EU Taxonomy

What is the EU taxonomy?

The EU taxonomy is a uniform classification system of the European Union that helps companies assess economic activities based on their environmental sustainability. Its purpose is to redirect capital flows towards sustainable business models and create transparency in the market for green financial products. It thus serves as a key instrument for implementing the European Green Deal.

Essentially, the EU taxonomy defines which activities can be considered environmentally sustainable. To qualify, they must make a significant contribution to at least one of six defined environmental objectives without significantly compromising other environmental objectives. At the same time, minimum social standards – such as the OECD Guidelines for Multinational Enterprises – must be met.

EU taxonomy: origins and development

The basis for the EU taxonomy was laid in 2018 with the EU Action Plan on Financing Sustainable Growth. This aimed to promote sustainable financing. The actual Regulation (EU) 2020/852 came into force in 2020 and was supplemented by delegated acts with technical assessment criteria.

Since then, the taxonomy has been gradually expanded. Comprehensive technical assessment criteria for the environmental objectives of climate protection and adaptation to climate change are currently in force. The remaining four objectives – such as biodiversity protection and the transition to a circular economy – are currently being implemented. This dynamic legal framework is being continuously refined to cover new sectors and technologies.

EU taxonomy: the six environmental objectives at a glance

An economic activity can only be considered taxonomy-compliant if it significantly contributes to at least one of the following environmental objectives: climate protection, adaptation to climate change, sustainable use of water and marine resources, transition to a circular economy, prevention of environmental pollution, and protection and restoration of biodiversity and ecosystems.

In addition to the positive impact, it must also be ensured that none of the other objectives are significantly impaired – the so-called ‘do no significant harm’ principle. In addition, minimum social standards must be met to ensure a holistic sustainable impact.

Who is affected by the EU taxonomy?

The EU taxonomy initially affects large capital market-oriented companies with more than 500 employees. However, with the gradual implementation of the Corporate Sustainability Reporting Directive (CSRD) from 2025, the scope will be significantly expanded.

In future, companies that exceed two of the following three thresholds will also be required to report: more than 250 employees, more than 50 million euros in turnover or more than 25 million euros in total assets. Listed small and medium-sized enterprises (SMEs) and foreign companies with significant business activities in the EU will also be included in future. The timetable extends to 2028 and affects millions of organisations across Europe.

EU taxonomy: the six environmental objectives at a glance

At the heart of the EU taxonomy are six environmental objectives that are used to assess economic activities. An activity is considered sustainable if it contributes significantly to at least one of these objectives without compromising another.

1. Climate change mitigation

Activities that result in direct or indirect reductions in greenhouse gas emissions, for example through renewable energies, energy efficiency or low-carbon technologies.

2. Adaptation to climate change

Measures that address risks arising from the consequences of climate change, for example through climate-resilient infrastructure, flood protection or early warning systems.

3. Sustainable use and protection of water and marine resources‍

Economic activities that ensure the sustainable use of fresh water, groundwater or marine resources – for example, through water-saving technologies or protective measures for coastal areas.

4. Transition to a circular economy, waste prevention and recycling‍

Initiatives that promote resource efficiency, reuse, repair, recycling or longer product life cycles – such as the design of recyclable products or the establishment of secondary raw material markets.

5. Prevention and reduction of environmental pollution

Activities that contribute to reducing air, water and soil pollution or replacing environmentally hazardous substances with less harmful alternatives.

6. Protection and restoration of biodiversity and ecosystems

Measures aimed at preserving or restoring natural habitats, biodiversity and ecological balances – e.g. through sustainable land use or renaturation.

Reporting requirements and KPIs

The focus of reporting is on the proportion of taxonomy-aligned and taxonomy-compliant economic activities. Companies must disclose in their management report how high these proportions are in relation to revenue, capital expenditure (CapEx) and operating expenditure (OpEx).

This information must be verifiable and provided in accordance with the European Sustainability Reporting Standards (ESRS) and using approved technical assessment criteria. The aim is to enable investors and stakeholders to comprehensively assess the environmental sustainability of a company's activities.

Regulatory and economic significance of the EU taxonomy

The EU taxonomy is more than just a regulatory instrument. It is changing the way companies strategically integrate sustainability. Three overarching objectives are at the heart of this: redirecting capital flows towards sustainable investments, integrating sustainability aspects into corporate risk management, and promoting long-term economic activities.

In addition, the taxonomy provides the basis for numerous accompanying regulations such as the EU Green Bond Standard and the Carbon Border Adjustment Mechanism (CBAM). It therefore also has an impact on financing, rating procedures and investor decisions.

Implementation in business practice

For companies, the EU taxonomy is both a challenge and an opportunity. Assessing their activities requires new data flows, cross-functional cooperation and, in many cases, the use of specialised software solutions.

Those who integrate the requirements at an early stage will benefit from increased financing attractiveness, a stronger market position and a better understanding of their own value creation in the context of sustainable development. The integration of digital tools that ensure transparency and traceability across the entire supply and transport chain is increasingly becoming a success factor.

Conclusion

The EU taxonomy clarifies what sustainable business means and establishes binding environmental criteria in the financial and corporate context. Companies that see the associated requirements as a strategic opportunity can not only prevent regulatory risks but also gain a real competitive advantage. Those who start early are not only compliant but also future-proof.