, metrics and financial effects.
Materiality gateway Article 8 disclosure scope and delegated-act rules; do not use ESRS information materiality to remove required Taxonomy information. Double materiality and information materiality under ESRS.
Boundary anchor Activities and financial amounts of the reporting undertaking under the Article 8 methodology. Same reporting undertaking as financial statements, plus material value-chain information under ESRS.
Assurance/control Legal classification, technical criteria and finance KPI control. ESRS disclosure controls, materiality, evidence and legal assurance route.

Rule

LEGAL ARCHITECTURE

<p>Placement rule in revised ESRS 1 If the undertaking prepares Article 8 Taxonomy disclosures, revised ESRS 1 paragraph 106 requires them to be included in the sustainability statement; they may be presented in a separate appendix within the management report. Those Taxonomy disclosures are not subject to the ESRS provisions except for that placement paragraph.</p>

2. Eligibility is not alignment

A Taxonomy-eligible activity is an economic activity described in the relevant delegated acts, whether or not it meets all technical conditions. Eligibility identifies the activity’s potential coverage. Taxonomy alignment is a stricter conclusion. Under Article 3 of the Taxonomy Regulation, an activity qualifies as environmentally sustainable when it contributes substantially to one or more environmental objectives, does no significant harm to the others, is carried out in compliance with minimum safeguards and complies with the applicable technical screening criteria.

An aligned activity can still be associated with material ESRS impacts, risks or opportunities. DNSH and minimum-safeguard tests are specific legal criteria, not a universal conclusion that all sustainability impacts are immaterial or fully managed. Equally, an activity outside the Taxonomy’s current coverage can create material ESRS impacts or risks.

In practice

Stage Decision Evidence examples
1. Activity identification Map the undertaking’s actual economic activity to a delegated-act activity description and code/context. Business model, contracts, production process, NACE reference, asset and site records.
2. Eligibility Confirm that the activity is covered by the relevant delegated act for the objective and period. Delegated-act activity description and documented mapping.
3. Substantial contribution Test the objective-specific substantial-contribution criteria. Technical calculations, thresholds, certificates, performance records and engineering evidence.
4. Do no significant harm Test all applicable DNSH criteria for other objectives. Climate-risk assessment, pollution/water/biodiversity/waste evidence and compliance records.
5. Minimum safeguards Assess applicable safeguards, processes and outcomes. Due diligence, human-rights, labour, taxation, anti-corruption and competition controls.
6. Technical screening criteria Confirm all criteria and evidence for the reporting period. Criterion-by-criterion assessment, version, reviewer and gap status.
7. KPI allocation Allocate eligible/aligned turnover, CapEx or OpEx to controlled denominators and prevent double counting. General ledger, fixed-asset register, project records, allocation rules and reconciliation.

In practice

3. The six environmental objectives and ESRS topic links

Taxonomy environmental objective Typical ESRS connections Non-equivalence warning
Climate change mitigation ESRS E1 transition plan, GHG emissions, energy, targets and financial effects. A climate-aligned activity percentage does not replace the gross GHG inventory, transition plan or material climate IRO disclosures.
Climate change adaptation ESRS E1 physical risks, resilience, adaptation actions and financial effects. Meeting an adaptation criterion does not constitute the full ESRS resilience analysis.
Sustainable use and protection of water and marine resources ESRS E3 withdrawals, consumption, discharge, basin context, policies and actions. Activity alignment does not replace site- and basin-level material water information.
Transition to a circular economy ESRS E5 inflows, outflows, waste, circularity, targets and actions. Taxonomy technical criteria are not the ESRS material-flow disclosure set.
Pollution prevention and control ESRS E2 pollutants, substances of concern, incidents, policies and financial effects. DNSH or contribution tests do not replace material pollution metrics and narrative.
Protection and restoration of biodiversity and ecosystems ESRS E4 sites, dependencies, impacts, actions, targets and metrics. Activity classification does not replace location-specific biodiversity assessment.

4. Build one activity-finance-evidence model

The common model should begin with the economic activity and link it to legal entities, sites/assets, products/services, projects, environmental objectives and financial accounts. Taxonomy tests and ESRS materiality/disclosure mappings then sit as separate overlays.

Use stable activity and project IDs. Avoid trying to connect the systems only by NACE code or general-ledger account. One account can contain several economic activities, and one activity can draw on multiple accounts and assets. The model needs allocation rules, effective dates and evidence of how the business actually operates.

In practice

Common object Minimum fields Taxonomy overlay — ESRS overlay
Economic activity Activity ID, description, entity, site/asset, product, geography, effective dates and evidence. Delegated-act activity, eligibility, objective, alignment tests and reviewer. — Related material IROs, topics, policies/actions/targets and disclosures.
Project / CapEx item Project ID, asset, budget, actual spend, timing, owner, approval and account. CapEx numerator category, CapEx plan, aligned/eligible status and objective allocation. — Transition/action plan, resources, anticipated financial effects and target linkage.
Financial account Account ID, statement line, entity, currency, period, eliminations and controls. Turnover/CapEx/OpEx denominator and numerator allocation. — Financial-effects linkage and consistency with financial statements.
Technical evidence Criterion ID, source, measurement date, method, assumptions and assurance status. Substantial contribution, DNSH and screening-criteria evidence. — Metrics, actions, estimates, limitations and statement evidence.
Safeguards evidence Policy, due diligence, incident, remedy, legal status and governance. Minimum-safeguards assessment. — ESRS social/governance IROs and disclosures where material.

5. CapEx plans: specific Taxonomy conditions

A Taxonomy CapEx plan is not simply any transition or investment plan. Under the Article 8 Delegated Regulation, CapEx can enter the numerator where it is part of a plan to expand Taxonomy-aligned activities or to allow Taxonomy-eligible activities to become aligned, subject to specific conditions.

In practice

CapEx-plan condition Control question Evidence
Purpose Does the plan expand aligned activities or upgrade eligible activities to alignment? Activity mapping, baseline status and technical route to alignment.
Time period Will alignment be achieved within five years? If longer, is the extension objectively justified and no more than ten years? Approved timeline, milestones, activity-specific justification and dependencies.
Level of disclosure Is the plan disclosed at economic-activity aggregated level? Activity hierarchy and aggregation methodology.
Management-body approval Has the management body approved the plan directly or by delegation? Minutes, delegated authority and approved plan version.
Criteria changes If screening criteria change before completion, will the plan be updated within two years or the numerator restated? Standards-monitoring trigger, change assessment and restatement control.
Failure of conditions If the plan no longer meets the conditions, are previously published CapEx KPIs restated as required? Compliance review, calculation bridge, approval and disclosure.

Rule

CapEx plan versus ESRS transition plan

<p>The two may share projects, timing, governance and financial data, but they are not the same instrument. A Taxonomy CapEx plan qualifies specific CapEx for the Taxonomy KPI under legal conditions. An ESRS transition plan explains how the undertaking’s strategy and business model are compatible with the transition objective and related actions/resources under the applicable ESRS. Maintain a controlled relationship, not a single merged label.</p>

6. Link Taxonomy KPIs to the financial statements

Taxonomy denominators and numerators should be built from finance-controlled populations. The account mapping must show how reported turnover, CapEx and OpEx connect to financial statement line items and accounting policies, and where the Taxonomy methodology excludes, includes or reallocates amounts. The same finance link can support ESRS current and anticipated financial-effects disclosures, but the purposes differ.

In practice

Control Taxonomy purpose ESRS connection
Denominator reconciliation Demonstrate completeness and consistency of the KPI denominator with the financial statements. Provides a controlled population for financial effects, resources and CapEx narrative.
Numerator allocation Assign amounts to eligible/aligned activities, prevent double counting and support objective breakdown. Links projects and assets to material IROs, actions, targets and transition plans.
Currency and consolidation Apply group currency, entity perimeter, eliminations and period rules consistently. Supports the same reporting undertaking and connected information.
Restatement and change Recalculate for acquisitions, disposals, accounting changes, criteria changes or plan failure as required. Supports ESRS comparatives, methodology changes and transparent limitations.
Evidence freeze Preserve the published calculation, mappings, approvals and source extracts. Supports assurance over both Taxonomy and ESRS disclosures.

7. Cross-references that help users

The sustainability statement should make the relationship understandable without forcing users to infer equivalence. A useful cross-reference explains which Taxonomy table or activity population supports an ESRS discussion and what additional information the ESRS section provides.

In practice

Cross-reference Useful connection Avoid saying
ESRS E1 transition plan to Taxonomy CapEx table Identify Taxonomy-aligned or planned CapEx that finances transition actions, with reconciliation and scope note. “The Taxonomy CapEx KPI is our ESRS transition plan.”
ESRS E3/E4/E5 actions to activity assessment Link material site actions to relevant activity criteria or CapEx, where genuinely connected. “Alignment proves no material water/biodiversity/circularity impacts.”
Financial-effects disclosures to KPI accounts Explain how material projects and assets relate to financial-statement accounts and Taxonomy amounts. “All Taxonomy-eligible turnover is a material ESRS financial opportunity.”
Minimum safeguards to ESRS social/governance disclosures Use common due-diligence evidence and explain material findings/actions. “Passing minimum safeguards means all ESRS S and G disclosures are satisfied.”

In practice

8. Control framework

Control domain Key control Owner / reviewer
Activity mapping Document activity description, delegated-act version, eligibility rationale and effective period. Business owner / Taxonomy technical reviewer
Technical screening Criterion-by-criterion evidence for substantial contribution and DNSH; gaps cannot be assumed away. Engineering/environment / independent reviewer
Minimum safeguards Document due-diligence process, outcomes, incidents, remedy and legal assessment. Legal/compliance / governance reviewer
Finance population Reconcile denominators to financial statements and numerator allocations to project/asset/account records. Finance controller / internal control
CapEx plan Management-body approval, five-year route, milestones, criteria-change monitoring and restatement trigger. Strategy/CapEx / company secretariat
ESRS connection Map activities/projects to material IROs and disclosures without substituting Taxonomy conclusions. ESRS owner / technical reviewer
Publication Preserve required Taxonomy templates, ESRS placement, cross-references, version and assurance evidence. Reporting owner / legal / assurance liaison

9. A practical integrated workflow

Lock the legal source set. Record the Taxonomy Regulation, Article 8 Delegated Regulation, applicable screening criteria, ESRS version and reporting period.

Confirm the reporting undertaking and finance populations. Reconcile legal entities and denominators to financial statements.

Create the activity register. Map actual products, services, assets and processes to activity descriptions with evidence.

Perform eligibility and alignment tests. Keep substantial contribution, DNSH, minimum safeguards and criteria evidence separate and reviewable.

Map projects and CapEx plans. Link approved projects to activities, accounts, objectives, milestones and management-body approval.

Run ESRS double materiality independently. Link activities and projects to material IROs and topical disclosures; do not infer materiality from Taxonomy status.

Reconcile and draft cross-references. Explain connections, differences, financial links and limitations.

Approve, assure and freeze. Obtain finance, technical, legal and governance sign-off and archive the exact source set and calculation version.

Hypothetical scenario

Illustrative scenario - not company data

<p>A manufacturer invests in an electrified production line and building-efficiency measures. The activity register identifies eligible activities under the applicable delegated acts. Part of the capital expenditure is already associated with aligned activities; another part is included in a management-body-approved CapEx plan intended to bring an eligible activity into alignment within five years. The group links the same projects to its ESRS E1 transition plan and financial-effects model. It does not describe the entire ESRS transition plan as Taxonomy-aligned, and it does not treat the Taxonomy CapEx percentage as a substitute for gross GHG emissions, transition dependencies or material climate risks.</p>

Illustrative only. It shows how the decision is made, not wording that can be copied or relied on.

In practice

Hypothetical example: an industrial decarbonisation programme

Record Taxonomy treatment ESRS treatment
Electrified line project Eligibility/alignment assessment; CapEx numerator allocation; objective and criteria evidence. Transition action, resources, emissions pathway, target linkage and financial effects.
Building-efficiency measure Test applicable purchase/output or individual-measure rules and implementation period. Energy and GHG action; effects on E1 metrics and targets where material.
Five-year upgrade plan CapEx-plan conditions, approval, milestones and criteria-change monitoring. May support transition-plan narrative but requires additional ESRS strategy, target, dependency and impact information.
Financial accounts Reconcile CapEx denominator and numerator. Connect current/anticipated financial effects and resource allocation to financial planning.

Illustrative cross-reference wording

Why it works: it states location, explains the connection to projects and makes the non-substitution point explicit. It must be adapted for the actual templates, activity tests, KPI methodology, CapEx-plan status, ESRS version, financial-statement references and assurance conclusion.

Hypothetical scenario

Illustrative wording - adapt to legal and technical facts

<p>“Article 8 EU Taxonomy disclosures are presented in Appendix T of the sustainability statement. The Taxonomy CapEx KPI includes capital expenditure associated with aligned activities and qualifying expenditure under approved CapEx plans in accordance with the applicable Article 8 methodology. Certain projects also support actions described in the ESRS E1 transition-plan section. The Taxonomy classification and KPI methodology are separate from the ESRS double-materiality assessment and do not replace ESRS disclosures on material climate impacts, risks, opportunities, targets, greenhouse gas emissions or financial effects. Reconciliations to the financial statements and project-level evidence are maintained in the reporting control file.”</p>

Illustrative only. It shows how the decision is made, not wording that can be copied or relied on.

In practice

Common mistakes and corrections

Mistake Risk created Correction
Calling every eligible activity sustainable Eligibility does not demonstrate alignment. Separate eligibility from substantial contribution, DNSH, safeguards and screening criteria.
Using alignment as proof that an ESRS topic is not material Taxonomy criteria do not replace ESRS impact or financial materiality. Run and document double materiality independently.
Applying ESRS materiality to omit Taxonomy tables Article 8 disclosures follow their own legal requirements. Prepare the required Taxonomy information and place it under the applicable rule.
Treating Taxonomy KPIs as ESRS E1-E5 metrics Different questions and information needs are collapsed. Cross-reference, then provide complete material ESRS disclosures.
Calling any investment roadmap a CapEx plan The plan may not meet the purpose, timing, approval or disclosure conditions. Use a condition-by-condition CapEx-plan checklist.
No reconciliation to financial statements KPI completeness and allocation cannot be assured. Build denominator and numerator bridges to accounts and assets.
Mapping only by NACE code Actual activity and technical criteria may be misclassified. Document the real activity, process and evidence.
Assuming minimum safeguards equal ESRS social compliance Safeguards and ESRS social/governance disclosures have different tests and scope. Reuse evidence but assess each requirement separately.

Readiness

Integrated reviewer checklist

  • The applicable Taxonomy Regulation, Article 8 methodology, screening criteria and ESRS version are documented.
  • Economic activities are mapped from actual business facts, not only NACE labels.
  • Eligibility and alignment conclusions are separately recorded.
  • Substantial contribution, DNSH, minimum safeguards and technical criteria have complete evidence.
  • Turnover, CapEx and OpEx denominators reconcile to financial statements and accounting policies.
  • Numerator allocations are traceable, prevent double counting and include objective breakdowns.
  • Every CapEx plan meets purpose, time, aggregation, approval, monitoring and restatement conditions.
  • ESRS double materiality has been performed independently of Taxonomy status.
  • Taxonomy KPIs are not used as substitutes for material ESRS topical disclosures.
  • Cross-references identify both connections and limitations.
  • Taxonomy disclosures are placed in the sustainability statement or permitted appendix under the applicable ESRS rule.
  • Finance, Taxonomy technical experts, ESRS owners, legal and governance bodies have signed off the released information.

In practice

Source register

ID Official source Role in article — Status
S1 Regulation (EU) 2020/852 - Taxonomy Regulation Article 3 alignment conditions, Article 8 disclosure duty and Article 9 objectives — In force; consolidated text and amendments to be checked
S2 Commission Delegated Regulation (EU) 2021/2178, consolidated at 1 January 2026 Article 8 content, presentation, KPI methodologies and CapEx-plan conditions — Current consolidated documentation text at review date
S3 Applicable Climate and Environmental Delegated Acts and technical screening criteria Activity descriptions, substantial contribution and DNSH criteria — Objective/activity/period specific
S4 Commission Delegated Regulation C(2026) 5010 annex - revised ESRS 1 Sustainability-statement placement of Article 8 disclosures, paragraph 106 — Adopted 3 July 2026; entry into force pending
S5 Applicable revised ESRS topical standards E1-E5, S and G standards Material IRO and topical disclosure requirements — Apply only when current/legal for period
S6 Financial statements, fixed-asset register, general ledger and approved CapEx plans KPI denominators, numerators, financial links and evidence — Entity-specific controlled sources

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