European Commission
A classification system defining sustainable economic activities, promoting green investments and net zero emissions.
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/