Updated: Mar 4, 2022
In the modern business world, changes can happen rapidly and can cause wide-ranging consequences. Therefore, relying solely on a long-term business strategy is just not good enough. Strategy needs to be accompanied by action items that react to changes in the market and alter the course of action, when required.
It is widely acknowledged that a large portion of current economic activities have a negative impact on the environment. Which is why changes to economic behavior are necessary.
EU Taxonomy sets a fundamental, yet dynamic framework for these changes: It acts as a living document that allows for changes in science and technology to be incorporated into the existing framework, thus maintaining its impact on sustainability over time. By complying with EU Taxonomy, companies become a part of the transition towards a sustainable, low-carbon, and greener economy.
EU Taxonomy regulation applies to two different categories of organizations:
1. Large companies with more than 500 employees, that fall under the Non-Financial Reporting Directive (NFRD). In addition to non-financial statements under NFRD, companies are now also required to report on the extent of their economic activities that are EU Taxonomy-aligned, including:
The portion of activities that are EU Taxonomy-aligned, expressed as a percentage of Turnover, Capex, and Opex.
2. Financial institutions that offer their products and services in the EU. For each relevant product, they are required to provide information on:
How and to what extent they have used EU Taxonomy for determining the sustainability of underlying investments for their products.
The proportion of underlying investments that are EU Taxonomy-aligned, expressed as a percentage of the total investment, fund, or portfolio.
Details on the respective enabling or transitional activities.
Small and medium enterprises (SMEs), other financiers, and local authorities are also invited, on a voluntary basis, to use EU Taxonomy to report and showcase their sustainable economic activities. This may help promote their public image or gain other benefits, such as attracting investors and accessing finance. In return, investors benefit from the knowledge that they are investing in environmentally sustainable companies.
Achieving economic growth while tackling climate change is possible, but only if we work together. EU Taxonomy helps companies realise this goal.
References:
EU Taxonomy regulation 2020/852 - https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:32020R0852
NFRD 2014/95 - https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32014L0095