The EU Taxonomy environmental objectives 1–6 explained

On June 13, 2023, the European Commission published the final EU Taxonomy Delegated Acts within a sustainable finance package. This package includes:

1) amendments to the Climate Delegated Act, covering the climate-related environmental objectives 1 and 2

2) the final texts of the Environmental Delegated Act, a new set of EU Taxonomy criteria for economic activities making a substantial contribution to one or more of the non-climate-related environmental objectives 3 to 6

Let us take a closer look: what are the new Delegated Acts about, and what do they mean for EU Taxonomy reporting?

What are the EU Taxonomy environmental objectives?

In the EU Taxonomy, the idea of sustainability is distilled into six different environmental objectives:

1. Climate change mitigation

2. Climate change adaptation

3. Sustainable use and protection of water and marine resources

4. Transition to a circular economy

5. Pollution prevention and control

6. Protection and restoration of biodiversity and ecosystems
   

The EU Taxonomy Climate Delegated Act

Since January 2021, disclosures on the “old” EU Taxonomy activities on environmental objectives 1 and 2 are mandatory for affected companies.

With the now-published sustainable finance package, the Commission has adopted targeted amendments to the EU Taxonomy Climate Delegated Act, which expand on economic activities contributing to the environmental objectives 1 or 2 – climate change mitigation and climate change adaptation.

The EU Taxonomy Environmental Delegated Act

Another key component of the sustainable finance package of June 2023 is the approval of a new set of EU Taxonomy criteria for economic activities that make a substantial contribution to one or more of the environmental objectives 3 to 6.

When do the new EU Taxonomy Delegated Acts apply?

Developments and adjustments in the new environmental objectives 1 to 6

In 2021, the introduction of the texts of the environmental objectives 1 and 2 caused much discussion. Thus, lots of feedback and criticism were implemented in the amendments for objectives 1 and 2 and in the new texts for objectives 3 and 6.

An example from the automotive industry:

Using the "old" activities, many automotive suppliers were only able to identify a few of their products and services as eligible, in contrast to the automotive manufacturers, who identified their activities with the taxonomy activity 3.3 Manufacture of low carbon technologies for transport. With the new activity 3.18 (Manufacture of automotive and mobility components), the possibility has now been created that suppliers can report more components of automobiles as eligible under the EU Taxonomy.

Next steps of the EU Taxonomy Delegated Acts

The EU Taxonomy Delegated Acts will now be transmitted to the European Parliament and the Council for their scrutiny. The period for this is four months, with an extension of two months possible. After that, the delegated acts will enter into force and apply from January 2024 to the companies concerned.

The draft Delegated Acts from April 2023 generated much discussion – the European Commission received over 500 feedback comments on it. Plus, due to time constraints, the Platform on Sustainable Finance and the EC were not able to develop adaptation criteria at this time for all of the activities included in the Taxonomy Environmental Delegated Act. Moreover, additional evaluations and calibration of the criteria for objectives 1 and 2 will be required for some industries and activities, such as agriculture, forestry, fishing, and some manufacturing activities. Therefore, possible extensions and adaptations have to be awaited.