The EU taxonomy is part of the EU's sustainable finance framework and is a classification system that defines criteria that determine sustainable economic activities falling under six environmental objectives (further info here).
The Taxonomy Regulation was published in the Official Journal of the European Union on 22 June 2020 and entered into force on 12 July 2020. It establishes the basis for the EU taxonomy by setting out the 4 overarching conditions that an economic activity has to meet in order to qualify as environmentally sustainable. These are:
Identify an economic activity listed in the taxonomy (eligible)
Make a substantial contribution to one of the 6 environmental objectives by meeting the activity's "Technical Screening Criteria"
"Do No Significant Harm" to the other five objectives where relevant
Meet the minimum social safeguards (OECD, UNGP, ILO)
Who needs to report on EU taxonomy?
Any European companies with > 500 employees must publish taxonomy aligned revenues, CAPEX, OPEX while any European financial market participants whose products promote environmental objectives are required to report their taxonomy alignment.
Limited scope of activities
The EU taxonomy only covers 108 unique activities across 13 economic sectors. Many companies do not provide sufficient data and there is room for interpretation on the activities.
Timeline for implementation
The EU taxonomy entered force on 7/12/2020 when the European Commission published the regulation following the creation of their action plan to finance sustainable growth in 2018.
Om 12/9/2021: the Climate Delegated Act was published on the climate change mitigation and adaptation objectives which entered force on January 2022.
On 07/15/2022: the EC published a Complementary Climate Delegated Act which came into effect January 2023.
On 06/27/2023, the EC adopted a Delegated Act on the remaining 4 environmental objectives, as well as an amendment to the Climate Delegated Act.
In 01/01/2024, if neither the EP nor Council object to the Delegated Act then all objectives will come into effect.
The relevance of CSRD
The Corporate Sustainability Reporting Directive (CSRD) amends the existing non-financial reporting directive and will provide better company level ESG disclosure.
All companies with over 250 employees and that are listed on EU regulated markets will be in scope. Starting in 2025, CSRD will require companies to provide additional sustainability information as outlined in the European Sustainability Reporting Standards (ESRS).
Helpful references and links
EU taxonomy Navigator (link)
Landing page with instructions and key documents
REGULATION (EU) 2020/852 (link)
Establishment of a framework to facilitate sustainable investment. This taxonomy regulation was published in the Official Journal of the European Union on 22 June 2020 and entered force on 12 July 2020. Article 9 of the Taxonomy Regulation sets out six climate and environmental objectives.
Delegated Regulation (EU) 2021/2139 (link)
Technical screening criteria determining the conditions under which an economic activity qualifies as contributing substantially to climate change or climate change adaptation.
Delegated Regulation (EU) 2022/1214 (link)
Focuses on economic activities in certain energy sectors
Delegated Regulation (EU) 2022/2178 (link)
Technical screening criteria for determining the conditions under which an economic activity qualifies as contributing to the sustainable use and protection of water and marine resources.
Directive 2010/75/EU (link)
Instructions on industrial emissions (integrated pollution prevention and control)
Commission Implementing Decisions (EU) 2018/1147 (link)
Establishment of best available techniques (BAT) for waste treatment.
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