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The goal of the EU Taxonomy, implemented in July 2020, is to build a classification system of economic activities to define those that make a substantial contribution to the Green Deal carbon neutrality objectives and allow the redirection of investments towards those activities, deemed sustainable. Eventually, the EU Taxonomy will contribute to aligning sustainable economic activities with common criteria, prevent greenwashing and promote a circular and environmentally friendly economy.
The EU Taxonomy’s role in the broader EU policy landscape
The EU Taxonomy Regulation plays a pivotal role in advancing the EU's sustainability agenda. It is integrally linked with the Corporate Sustainability Reporting Directive (CSRD), which mandates that companies within its scope must disclose how their activities and investments align with the Taxonomy's environmental criteria. Moreover, the EU Taxonomy Regulation is designed to complement other essential components of EU’s Sustainable Finance Action Plan, including the Sustainable Finance Disclosure Regulation (SFDR) and the European Green Bond Standard. Collectively, these frameworks create a comprehensive system supporting the EU's objective of becoming climate-neutral and resilient by 2050.
Which economic activities are eligible and aligned to the EU Taxonomy?
The Taxonomy currently covers almost a hundred economic activities representing 13 sectors of activity. These activities, listed in the delegated acts of the regulation by NACE codes, are qualified as "eligible" activities for the Taxonomy. Once considered eligible, the alignment of the activity must be analysed. Three conditions must be met:
- The economic activities make a substantial contribution to one of the 6 environmental objectives:
- Mitigating climate change
- Adapting to climate change
- Sustainable use and protection of aquatic and marine resources
- Transition to a circular economy
- Preventing and reducing pollution
- Protecting and restoring biodiversity and ecosystems.
- The economic activities do not significantly harm any of the other objectives, and,
- The economic activities do not violate minimum social guarantees.
If the three conditions are met, the organisation can move to the calculation of the three taxonomy ratios, being the turnover, capital expenditures and operating expenditures percentages related to the aligned activities.
Why is it useful for businesses or for investors?
The EU Taxonomy Regulation benefits businesses by facilitating access to sustainable financing and enhancing their market reputation. It ensures compliance with evolving regulations and promotes operational efficiency through sustainable practices. For investors, it provides a clear, standardized framework for evaluating sustainability, aiding informed decision-making and risk management. Together, this alignment helps businesses attract investment and stay competitive while guiding investors towards more sustainable and informed choices.
