European Green Taxonomy: Definition, Affected Companies, Objectives, and Timeline

The Green Taxonomy is at the heart of the European Green Deal’s sustainable finance strategy, demonstrating the European Union's commitment to environmental sustainability. This ambitious initiative aims to establish a European classification system for economic activities deemed "green." The primary objective of the Green Taxonomy is to direct investments toward ecological initiatives, thus facilitating the transition to a sustainable economy.

The Green Taxonomy text provides standardized terminology that helps clearly identify activities beneficial to the environment. It also ensures that information disclosed by companies, regardless of their sector or size, is accurate, reliable, and comparable. This transparency is essential to guide investments toward truly sustainable projects and to avoid "greenwashing."

The Green Taxonomy is designed to be dynamic. In the future, it is expected that more activities will be covered by the Taxonomy, and the alignment criteria will be adapted to economic and technological changes in various sectors.

Here, we present the key elements of the Green Taxonomy, which will soon apply to all companies in the European Union.

Which Companies Are Affected?

The Green Taxonomy directly applies to several categories of companies:

• Companies required to publish a Non-Financial Performance Declaration (NFPD) and a Sustainability Report starting in 2025 with the implementation of the CSRD Directive;
• Financial companies: banks, insurers, and asset managers.

However, these obligations have implications that extend beyond the company itself, impacting its entire value chain. In order to produce the information required by the delegated act of Article 8 of the Taxonomy Regulation, particularly the production of taxonomy ratios, a company must consult its partners and suppliers. This ensures that they can verify their own alignment and ensures an integrated and comprehensive approach to sustainability.

The 6 Environmental Objectives of the Green Taxonomy

The Green Taxonomy defines a "sustainable" activity through 6 environmental objectives:

1. Climate change mitigation (Objective to reduce greenhouse gas emissions);
2. Climate change adaptation (Objective to adapt to the consequences of climate change);
3. Protection of water and marine resources;
4. Transition to a circular economy;
5. Prevention of environmental pollution;
6. Protection of biodiversity and ecosystems.

To measure its contribution to each of these objectives, the company must perform several analyses and assessments on the eligibility and alignment of its activities:

1. Identify eligible activities;
2. For each eligible activity, list its "substantial contribution";
3. Verify compliance with the "Do Not Cause Significant Harm" (DNSH) principle;
4. Adhere to the "minimum safeguards";
5. Calculate the 6 Green Taxonomy ratios (eligibility/alignment), which must be published in the NFPD and then in the Sustainability Report (and potentially become KPI for CSR strategy management).

To learn more, read our article on the key steps of the Green Taxonomy for non-financial companies.
 

What Is the Green Taxonomy Implementation Timeline?

The timeline for implementing the Green Taxonomy differs between financial and non-financial companies.

Timeline for Non-Financial Companies

• FY 2021, publication in 2022: Disclosure only on eligibility regarding climate objectives (Mitigation and Adaptation).
• FY 2022, publication in 2023: Disclosure of eligibility and alignment with climate objectives, including changes made by the complementary Delegated Regulation regarding nuclear and natural gas.
• FY 2023, publication in 2024:
  • Disclosure of eligibility and alignment with climate objectives, including nuclear and gas.
  • Disclosure of eligibility for new activities related to climate objectives and environmental objectives 3 to 6 (water management, circular economy, pollution, biodiversity).
• FY 2024, publication in 2025: Full disclosure of eligibility and alignment with all six environmental objectives.

It is important to note that the publication date of the report determines the rules that apply to the company.

Example:

• A company closing its fiscal year on 30/09/2024 and publishing before 31/12/2024 must disclose its alignment information related to climate objectives and eligibility for objectives 3 to 6.
• A company closing its fiscal year on 30/09/2024 and publishing after 01/01/2025 must disclose its alignment (and eligibility) covering all the objectives of the Green Taxonomy.

Timeline for Financial Companies

• FY 2021, publication in 2022: Disclosure only on eligibility regarding climate objectives.
• FY 2022, publication in 2023: Disclosure of eligibility only regarding climate objectives, including nuclear and gas.
• FY 2023 and FY 2024, publication in 2024 and 2025: Disclosure of eligibility and alignment with climate objectives, including nuclear and gas.
• FY 2025, publication in 2026: Full disclosure of eligibility and alignment with all six environmental objectives.

It is important to highlight the difference in the implementation timeline between financial and non-financial companies, aiming to harmonize reporting for financial companies. This takes into account the fact that their ratios are specifically based on the financing of eligible activities aligned with the Taxonomy.

Therefore, the gradual implementation allows companies to prepare for how to report on the sustainability of their activities. However, a major challenge remains the collection of data and linking it to activities defined by the Green Taxonomy.