By passing the Green Deal in 2019, the European Union set the course for more sustainable investments in areas like renewable energy, biodiversity, or circular economy. The ultimate goal is to reach a climate-neutral economy in the EU by 2050. By 2030, there shall already be a 55% reduction in greenhouse gas emissions. To achieve these climate targets, the Green Deal includes an investment plan of 1 trillion euros over the next 10 years. However, despite this huge investment, the EU depends also on the support of the private sector to achieve the Paris climate agreement. That’s where the EU Taxonomy Regulation comes in.
What is the EU Taxonomy?
As part of the European Green Deal, the EU Taxonomy Regulation (2020/852/EU) sets a framework for the concept of sustainability, defining exactly when a company or enterprise is operating sustainably. Previously, there was no clear guidance or definition of green, sustainable, or environmentally friendly economic activities, and companies could get away with all sorts of greenwashing.
The EU Taxonomy Regulation sets criteria to determine if an economic activity can be considered environmentally sustainable. Therefore, an economic activity has to be assigned to a defined taxonomy activity by the EU, contribute substantially to one of six defined environmental objectives, does not significantly harm any of the remaining environmental objectives, and complies with a series of minimum social safeguards.
|To report in accordance with the EU Taxonomy, a 4-step process must be followed. This includes identifying the economic activities of a company, classifying each economic activity by overarching conditions that an economic activity has to meet, calculating financial KPIs, and reporting all taxonomy-eligible and taxonomy-aligned economic activities.
Learn more about the EU Taxonomy reporting process
The EU Taxonomy is linked to the obligation for non-financial reporting under the CSR Directive Implementation Act (CSR-RUG) or the Corporate Sustainability Reporting Directive (CSRD), which will replace the Non-Financial Reporting Directive (NFRD) in the future. Both regulations follow the objective of the Green Deal and have the following key goals:
1. Reorient capital flows to sustainable investments
2. Establish sustainability as a component of risk management
3. Encourage long-term investment and economic activity
To which companies does the EU Taxonomy apply?
Is the EU Taxonomy mandatory for my company? And if so, from when does the EU Taxonomy apply? This is what many companies ask themselves. The EU Taxonomy considers different circumstances and obligations for different economic actors. These are divided into the following groups:
Large public-interest companies already subject to the NFRD
All large companies that are not presently subject to the NFRD, meeting two out of three CSRD criteria: a) on average 250+ employees, b) balance sheet of EUR 20,000,000+, c) net turnover of EUR 40,000,000+
Listed SMEs and other undertakings
Financial market participants, including occupational pension providers, that offer and distribute financial products in the EU (including those from outside the EU)
Draft: Non-EU companies with a net turnover over EUR 150,000,000 in the EU, if they have at least one subsidiary or branch in the EU and exceed certain thresholds
However, companies of any size can use the EU Taxonomy on a voluntary basis to show investors and stakeholders in general whether they are carrying out or planning sustainable activities. Disclosure on the EU Taxonomy is only mandatory for companies that fall within the scope of the NFRD/CSRD.
When does the EU Taxonomy apply to companies?
The reporting requirements will come into effect over a period of several years, starting with the financial year 2021. For affected companies, it is then mandatory to report on the EU Taxonomy. The report itself should be published no later than four months after the end of the indicated financial year.
From January 1, 2021: large public-interest companies (definition see above) with the first disclosure of taxonomy eligibility for environmental objectives 1+2, with reports due in 2022
From January 1, 2022: large public-interest companies (definition see above) with the first disclosure of taxonomy alignment for environmental objectives 1+2, with reports due in 2023
Draft – From January 1, 2024: large public-interest companies (definition see above) with disclosure of all environmental objectives, with reports due in 2025
From January 1, 2025: large companies (definition see above), with reports due in 2026
From January 1, 2026: listed SMEs and other undertakings, with reports due in 2027 > SMEs can opt-out until 2028
Draft – From January 1, 2028: Non-EU companies with a net turnover over EUR 150 million in the EU, with reports due in 2029
|Need a visual overview of the EU Taxonomy?
Use our visual guide on the EU Taxonomy regulation to gain a quick overview of the companies affected, the timeline, the environmental objectives, and the classification process of economic activities.
Download the EU Taxonomy visual guide