backgroundand and goals
In 2018, the EU Commission published an action plan with 10 measures for “financing sustainable growth” (EU Action PlanThe EU Action Plan, which leads to the EU Green Deal, has three key objectives:
- Directing capital flows into sustainable investments to achieve a more sustainable economy
- Anchoring sustainability in risk management
- Promote transparency and long-termism in financial and economic activities
The EU Taxonomy Regulation ((EU) 2020/852), in addition to the Corporate Sustainability Reporting Directive (CSRD) and Disclosure Regulation (SFDR), is seen as one of the most important measures to achieve the objectives of the EU action plan. It establishes a classification system for sustainable economic activities. The aim is to create a uniform understanding of what can be considered "sustainable". This is primarily intended to give investors certainty in their investment decisions and to counteract greenwashing. From the EU Commission's point of view, the EU taxonomy forms the basis for directing financial flows specifically towards sustainable economic activities.
EU-Taxonomy at a glance
Preface into the classification system
Since the EU Taxonomy Regulation currently only focuses on ecological sustainability, it is also called environmental taxonomy. It sets out criteria by which companies' economic activities can be determined as ecologically sustainable.
What is crucial is that economic activity,
- in accordance with at least one of the following six environmental goals and makes a significant contribution to:
- at the same time does not significantly harm any of the other environmental objectives (Do No Significant Harm – DNSH)
- in compliance with minimum social and labor standards (minimum safeguards)
Delegated legal acts specify when an economic activity makes a significant contribution to the environmental objectives mentioned above without significantly affecting the other environmental objectives. These delegated legal acts contain descriptions of economic activities and the associated technical assessment criteria that are necessary for the subsequent assessment of ecological sustainability. If a company's activity can be assigned to a description, the activity is taxonomy-eligible. If the technical assessment criteria (for significant contribution and DNSH) and the minimum social and labor standards are met, the economic activity can be classified as taxonomy-compliant. It is then considered ecologically sustainable.
The descriptions and assessment criteria of economic activities are continuously updated and new areas are added. The first delegated act is the Delegated Regulation laying down technical screening criteria for economic activities with regard to climate-related environmental objectives 1 and 2 and was adopted at the end of 2021. The latest concretizations took place at the end of 2023 by the Delegated Regulation on Environmental Protection (with effect from January 2024) to introduce economic activities and assessment criteria related to environmental objectives 3-6. At the same time, changes were made to the first delegated regulation in another legal act. This makes it clear that the EU taxonomy is not a closed system, but is constantly being developed and adapted, also to take technical innovations and findings into account. In principle, the EU Commission reviews the technical assessment criteria at least every three years, although revisions are currently taking place at shorter intervals.
In addition, stakeholders are involved in the process of introducing new and revising covered economic activities and technical assessment criteria. For example, a stakeholder mechanism, which allows proposals to be submitted for the EU taxonomy. Submissions will be processed by a specific deadline (most recently on December 15.12.2023, XNUMX). A new deadline has not yet been set.
reporting obligations for non-financial companies
In addition to establishing a classification system for ecologically sustainable economic activities of companies, the EU taxonomy also includes a reporting obligation on the proportion of taxonomy-compatible and taxonomy-compliant activities. According to this, companies must disclose and explain the following information in particular:
- share of Sales, which are linked to economic activities classified as ecologically sustainable.
- share of capital expenditure (CapEx), which are related to assets or processes associated with economic activities classified as environmentally sustainable.
- share of Business expenses (OpEx), which are related to assets or processes associated with economic activities classified as environmentally sustainable.
The key figures for sales, CapEx and Opex must be reported according to specific specifications. The corresponding reporting templates are derived from the changed Delegated Regulation 2021/2178Annex II contains the reporting templates for non-financial companies. These tables must be completed unchanged in the currently valid version.
With the introduction of the CSRD, the information prepared in accordance with the EU taxonomy must be published in the annual report and is subject to auditing (initially with limited assurance).
Who is affected by the EU taxonomy and from when?
The user group of the EU taxonomy and the implementation deadlines taking into account the reporting period are as follows:
- From January 2021 – Large capital market-oriented companies or groups of companies of public interest that are already obliged to provide non-financial reporting and financial market participants that provide financial products (report in 2022 with data from 2021)
- From January 2025 – large corporations, partnerships and large corporate groups treated as such, regardless of their orientation towards the capital market (report in 2026 with data from 2025)
- From January 2026 – Capital market-oriented small and medium-sized enterprises excluding micro-enterprises (report in 2027 with data from 2026)
Challenges for companies
Even if the EU supporting documents are made available, the implementation of the EU taxonomy is a challenge for many companies. There is extensive scope for interpretation, which leads to ambiguities, especially when identifying economic activities and checking conformity. Furthermore, the complexity and the associated qualification and personnel requirements for reporting are increasing. This is particularly evident in the newly implemented internal (control) processes, the expanded data collection, which also requires interventions in the company's IT landscape, and the final integration into reporting.
Your future with Moore TK
Companies that familiarize themselves with the EU taxonomy early on and align their sustainability efforts accordingly will not only meet the new requirements, but can also benefit from increased trust from investors and stakeholders. Greenwashing can be prevented and environmentally friendly practices can be implemented more easily.
We are happy to assist you with the concrete implementation of the obligations under the EU taxonomy and sustainability reporting, as well as with any outstanding questions. Moore TK supports companies of all sizes and stages of development for which sustainability reporting is relevant.
Is your company affected by the EU taxonomy?
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