What is the EU taxonomy?

The EU taxonomy is a set of rules for classifying sustainability, which is particularly important for the financial market. It serves as a guideline for both companies and investors to determine whether business activities are environmentally sustainable and make a contribution to the "green" economy, based on clear criteria and measurements. A central point of discussion concerns the classification of activities in the gas and nuclear energy sector as "green", which the EU Commission recently integrated into its draft. The taxonomy is part of the "Action Plan on Financing Sustainable Growth", which the EU presented in March 2018 and for which the EU Commission presented the associated legislative text last year.

What are the objectives of the EU taxonomy?

The EU taxonomy plays an important role in promoting sustainable investment and channeling capital into environmentally friendly economic activities. It aims to create transparency and establish uniform criteria for sustainability in order to transform the financial system towards a sustainable economy. The objectives of the EU taxonomy are:

  • Definition of clear criteria for companies and investors to determine which activities are considered environmentally sustainable;
  • Enabling investors, including private investors, to invest their money specifically in sustainable projects with the aim of minimizing the risk of greenwashing (a product may not be labeled as "green" without meeting the criteria);
  • Prevent market fragmentation by introducing a uniform definition of environmental sustainability for investment decisions that serves as a common reference point for investors, companies and member states;
  • Mandatory reporting on the turnover and investments associated with the taxonomy for financial players and large companies.
The six environmental objectives of the EU taxonomy

What are the environmental objectives of the Taxonomy Regulation?

The EU Taxonomy Regulation pursues six central environmental objectives, which form the assessment standard:

  • Climate protection
  • Adaptation to climate change
  • Sustainable use of water
  • Transition to a circular economy
  • Prevention of environmental pollution
  • Protection of biodiversity and ecosystems

Companies must contribute to at least one of these goals without significantly harming the others.

Who is affected by the EU taxonomy?

This affects all companies that offer financial products in the European Union, as well as large companies with more than 500 employees. They must disclose the proportion of their activities that meet the criteria of the EU taxonomy in their sustainability or annual reports.

The regulation aims to expand the number of companies that must disclose their sustainability performance in the future.

When does the EU Taxonomy Regulation require reporting?

The EU Taxonomy Regulation has been in force since January 1, 2022 for the 2022 financial year.