The EU Taxonomy is a classification system laid down in Regulation (EU) 2020/852, establishing a list of environmentally sustainable economic activities. That Regulation does not include a list of socially sustainable economic activities. Sustainable investments with an environmental objective might be aligned with the Taxonomy or not.
The foundations of the EU sustainable finance framework
The EU’s sustainable finance agenda aims to support companies and the financial sector in the transition to a green economy by encouraging private funding of transition projects and technologies and facilitating financial flows to sustainable investments. It is built around the pillars of and EU taxonomy, disclosures and tools.
In order to meet the EU’s climate and energy targets for 2030 and reach the objectives of the European green deal, it is vital that we direct investments towards sustainable projects and activities. To achieve this, a common language and a clear definition of what is ‘sustainable’ is needed. This is why the action plan on financing sustainable growth called for the creation of a common classification system for sustainable economic activities, or an “EU taxonomy”.
2023 communications release:
Good presentation from World Bank:
What is the EU taxonomy?
The taxonomy is a classification system that defines criteria for economic activities that are aligned with a net zero trajectory by 2050 and the broader environmental goals other than climate.
The Taxonomy Regulation establishes six climate and environmental objectives
Climate change mitigation
Climate change adaptation
The sustainable use and protection of water and marine resources
The transition to a circular economy
Pollution prevention and control
The protection and restoration of biodiversity and ecosystems
The Taxonomy Regulation 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 for conditions are:
Making a substantial contribution to at least one environmental objective;
Doing no significant harm to any of the other five environmental objectives;
Complying with minimum safeguards; and,
Complying with the technical screening criteria set out in the Taxonomy delegated acts.
What are the disclosure obligations included in the EU Taxonomy?
Companies that fall under the scope of the Corporate Sustainability Reporting Directive (CSRD) have to report in their annual reports to what extent their activities are covered by the EU Taxonomy (Taxonomy-eligibility) and comply with the criteria set in the Taxonomy delegated acts (Taxonomy-alignment). Other companies that do not fall under the scope of CSRD can decide to disclose this information on a voluntary basis to get access to sustainable financing or for other business-related reasons.
List of EU taxonomy activities
Under the Taxonomy Regulation, the Commission had to come up with the actual list of environmentally sustainable activities by defining technical screening criteria for each environmental objective through delegated and implementing acts.
2021 technical screening criteria (Delegated Act): EUR-Lex - 32021R2139 - EN - EUR-Lex (europa.eu)
2022 updates to screening criteria: EUR-Lex - 32022R1214 - EN - EUR-Lex (europa.eu)
The Sustainable Finance Package
The package shows how the EU sustainable finance agenda can support companies and the financial sector by encouraging private funding of transition projects and technologies and facilitating financial flows to sustainable investments: Sustainable finance package 2023 (europa.eu)
The EU taxonomy navigator
The Commission launched an educational and user-friendly website – the EU taxonomy navigator - offering a series of online tools to help users better understand what the EU taxonomy is in a simple and practical manner, which activities/sectors and technical screening criteria are covered, and how the reporting obligations work in practice.
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