October 31, 2023
December 28, 2022
 min read

News from FAQs to the Commission

The publication of two (still draft) documents from the European Commission providing answers to Frequently Asked Questions (FAQ) regarding application of the TSC and DNSH, and interpretation of financial data and disclosure of sustainability KPIs.

Many companies do struggle with the EU Taxonomy on how to interpret and how to implement. Just last week, on the 19th of December, the European Commission has published two (still draft) documents answering Frequently Asked Questions (FAQ) to shed light on most pressing questions regarding

  • general interpretation of the regulation and on specific elements about financial data and disclosure of sustainability-KPIs, and
  • application of the technical screening criteria for substantial contribution and Do No Significant Harm (DNSH).

It has been some time since the adoption of the Climate Delegated Act, EU (2021/2139), in June 2021 and Disclosures Delegated Act, EU (2021/2178), in July 2021 and, later, the Complementary Climate Delegated Act, EU (2022/1214), in March 2022. Since then, many undertaking (financial and non-financial), investors, insurances or asset managers that fall under the NFRD, SFRD or the CSRD have been working on the implementation of the EU Taxonomy requirements in their business processes and operations. Facing this novel regulation, its implementation and interpretation has been a challenge and many questions have been raised on the fulfilment of the requirements.

To address these issues, the Commission created two draft documents that provide answers to FAQs, regarding the EU Taxonomy. The replies in the FAQ´s do not establish any additional new requirements for the users of the EU Taxonomy. Here are some key takeaways:

  • The development of the EU Taxonomy regulation will continue and new economic activities will be added in the close future. The latest document on the methodology and technical screening criteria, released by the Platform on Sustainable Finance in October 2022, shows that new activities in the manufacturing, energy, construction, transport, and ICT sectors, were included in the public consultation and passed to the European Commission for future considerations.
  • For some economic activities, i.e., transitional activities, the technical screening criteria will be reviewed at least every three years and will become stricter while for others the TSC will be updated to meet new technological developments and  be coherent with policy objectives.
  • Taxonomy eligibility of the economic activity is determined by the description of the activity in the delegated acts. The NACE code is only provided as a complementary information.
  • For EU Taxonomy alignment, i.e., for counting an activity as sustainable, all the requirements from the technical screening (substantial contribution and DNSH) as well as minimum safeguards have to be met.
  • Technical screening assessment for some activities requires verification by an external verifier. These external verifiers can be either the relevant national competent authorities or an independent third-party that have no conflict of interest.
  • Parent undertaking should disclose consolidated KPIs regardless of whether some part of the KPI came from a third country subsidiary or EU country subsidiary.
  • Subsidiary undertaking can be exempted from the EU Taxonomy disclosure if it is included in the consolidated management report of the parent undertaking.

We believe these documents help to better understand the EU Taxonomy, and provide a valuable information, not only to the undertakings (financial and non-financial), investors, insurances or asset managers who fall under the EU Taxonomy regulation, but also to others who want to contribute to creating a more environmentally sustainable future.