Simplified EU Taxonomy: What’s New?

The EU Taxonomy has become a core pillar of Europe’s sustainable finance architecture, shaping how companies and financial institutions define and disclose environmentally sustainable economic activities. With the entry into force of the Simplified EU Taxonomy Delegated Act on January 28, 2026, applicable from January 1, 2026, and therefore relevant for the 2026 reporting cycle covering financial year 2025, the EU modifies the sustainability reporting framework to introduce a more proportionate application of the Taxonomy Regulation.

The revised act amends the Disclosures, Climate, and Environmental Delegated Acts, with the objective of reducing operational complexity while maintaining the role of the Taxonomy as a classification system for environmentally sustainable economic activities.

Why the EU considered simplification necessary

Early Taxonomy reporting cycles highlighted operational and methodological challenges. Many organizations were required to assess economic activities that were not material to their business model, leading to extensive data collection and reporting efforts with limited relevance to decision-making. Financial institutions also faced difficulties due to reliance on upstream data from non-financial counterparties, which was often incomplete or inconsistent. These issues contributed to varying alignment outcomes across the market and reduced comparability of disclosures. The simplified Delegated Act introduces proportionality mechanisms intended to focus reporting on material activities and improve usability of the framework.

Key simplifications at a glance

The Simplified Delegated Act introduces several targeted adjustments to the application of the EU Taxonomy Regulation:

Implications for non-financial undertakings

Materiality threshold reshapes Taxonomy assessment

Non-financial undertakings can now exclude economic activities from Taxonomy eligibility and alignment assessment where the cumulative value of turnover, CapEx, or OpEx is below 10% of the respective KPI denominator. The threshold is applied separately for each KPI, meaning an activity may be excluded for turnover but still assessed for CapEx or OpEx if material.

In addition, undertakings may refrain from assessing all OpEx-related activities if total OpEx is not material to their business model. No fixed quantitative threshold is prescribed, but the assessment must follow financial materiality principles and be clearly justified.

Disclosure remains mandatory for non-assessed activities

Even when activities are excluded, transparency requirements remain. Companies must disclose:

• The share of non-material activities within each KPI denominator
• The sector classification of those activities (e.g., NACE)
• A clear explanation of why they are considered non-material
• If OpEx is deemed non-material, the total OpEx denominator and justification

Reporting becomes structurally simpler

The revised templates introduce a summary KPI table and a simplified activity breakdown, remove several previous datapoints, and allow omission of detailed tables where Taxonomy eligibility is zero. The framework also introduces a new method for reporting contributions to multiple environmental objectives.

DNSH criteria simplified

The updated rules reduce the number of substances companies must assess and allow certain regulated uses of ozone-depleting and hazardous substances under defined exemptions. This significantly lowers compliance complexity while maintaining alignment with EU environmental law.

Implications for financial undertakings

Temporary relief from detailed reporting

Financial institutions may choose not to publish detailed Taxonomy templates until December 31, 2027, provided they clearly state that they do not claim alignment with environmentally sustainable activities. This creates short-term operational relief while broader regulatory reviews continue.

Postponement of selected KPIs

Reporting of Trading Book and Fees & Commissions KPIs has been delayed until 2028 due to limited decision usefulness in earlier assessments.

Materiality thresholds apply to assets and activities

Financial undertakings can exclude exposures or activities below a 10% materiality threshold, based on:

• Contribution to total net turnover
• Exposure size relative to the KPI denominator
• The approach varies by institution type, asset class, and reporting KPI.

Increased transparency on non-assessed exposures

Revised templates introduce additional transparency regarding non-assessed exposures, distinguishing between:

• Exposures considered non-material
• Exposures financing counterparties’ non-material activities
• Exposures to financial counterparties that do not claim Taxonomy alignment

KPI denominator refined

The scope of exposures included in KPI denominators has also been refined. Certain exposures are now excluded, including:

• Exposures to undertakings outside mandatory sustainability reporting scope
• Assets for which Taxonomy alignment cannot be assessed, such as derivatives, cash, goodwill, or commodities

Reporting templates significantly simplified

Financial institutions benefit from major template simplifications, reduced breakdown requirements, and aggregated reporting for fossil gas and nuclear exposures. Overall, datapoints are reduced by around 89%, easing operational burden.

How organizations should prepare for the 2026 reporting cycle

Organizations should reassess their economic activities under the revised materiality framework and document all materiality determinations consistently. 

Preparation should include:

• Reassessment of economic activities under the new materiality threshold
• Documentation of materiality judgments and methodologies, including clear justification where activities or operational expenditure are considered non-material
• Updates to reporting templates, controls, and data models to reflect simplified disclosure structures and revised KPI calculations
• Coordination between finance, sustainability, risk, and IT functions to ensure consistent interpretation and application of the revised rules
• Investment in scalable Taxonomy data infrastructure to support future reporting requirements

In addition, organizations should ensure that disclosures related to non-assessed activities remain transparent and complete. This includes reporting the proportion of non-material activities within KPI denominators, indicating their sector classification, and providing clear explanations supporting materiality conclusions. Where operational expenditure is considered not material to the business model, undertakings should disclose the total operational expenditure denominator together with the rationale for this determination.

Financial undertakings should use the transitional period to review governance, data sourcing, and validation processes, even where detailed reporting templates are not applied. Preparatory work during this phase may support consistent KPI calculation and facilitate future compliance once full reporting requirements resume.

Looking ahead: further EU sustainability simplification expected

The European Commission has announced a broader, systematic review of EU Taxonomy reporting requirements and technical screening criteria, with a particular focus on further simplifying the framework, improving its usability, and aligning it with existing EU legislation. This includes a reassessment of key elements such as the DNSH criteria to reduce complexity.

In parallel, additional regulatory adjustments under the wider Omnibus simplification agenda are expected, including potential changes to the scope of sustainability reporting under the CSRD, such as revised thresholds for large groups and issuers. These upcoming developments are intended to further streamline sustainability regulation across the EU, although they do not affect the application of the Taxonomy framework for the financial year 2025.

Run your EU Taxonomy reporting with Envoria

Envoria’s EU Taxonomy software module empowers you to efficiently assess your EU Taxonomy compliance by accurately identifying your sustainable economic activities and investments. With an all-in-one approach, the software provides a holistic view of environmental impact:

• End-to-end process: Cover the entire EU Taxonomy workflow, from identifying and assessing economic activities through to generating the official EU reporting tables.
• Structured assessment logic: Assign business activities to NACE codes and EU Taxonomy activities and perform structured assessments in line with TSC, DNSH requirements, and Minimum Safeguards.
• Automated KPI logic: Identify material activities using rule-based logic and automatically calculate and aggregate Taxonomy KPIs for Revenue, CapEx, and OpEx, including at the group level.
• Group-wide transparency: Aggregate Taxonomy data across entities, locations, and reporting periods while maintaining continuous visibility over status, assessments, and KPIs.
• Audit-proof documentation: Document assessments, decisions, and changes securely within the system, ensuring full traceability for internal controls and external audits.
• EU template reporting: Generate official EU Taxonomy reporting tables directly in the system and export them efficiently for consistent disclosure.