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Europe aims to become the world's first carbon-neutral continent. To realize this vision and channel investments into sustainable projects, the European Union (EU) has introduced the EU Taxonomy Regulation. This innovative legislation introduces a standardized system for identifying what counts as environmentally sustainable economic activities, giving investors, businesses and policymakers a clear guide to the complex field of sustainable finance.
As a key component of the European green deal, the regulation is crucial for directing investments towards projects that genuinely support environmental goals. By providing a standardized definition of which economic activities can be considered environmentally sustainable, the EU Taxonomy facilitates a shared understanding among both financial and non-financial entities. In this way, it plays an important role in:
According to the Taxonomy Regulation, there are 4 overarching conditions that an economic activity has to meet in order to qualify as environmentally sustainable (Taxonomy-aligned”):
Scope
Only companies subject to the Corporate Sustainability Reporting Directive (CSRD) are required to comply with the Taxonomy Regulation by disclosing in their annual reports how their activities align with the Taxonomy (Taxonomy-eligibility) and meet the criteria set out in the Taxonomy delegated acts (Taxonomy-alignment). Companies not covered by the CSRD can choose to disclose this information voluntarily to access sustainable financing or for other business-related reasons.
In April 2021, the European Commission adopted the EU Taxonomy Climate Delegated Act to establish the criteria for economic activities crucial for achieving climate neutrality. The act identified over 80 activities across various sectors, including forestry, environmental protection and restoration, manufacturing, energy water supply, sewerage and others. Additionally, for adaptation-related activities, it covers financial and insurance activities, education, human health, social work activities, arts, entertainment and recreation.
Later, in March 2022, the Commission introduced the Complementary Climate Delegated Act, specifying criteria for the gas and nuclear energy sectors.
The regulation also interacts with the EU Sustainable Finance Disclosure Regulation (SFRD): According to Articles 5 and 6 of the Taxonomy, all financial products that fall under Articles 8 (products promoting environmental or social characteristics, provided the invested companies adhere to good governance practices) and 9 (products aiming for sustainable investment) of the SFDR must reveal the extent to which their underlying investments align with the Taxonomy. Specifically, financial products disclosed under Article 8 of the SFDR have sustainable investment as their primary goal.
The EU Taxonomy Compass provides the latest list of Taxonomy-aligned economic activities, though activities not listed do not necessarily imply unsustainability; it may indicate that criteria are still under development.
Timeline
The reporting obligations and timelines for undertakings are set out in the Disclosures Delegated Act, which supplements Article 8 of the Taxonomy Regulation. Here is a timeline overview:
Embracing Finboot technology for compliance
Navigating the EU Taxonomy Regulation can be complex, but it's crucial for businesses and financial institutions. To ensure compliance and maximize benefits we recommend you to:
Don't let the complexities of EU Taxonomy Regulation slow you down. Finboot's cutting-edge blockchain solutions can streamline your compliance process, enhance data management, and boost transparency. Some of the features that MARCO Track & Trace offers to align with the regulation requirements are automated ESG and sustainability credits record-keeping, Digital Product Passports creation and management and GHG emission tracking.
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