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Overview

The Taxonomy Regulation was proposed as part of the EU Action Plan on Financing Sustainable Growth (COM(2018) 97 final), which aims at redirecting capital flows toward a more sustainable economy.

For that purpose, the Taxonomy Regulation applies to policy measures targeting sustainable financing activities, financial market participants within the scope of the SFDR and companies subject to the NFRD and has consequences for mandatory reporting on these activities.
 

¹ Article 10 of Commission Delegated Regulation (EU) 2021/2178

² Economic activities are defined as taxonomy-eligible if they are listed in the delegated act that specifies the technical screening criteria (2021/2139). Taxonomy-alignment further requires adherence to the substantial contribution criteria, the DNSH principle and the minimum safeguards.

Scope

The Taxonomy Regulation applies to

• policy measures targeting sustainable financing activities,

• financial market participants within the scope of the SFDR and

• companies subject to the NFRD.

Environmental objectives

The Taxonomy Regulation defines the following six environmental objectives:

1. climate change mitigation;

2. climate change adaptation;

3. the sustainable use and protection of water and marine resources;

4. the transition to a circular economy;

5. pollution prevention and control; and

6. the protection and restoration of biodiversity and ecosystems.

 

Each environmental objective is defined in Article 9 and delineated in greater detail in Articles 10-15 of the regulation.

Conditions for economic activities

The Taxonomy Regulation defines four conditions that an economic activity must meet to qualify as environmentally sustainable, also referred to as ‘taxonomy-aligned’:

1. the activity must substantially contribute to meeting at least one of the six environmental objectives;

2. the activity does not significantly harm meeting any of the six environmental objectives;

3. the activity is carried out in compliance with minimum safeguards; and

4. the activity complies with technical screening criteria.

 

These conditions are further delineated in Articles 16-18 of the regulation.
 

The technical screening criteria for determining which activities substantially contribute to climate change mitigation (Annex I) or climate change adaptation (Annex II) are defined in a delegated regulation (Commission Delegated Regulation (EU) 2021/2139).

A separate delegated regulation (Commission Delegated Regulation (EU) 2022/1214) defines those criteria for fossil gas and nuclear energy sectors.

Disclosure requirements

Nonfinancial companies must disclose the proportion of ...

• their turnover,

• capital expenditures (capex) and

• operating expenditures (opex)

... associated with environmentally sustainable activities.

Reporting format

The content and presentation of the information is further specified in a delegated regulation (Commission Delegated Regulation (EU) 2021/2178).

Updates

Updates to this page:

Links and Sources

• European Commission, EU Taxonomy

• Hummel, K., Jobst, D., 2022. The Current State and Future of Corporate Sustainability Reporting Regulations in the European Union. (SSRN)

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