This article will help you with getting your company ready for the EU taxonomy. For more background on the EU taxonomy, please consult Understanding the EU taxonomy.
Economic activities are environmentally sustainable or "Taxonomy-aligned', when these activities:
Make a substantial contribution to at least one of the environmental objectives. There are six environmental objectives:
Climate change mitigation
Climate change adaptation
The sustainable use and protection of water and marine resources
The circular economy
Pollution prevention and control
The protection and restoration of biodiversity and ecosystems
Do no significant harm to any of the other five environmental objectives
Comply with minimum safeguards
Comply with the technical screening criteria
The Taxonomy also recognizes specific subtypes of economic activities that can make a substantial contribution to EU's climate goals:
'Enabling' activities
'Transitional' activities
Step 1: Identify the activities that are covered by the EU Taxonomy
Ask yourself:
"Which of the activities performed by my company are covered by the EU taxonomy?''
The first act, Climate Delegated Act, covers economic activities in sectors that represent almost 64% of all direct GHG emissions in Europe. By meeting the criteria of these activities, they can become 'environmentally sustainable'.
Step 2: Assess whether the activities meet the technical screening criteria
The EU drafted technical screening criteria for economic activities to assess whether these activities meet the technical screening criteria (TSC). TSC consist of substantial contribution criteria and Do No Significant Harm (DNSH) criteria. These criteria are set up in the first act "Climate Delegated Act".
Substantial contribution criteria
Substantial contribution criteria
The criteria to assess substantial contribution are set up to achieve the level of ambution needed to reach the goals set of the European Green Deal. The activity should make a substantial contribution rather than a marginal one. An example of
Do No Significant Harm criteria
Do No Significant Harm criteria
According to the EU taxonomy regulation, an activity does significant harm when it would cause the following to one of the environmental objectives:
Climate change mitigation: If it results in a substantial increase in greenhouse gas emissions.
Climate change adaptation: If it worsens the current or future climate impacts on the activity, or on people, nature, or assets.
The sustainable use and protection of water and marine resources: If it harms the good ecological status or potential of water bodies, including surface and groundwater, or the environmental health of marine waters.
The circular economy: If it causes major inefficiencies in material or natural resource use, leads to a significant increase in waste generation, incineration, or disposal, or if waste disposal causes long-term environmental damage.
Pollution prevention and control: If it results in a significant rise in pollutants released into the air, water, or soil—the activity should aim for lower emissions based on BAT standards.
The protection and restoration of biodiversity and ecosystems: If it severely harms ecosystem health and resilience, or negatively affects the conservation status of habitats and species, including those of Union interest.
Step 3: Check compliance of the activities with minimum safeguards
To achieve sustainability-aligned activities, companies must comply with the minimum safeguards. These ensure adherence to:
Human Rights: Following the UN Guiding Principles on Business and Human Rights (UNGPs) and OECD Guidelines for Multinational Enterprises.
Labor Standards: Upholding the ILO Core Conventions.
Governance Principles: Combating corruption, bribery, and ensuring fair taxation.
Companies must assess their operations and value chains to prevent violations like human rights abuses or unethical practices. Compliance is essential for credibility in sustainable investments under the EU Taxonomy framework.
Step 4: Apply the relevant reporting rules
The report should include a list of all taxonomy-aligned and -eligible activities. The outcome of the assessment could be that only some of your activities are aligned, because the other activities do not meet the technical screening criteria.
KPIs will be disclosed for the total activities of your company and for each economic activity. The KPIs to report on are:
Turnover: The turnover KPI reflects the percentage of your net revenue that comes from products or services aligned with the taxonomy. This KPI offers a snapshot of how much your company contributes to environmental objectives.
each economic activity and for theCapEx: The capital expenditure (CapEx) KPI indicates the percentage of capital spending on activities that are either already aligned with the taxonomy or are part of a credible plan to achieve environmental sustainability. This KPI gives a forward-looking and dynamic perspective on companies' strategies to transform their business operations.
OpEx: The operational expenditure (OpEx) KPI shows the percentage of operating costs linked to taxonomy-aligned activities or the capital expenditure plan. It primarily includes non-capitalized expenses related to the upkeep and servicing of company assets (such as plants and equipment) that are essential to maintaining the assets’ continued and efficient operation.
These KPIs will be reported for taxonomy-aligned as well as eligible activities.
The second delegated act "Disclosures Delegated Act' or 'Article 8 Delegated Act' became applicable on 1 January 2022. The content, methodology and presentation of to be disclosed are specified.