European Commission
The EU Taxonomy is a classification system created by the European Commission to define environmentally sustainable economic activities. It aims to guide investors towards green investments and support the transition to a low-carbon economy. The taxonomy specifies six environmental objectives, including climate change mitigation and protection of biodiversity. To be considered taxonomy-aligned, activities must contribute to these objectives, avoid significant harm, and meet social and governance safeguards. The taxonomy covers sectors like agriculture, manufacturing, energy, transportation, and construction. Large companies and financial market participants in the EU are required to disclose their taxonomy-aligned activities and investments. The goal is to promote sustainable investments, integrate sustainability into risk management, and drive long-term economic activity.
The EU Taxonomy is a classification system that defines criteria for economic activities that are environmentally sustainable and aligned with the EU's goal of reaching net zero emissions by 2050[1][2][3]. It was created to help investors make green investments and navigate the transition to a low-carbon economy[3].
The taxonomy specifies six environmental objectives:
- Climate change mitigation
- Climate change adaptation
- Sustainable use and protection of water and marine resources
- Transition to a circular economy
- Pollution prevention and control
- Protection and restoration of biodiversity and ecosystems
For an economic activity to be considered taxonomy-aligned, it must[2][4][6]:
- Substantially contribute to at least one of the six environmental objectives
- Do no significant harm (DNSH) to any of the other five objectives
- Meet minimum social and governance safeguards
The taxonomy covers sectors like agriculture, manufacturing, energy, transportation, and construction[2]. It defines technical screening criteria for each activity and objective[5][7]. From 2022, large companies and financial market participants in the EU need to start disclosing what share of their activities and investments are taxonomy-aligned[2][4][6].
The goal is to reorient capital flows towards sustainable investments, make sustainability a key component of risk management, and promote long-term economic activity[7]. While currently focused on environmental objectives, the taxonomy may expand in the future to also cover social issues[4].
Citations: [1] https://finance.ec.europa.eu/sustainable-finance/tools-and-standards/eu-taxonomy-sustainable-activities_en [2] https://www.workiva.com/resources/introduction-eu-taxonomy [3] https://www.unpri.org/policy/eu-policy/eu-taxonomy [4] https://www.dechert.com/knowledge/onpoint/2020/4/-overview-of-the-eu-taxonomy-regulation.html [5] https://www.spglobal.com/esg/insights/a-short-guide-to-the-eu-s-taxonomy-regulation [6] https://www.carbontrust.com/news-and-insights/insights/the-eu-taxonomy-explained-heres-what-it-means-for-your-company [7] https://eu-taxonomy.info/info/eu-taxonomy-overview [8] https://ec.europa.eu/sustainable-finance-taxonomy/