EU TAXONOMY: AN EU REGULATION TO
PROMOTE SUSTAINABILITY IN THE ENTIRE ECONOMY
To overcome the comprehensive threats of climate change and environmental degradation, Europe has adopted the Green Deal as a new strategy to promote growth while reducing greenhouse gas emissions and protecting the environment. As part of the effort to make the EU's economy sustainable, a new regulatory framework has been set up to help the financial market adjust to these challenges, and to direct capital flows towards sustainable activities.
What is EU Taxonomy?
EU Taxonomy is the EU classification system for sustainable activities .
It is a tool for determining the environmental performance of economic activities across a wide range of industries, which helps investors, companies, issuers and project promoters navigate toward a low-carbon, resilient and resource-efficient economy.
EU TAXONOMY IS YOUR GUIDE TO FINDING A CREDIBLE SCIENCE-BASED PATHWAY TO BECOME CLIMATE NEUTRAL
Climate change mitigation
Climate change adaptation
Protection of water and marine resources
Transition to a circular economy
Pollution prevention and control
Protection and restoration of biodiversity and ecosystems
How it works
EU Taxonomy sets requirements that economic activities must meet in order to be considered sustainable. It sets performance thresholds for economic activities that:
Can make a substantial contribution to at least one of the six environmental objectives
Do no significant harm (DNSH) to any of the other environmental objectives
Comply with minimum safeguards.
Why use EU Taxonomy?
EU Taxonomy provides clarity and transparency on environmental sustainability criteria, thereby enabling investors, financial institutions, and companies to use informed decision-making to foster investments in environmentally sustainable activities and to encourage capital flows towards sustainable investments.
Financial Market Participants
Financial market participants offering financial products in the EU have to provide for each relevant product, information on:
How and to what extent they have used EU Taxonomy for determining the sustainability of underlying investments.
The proportion of underlying investments that are taxonomy-eligible and aligned, expressed as a percentage of the total investment, fund or portfolio.
Details on the respective proportions of enabling or transitional activities.
Non-financial companies that are already required to provide a non-financial statement under the Non-Financial Reporting Directive are now also required to provide a description of how and to what extent their activities are taxonomy-eligible and aligned, including:
The proportion of turnover eligible and aligned with the EU Taxonomy.
Whether or not Capex, and if relevant, Opex, is eligibile and aligned with Taxonomy.
Eligibility reporting for large undertakings
For the financial year 2021, large public-interest entities with more than 500 employees became subject to reporting requirements pursuant to Article 8 of the Taxonomy Regulation on the eligibility of their economic activities.
Alignment reporting for large undertakings
For the financial year 2022, large non-
financial undertakings will need to report the activities that are considered as aligned pursuant to the Taxonomy Regulation.
Eligibility reporting for financial institutions
Financial entities need to report on Taxonomy-eligible activities for the financial year 2022.
Alignment reporting for large financial institutions
Large financial institutions
should disclose Taxonomy-eligible and aligned activities in 2024 for activities related to climate
objectives for the financial year 2023.
Sustainability reports for all companies under NFRD
Sustainabilty reports become obligatory for all large* companies covered under the Non-Financial Reporting Directive (NFRD)
*above 250 employees, or annual turnover of more than 50 MEUR, or annual balance sheet larger than 43 MEUR
3rd country coverage
Financial institutions may cover alignments for third country impacts.
Sustainabilty reports for listed SME and small financial institutions
Disclosure of Taxonomy alignment and eligibility becomes obligatory for publicly listed small and medium enterprises as well as small financial institutions for the financial year 2026.
Additional obligations for credit institutions
Credit institutions will need to report on the Taxonomy alignment of
their trading book, as well as fees and commissions for non-banking activities.
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"Taking longer-term sustainability interests into account makes economic sense and does not necessarily lead to lower returns for investors."
Klemens Marx, CEO VIRIDAD