Companies subject to the European reporting requirement (NFRD or CSRD) must disclose how much of their turnover and expenditure is ‘sustainable’. What is and isn’t sustainable is defined within the EU Taxonomy. This European sustainability bible, launched in 2020, will enter into force in phases.
To meet the European Green Deal’s climate targets, the European Commission wants to mobilise at least €1 trillion in sustainable investments over the next 10 years. That funding must come partly from its own resources and partly from private sources. For this reason, Europe has developed a system to make the sustainability of companies and investment products unambiguously visible and comparable. The axis of that system is the EU Taxonomy.
If the EU is to encourage sustainable investments, it must first be clear to everyone which economic activities are sustainable and which are not. That is where EU Taxonomy comes into play: its purpose is to establish consistent, objective criteria for determining which economic activities qualify as sustainable. Moreover, this classification creates a common language for green investments.
An economic activity should meet four requirements to be included in the EU Taxonomy:
The Taxonomy defines three types of sustainable activities:
1. Defining compliant activities ('eligibility')
In a first step, companies must indicate whether their activities are ‘eligible’. In other words, does the sector qualify for the EU taxonomy? At present, a catalogue is only available for the environmental objectives ‘climate mitigation’ and ‘climate adaptation’. The catalogue, which currently covers more than 100 activities across various sectors, is structured using NACE codes.
If an economic activity does not appear in this catalogue, it does not qualify and is therefore not ‘eligible’. For example, coal mining, fracking and the tobacco industry are examples of ‘non-eligible’ activities, which are not included in the Taxonomy and therefore cannot be catalogued as sustainable under any circumstances.
2. The alignment check
If an activity is included in the catalogue, the next step is to check whether it is also aligned with the EU Taxonomy and can therefore be labelled as a sustainable activity. ‘Aligned’ means that an activity successively meets the technical screening criteria, the DNSH principle and the MSS criteria.
3. Calculating financial KPIs
Companies with aligned activities should calculate the following KPIs:
4. Reporting
Reporting on the aforementioned KPIs is via the sustainability report that you are required to publish as a large company in accordance with the Corporate Sustainability Reporting Directive (CSRD). A direct link exists between the CSRD, the reporting requirement and the EU Taxonomy.
In a summary table, you indicate very precisely what percentage of your revenue, CapEx and OpEx is eligible/non-eligible and aligned/non-aligned. You also document the inputs, outputs and the calculation process that you followed.
You include all this information in the section of your report that deals with environmental issues.
The EU Taxonomy will be implemented in phases:
‣ Companies currently already covered by the NFRD have to report in several steps:
‣ Companies covered by the CSRD must report on all KPIs from 2026 onwards (for the 2025 fiscal year).
‣ Listed SMEs get another year’s extension: they have to report from 2027 onwards (for the 2026 fiscal year).
Suppose your business is linked to the activity of anaerobic digestion (via your turnover or via an investment). To report on that correctly, look up the activity in the EU Taxonomy Compass:
Are you getting lost in the EU Taxonomy, the CSRD, and other new obligations under the European Green Deal? We will guide you step by step. Contact us at mail@pantarein.be.
A new version of the EU Taxonomy has been presented since the publication of this article. The content in this article is still up-to-date. In particular, the new text has clarified the technical screening criteria for the four remaining environmental objectives (often named as the “taxo4”). Pantarein’s experts are extremely familiar with the content of the EU Taxonomy, and closely follow its developments. If you have any questions, please feel free to contact them at mail@pantarein.be.
