European Green Taxonomy: Key Steps Guide for Companies (Non-Financial Companies)

A flagship measure of the European Green Deal's sustainable finance strategy, the Green Taxonomy aims to establish a European classification system for “green” business activities. The goal is to direct capital toward environmentally virtuous activities, thus enabling the transition to a more sustainable economy. This classification provides a unified vocabulary regarding green activities and ensures access to precise, reliable, and comparable information (depending on the sector and size of the company) which is published by companies subject to the CSRD (Corporate Sustainability Reporting Directive).

To learn more about the objectives, the companies involved, and the implementation timeline, read our article on the European Union’s promotion of climate-friendly activities.

Here, we detail the steps to follow to analyze and measure your activities' Green Taxonomy compliance.

Step 1: Identify activities that comply with the Green Taxonomy

The first step is to identify which activities are eligible for the Green Taxonomy and which are not.

To do this, it is imperative for the company to consult the NACE code or the detailed descriptions of activities listed in the delegated acts associated with each environmental objective (1). It should be noted that the NACE code may not always be applicable, and some activities falling under the Green Taxonomy may not have a specific NACE code. Hence, it is important to also refer to the detailed activity descriptions. This approach allows for a thorough assessment of each sector and business line of the company to verify their compliance and eligibility under the Green Taxonomy framework.

It is important to highlight the evolving nature of the Green Taxonomy. In particular, since January 2024, four new objectives have complemented the climate change mitigation and adaptation objectives that have been in place since 2021. These include the sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and the protection and restoration of biodiversity and ecosystems. Furthermore, this classification has been enriched with the progressive inclusion of new sectors. For instance, the climate-related delegated acts have been expanded to include sectors like gas and nuclear, aviation, and disaster risk management. It is essential for a company subject to the NFRD/CSRD to establish a regulatory monitoring system to track its eligibility level and the resulting requirements from year to year.

Note: If the company’s main activity is not eligible, the company must still analyze the eligibility and alignment of investment and operational expenditures (CAPEX and OPEX). Indeed, these include purchases of products or services that remain eligible or even aligned with the Green Taxonomy, related to the core activity.

Example: purchases of electric cars must be counted.

Step 2: Assess the environmental contribution of the company's activities

After identifying eligible activities, the second step is to assess the substantial contribution of these activities to the objectives of the Green Taxonomy. In other words, it is the company’s responsibility to determine if its activities meet the criteria and thresholds set by the Green Taxonomy (1).

Activities that make a significant contribution to the “climate change mitigation” objective fall into three categories:

• Low-carbon activities: includes operations that generate little or no greenhouse gas emissions.
• Enabling activities: refers to practices that indirectly facilitate achieving sustainability goals for other sectors or activities.
• Transitional activities: includes initiatives that support the transformation of high-carbon industries to low-carbon alternatives.

Regarding the other Green Taxonomy objectives (1), an activity can contribute either directly or by enabling others.

Step 3: Ensure compliance with the "Do Not Cause Significant Harm" (DNSH) principle

The third step involves verifying that the identified eligible activities do not harm the five other objectives outlined in the Green Taxonomy. For each activity mentioned in the delegated acts related to specific objectives (1), criteria must be met to align with the “Do Not Cause Significant Harm” (DNSH) principle. These criteria can be generic, as described in the annexes of the delegated acts, or specifically tailored to the activity in question. Furthermore, many of these criteria refer to other European legislation, ensuring global regulatory and environmental coherence.

Step 4: Comply with minimum safeguards

The next step is to ensure that the company meets certain minimum safeguards, particularly in terms of social and labor rights. It is essential that the activity complies with the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights, the conventions of the International Labour Organization (ILO), and the International Bill of Human Rights.

For companies less familiar with these international standards, the sustainable finance platform provides a specific methodology (2). This aims to confirm the company’s alignment with the minimum safeguards by demonstrating the existence of robust policies and processes to ensure the respect of human rights and prevent risks such as corruption, tax fraud, and unfair competition. If a company is involved in a controversy related to these aspects, it must prove that corrective actions have been taken and preventive measures have been implemented to avoid recurrence.

Step 5: Calculate and disclose key Green Taxonomy ratios

In the fifth and final step, the company must calculate and disclose six financial indicators, in accordance with the specifications of the delegated act of Article 8 (3) of the Taxonomy Regulation. These indicators include:

• Eligible and aligned Revenue: represents the share of net revenue from products or services (including intangible assets) related to activities eligible or aligned with the Green Taxonomy, excluding certain categories of revenue like intra-group revenue, joint ventures’ revenue, and revenue from discontinued activities, compared to consolidated net revenue.
• Eligible and aligned CAPEX: includes capital expenditures (CapEx) related to:
  • Eligible or aligned activities with the Green Taxonomy,
  • Planned investments for aligning activities not yet aligned, validated by governance bodies over a 5-year period,
  • Individual purchases from an eligible or aligned activity or energy efficiency improvements specified in the Green Taxonomy.
    This ratio is calculated relative to the total acquisitions of tangible and intangible assets.
• Eligible and aligned OPEX: covers operational expenditures (OPEX) related to:
  • Eligible or aligned activities,
  • OPEX included in a CAPEX plan for the alignment of activities not yet aligned,
  • Individual OPEX from an eligible or aligned activity or energy efficiency measures specified in the Green Taxonomy.

This ratio is calculated relative to the total direct non-capitalized costs, including R&D costs not capitalized, building renovation costs, lease contracts, and maintenance, repair, and upkeep costs necessary for asset operations.

Companies may be exempted from calculating the OPEX alignment ratio if the total OPEX (denominator) is deemed insignificant for their business model.

While these calculations may seem complex, they are largely based on the provisions of Directive 2013/34/EU and IFRS (or national GAAP) standards, already applicable to companies. These ratios provide an objective measure of the green and sustainable portion of a company’s activities and investments, demonstrating its alignment with sustainability goals and offering transparent communication of its sustainability level to investors, financial institutions, and other stakeholders. They also play a crucial role in preventing greenwashing, enabling the identification of companies whose CSR claims are not backed by significant ratios or improvements in these ratios. The Green Taxonomy should thus be seen as a strategic tool for CSR management that strengthens transparency and the company’s commitment to its stakeholders.