The Taxonomy of the European Union (EU) is a classification system of economic activities that contribute to the transition towards a more sustainable economy by 2030
The Taxonomy of the European Union (EU) is a classification system of economic activities that contribute to a just transition towards a more sustainable economy, as set out by the EU's ‘Green Deal’. This Taxonomy defines the thresholds and criteria that must be met for an activity to be considered ‘sustainable’.
Today there is already a green Taxonomy with 6 environmental objectives.
A social Taxonomy is currently being prepared to achieve the European Union's social objectives.
The green Taxonomy is an important tool for the EU to make sustainability a key criterion to allocate financial resources. It defines the rules for an activity to qualify as ‘sustainable’. This makes it easier for investors to channel capital to activities that efficiently contribute to the transition towards a fair economy, going beyond green marketing, self-invented labels and unregulated advertising.
According to the green Taxonomy, a company or organisation must meet three criteria for its financial product or activity to qualify as ‘ecologically sustainable’:
It should make a substantial contribution to at least one of the EU's 6 climate and environmental objectives.
At the same time, the product or activity should not significantly harm any (other) of these 6 objectives (= DNSH – ‘Do No Significant Harm’).
By default, the product or activity should always respect minimum social guarantees in terms of human rights and labour conditions (as laid down in OECD, UN, ILO guidelines and conventions).
‘Delegated acts’ specify how to prove compliance with these three conditions. They set out in detail the criteria and minimum thresholds per objective to be achieved in order to claim sustainability.
In September 2022, only the first 2 objectives (climate) had their specific delegated acts.
The Taxonomy targets 2 sets of companies: financial market actors, to make their products and investments more sustainable, and enterprises, to make their activities sustainable.
Financial market actors
All those who provide financial products (banks, insurers, investors, pension funds, public authorities etc.)
All companies that are subject to the obligation to publish a non-financial report (currently under the NFRD legislation, and later under the future CSRD).
Companies subject to Taxonomy must follow 3 steps in their assessment:
Determine whether one or more of their economic activities is eligible, i.e. listed in the delegated act of each environmental objective. This is an initial mapping.
The result is expressed as a percentage of eligible activities compared to the total activities, in terms of turnover.
This obligation is in force in 2022
Quantify to which extent the eligible activities (from step 1) meet the three conditions: the quantitative and qualitative thresholds defined in the ‘delegated acts’ of each objective + ‘do no significant harm’ guarantee + social guarantee.
The result is a report on the aligned activities, quantified and accompanied by evidence for the 3 criteria.
Calculate and publish the share of activities aligned with each of the objectives in the overall activity of the company.
The result is a global report on all the activities of the company, with the percentage of activities aligned with the Taxonomy in the total activities, expressed in:
Financial market actors must publish the proportion of their portfolio dedicated to aligned activities of their corporate clients. The amounts to be calculated vary according to the different types of activities:
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