EU Taxonomy: A classification of criteria for sustainable investment and emission reporting. The EU Taxonomy is a framework developed by the European Union (EU) to establish a standardised classification system for sustainable economic activities.
Its primary goal is to help investors, companies, and policymakers identify which activities can be considered environmentally sustainable in line with the EU’s sustainability objectives, particularly those outlined in the European Green Deal and the Paris Agreement. The EU Taxonomy aims to provide clarity and transparency on what constitutes environmentally sustainable economic activities by setting specific criteria and thresholds for various sectors and activities. It covers a range of sectors, including energy, agriculture, manufacturing, transportation, and more.
Key features of the EU Taxonomy include:
Environmental Objectives: The Taxonomy focuses on six environmental objectives: climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems.
Criteria and Thresholds: For each economic activity, the Taxonomy sets out specific criteria and thresholds that need to be met to qualify as environmentally sustainable. These criteria take into account factors such as greenhouse gas emissions, resource use, and environmental impacts.
Applicability to Financial Sector: The Taxonomy Regulation requires financial market participants, including asset managers, institutional investors, and financial advisors, to disclose information on how their investments align with the Taxonomy criteria. This aims to facilitate sustainable investment decision-making.
Disclosure Requirements: Companies that are subject to the Non-Financial Reporting Directive (NFRD) are required to disclose information on the proportion of their turnover, capital, and operational expenditures that are derived from environmentally sustainable activities.
Transitional Activities: The Taxonomy acknowledges that some economic activities may not fully meet the sustainability criteria but are on a path toward alignment. These are referred to as “transitional activities” and are subject to specific requirements.
Timetable for Implementation: The EU Taxonomy Regulation is being implemented in phases, starting with climate change mitigation and adaptation objectives. Additional objectives will be incorporated in subsequent years.
Dynamic Framework: The EU Taxonomy is designed to be a dynamic framework that evolves over time to reflect advances in scientific knowledge, technological developments, and changes in sustainability goals.
The EU Taxonomy is a central element of the EU’s efforts to promote sustainable finance, align economic activities with environmental goals, and support the transition to a low-carbon and sustainable economy. It contributes to the EU’s broader sustainability agenda by providing a clear and standardised way to assess the environmental performance of economic activities.
