The EU taxonomy is a set of rules developed by the European Union as part of the "Action Plan on Financing Sustainable Growth" for sustainable financing since 2018. In March 2020, the European Commission published the first draft of the EU Taxonomy Regulation.
After extensive consultations and discussions, the regulation was adopted on June 18, 2020. It came into force on July 1, 2021 and is considered dynamic instrumentwhich is constantly being further developed to cover additional economic sectors and environmental objectives. The taxonomy should Uniform criteria and standards for the classification of economic activities in terms of their environmental impact.
The main objective of the EU taxonomy is to support investors and companies in identifying sustainable economic activities and directing investments into these areas.
Objectives of the EU taxonomy
The EU taxonomy as Classification system covers six environmental goals. These are climate protection, adaptation to climate change, sustainable use and protection of water and marine resources, transition to a circular economy, prevention and reduction of environmental pollution and protection and restoration of biodiversity and ecosystems.
The EU taxonomy is an important component of the European Green Deal. It determines which economic activities as Ecologically sustainable and what contribution companies must make to these environmental goals. It makes extensive use of the ESG criteria and creates additional security for investors, protects investors from Greenwashing and supports companies in becoming climate neutral. The European Union's taxonomy makes this possible for all financial market players, identify sustainable investment opportunities and invest their private capital as efficiently and transparently as possible.
The German government adds in an official Statement "Our aim is also to promote transformation paths for greater energy efficiency and more electricity generation from renewable energies." The involvement of the private financial system is also urgently needed, as experts estimate that around one trillion euros will need to be invested across Europe in order to achieve the goal set out in the EU's "Fit for 55" defined goal can be achieved overall.
For whom is the taxonomy relevant?
The EU taxonomy is relevant for companies, banks, insurance companies and funds, as it is used for Disclosure of sustainability features of their activities and products. It enables investors to make informed decisions and guide investments on the basis of environmental considerations.
The EU taxonomy will be introduced gradually. It is to be further developed and expanded in the coming years in order to achieve a comprehensive framework for sustainable investments. According to the taxonomy, a company's economic activity is considered sustainable if it is already pursuing one of the six environmental goals mentioned above. However, it must not contravene the other five objectives, must comply with the minimum social standards of the UN and OECD guidelines and must provide open evidence of everything.
Reporting obligation according to CSRD and EU taxonomy from 2024
At present, approx. 11,600 European companies prepare and submit sustainability reports in accordance with EU Directive 2014/95/EU (NFDR). The criteria for selecting these companies are identical to those of the taxonomy. However, this CSRD reporting obligation extended from 01.01.2024 as part of the Corporate Sustainability Reporting Directive (CSRD). The disclosure obligation will then apply to more than 50,000 European companies. In addition, it will also apply to non-European companies with business relationships with the EU from 2028.
As part of this process, the EU taxonomy is also being rolled out further and is currently being applied to the Reporting requirements adapted. It will then be an integral part of transparent sustainability reporting for larger companies. The EU taxonomy applies to all companies listed on regulated markets, provided they meet two of the three criteria:
more than 250 employees
Balance sheet total > € 20 million
Net sales > € 40 million
The requirements for the CSR reporting obligation are being massively tightened. Reports must be audited by independent service providers and all parties involved are subject to external certification and the balance sheet oath.
Act now and invest in sustainability
Affected companies should address the topics of sustainability, renewable energies and CO₂ reduction now at the latest. They can also help Energy efficiency measuresin order to meet the requirements and obligations and strengthen their position on the capital markets.
The improved transparency in CSR reporting through the EU-wide classification system of the taxonomy should also be seen as an opportunity. Companies can gain a competitive advantage if they also use the reporting obligation as an introduction to the integration of ESG measures into the overall corporate strategy.
Far-sighted action can make it easier to raise capital for investments in climate neutrality or future-proof technologies. Switching to in-house sustainable energy generation also reduces costs. In addition to the company's own photovoltaic systems, a Energy audit or Environmental certifications to.
You can find more information on the new challenges facing companies in our white paper "What does the EU Climate Protection Act mean for companies?" simply explained.