Under the EU Taxonomy Regulation, companies are required to assess whether their economic activities are aligned with the EU's sustainability objectives, particularly in areas like climate change mitigation, adaptation, and environmental sustainability. However, in many cases, businesses operate across multiple locations, each with different characteristics and operational practices. This raises an important question: What happens if an activity is not aligned at all locations?
In these cases, economic activities can be partially aligned, meaning that only certain locations or parts of an activity meet the Taxonomy criteria and is therefore considered aligned. The remaining part, not meeting all the criteria, will still be classified as eligible but not aligned, resulting in the activity being partially aligned overall.
Example of partial alignment: A manufacturing company
Let’s consider an example of GreenTech Manufacturing Ltd., a company with several production facilities across different regions, each contributing to the production of solar panels, a Taxonomy-eligible activity.
Location 1 (Facility A): This facility operates with renewable energy sources and meets all criteria for climate change mitigation, including energy-efficient processes and green manufacturing technologies.
Location 2 (Facility B): This facility is still heavily reliant on fossil fuels for its energy needs and has not yet invested in energy-efficient technologies. As a result, it does not meet the criteria for climate change mitigation under the Taxonomy.
In this case, GreenTech Manufacturing Ltd. can claim partial alignment with the EU Taxonomy. While Facility A is fully aligned with the taxonomy's sustainability criteria, Facility B does not meet the standards. The company will need to disclose these discrepancies in its reporting, explaining the level of alignment for each facility.
Partial alignment will be reflected in the app by allocating the turnover, CapEx, and/or OpEx of the eligible and aligned portions of the activity to their respective sections. This option will appear by answering the question below (see screenshot). For example, KPIs can be reported separately for both the eligible and aligned parts for each activity, ensuring clear distinction. These values will be displayed separately in the results table under sections A1 and A2.
Key considerations for partial alignment
Disclosure of non-alignment: When a company operates multiple locations or facilities with varying levels of alignment, it is essential to transparently disclose which parts of the business are not aligned. This helps stakeholders understand the company’s overall contribution to sustainability and what steps are being taken to improve alignment in the future.
Proportional reporting: When only part of an activity or location is aligned, the company must disclose the proportion of its turnover, capital expenditure (CapEx), and operational expenditure (OpEx) that is aligned with the Taxonomy. This proportional reporting allows companies to show how much of their business is contributing to the EU’s sustainability objectives, even if the entire company is not fully compliant.
Conclusion
Partial alignment in the context of the EU Taxonomy is a realistic scenario for many companies, particularly those with operations spread across different regions or facilities. While not all locations or activities may meet the Taxonomy's criteria, companies can still report partial alignment by assessing and disclosing the degree to which their operations are sustainable. By doing so, they maintain transparency and accountability, demonstrating a commitment to progress towards full alignment with the EU's environmental goals.