What is the EU taxonomy?

The EU taxonomy is a set of rules for classifying sustainability, which is particularly important for the financial market. The directive provides both companies and investors with guidance on whether business activities are environmentally sustainable and make a contribution to the "green" economy. The aim is to channel more money into sustainable companies and technologies. 

The EU taxonomy is part of the "Action Plan on Financing Sustainable Growth", which the EU presented in March 2018: Europe is to become climate-neutral by 2025. 

EU taxonomy: the objectives of the Sustainability Directive

The EU taxonomy is intended 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.

What are the environmental objectives of the EU taxonomy?

The EU Taxonomy Regulation pursues six central environmental objectives that form the assessment standard for being classified as "sustainable":

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

In order to assess economic activity in terms of sustainability, there are four criteria based on the environmental objectives of the EU taxonomy: 

1. The economic activity contributes to at least one of the environmental objectives.
2. The economic activity does not cause significant harm to any of the environmental objectives (Do No Significant Harm, DNSH).
3. The economic activity fulfills basic safety standards, such as the UN Guiding Principles on Business and Human Rights, in order to avoid negative social impacts.
4. The economic activity complies with the technical selection criteria (screening criteria) developed by the EU Technical Expert Group. These criteria define specific requirements and thresholds that must be met for an activity to be classified as sustainable. They take into account both environmental aspects and technical performance standards.

Who is affected by the EU taxonomy?

All companies subject to the Non-Financial Reporting Directive (NFRD) are generally obliged to disclose information on the compliance of their business activities with the EU taxonomy.

• From January 2021 for large companies already covered by the NFRD (reporting in 2022 based on 2021 data)
• From January 2025 for all other large companies (reporting in 2026 based on data from 2025)
• From January 2026 for capital-market-oriented small and medium-sized enterprises, excluding micro-enterprises (reporting in 2027 based on data from 2026)

How do the CSRD and EU taxonomy differ?

The Corporate Sustainability Reporting Directive (CSRD) specifies which companies must report comprehensively on their sustainability performance and which topics (ESRS) must be covered. It aims to achieve transparency in areas such as the environment, social issues and corporate governance.

The EU Taxonomy is a classification system that defines which economic activities are considered environmentally sustainable. While the CSRD provides the framework for reporting, the EU Taxonomy offers detailed guidance on how to assess sustainable activities.

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