The EU Taxonomy is a classification system that determines which economic activities can be considered environmentally sustainable in the European Union. It is a key tool within the European Green Deal to promote environmentally friendly investments and counter greenwashing.
Main environmental objectives:
- countering climate change,
- climate change adaptation,
- Sustainable use and protection of water and marine resources,
- The transition to a circular economy,
- Pollution prevention and control,
- Protection and restoration of biodiversity and ecosystems.
If an activity is considered sustainable, it must first significantly contribute to one of these goals without harming others. The taxonomy aims to direct capital to projects that foster environmental transformation and to increase transparency and accountability in reporting sustainable activities.
In order for a company’s activities to be considered compliant with the taxonomy, it must meet all three conditions:
- It must make a significant contribution to at least one of the six environmental goals.
- It must not cause significant harm to any of the six goals.
- Must demonstrate compliance with the Minimum Safeguards
- In addition, the company must meet the Technical Qualification Criteria, but this condition is included in items 1 and 2.
Why is taxonomy important for companies preparing an ESG report?
For companies preparing an ESG report, the EU taxonomy provides a compliance framework and guidance to better understand the environmental impact of operations and meet regulatory requirements. The taxonomy’s provisions specifically affect:
- Transparency reporting – companies covered by the CSRD (Corporate Sustainability Reporting Directive) must demonstrate in their ESG reports the extent to which their activities are in line with the taxonomy.
- Attracting investors – sustainable actions in line with the taxonomy can increase a company’s attractiveness in the eyes of investors, who are becoming increasingly influenced by ESG criteria.
- Minimize reputational risk – Taxonomy compliance reporting helps avoid allegations of greenwashing and build credibility.
What steps should the company take?
When preparing an ESG report in accordance with the requirements of the EU taxonomy, a company should:
- Conduct an audit of activities – identify which activities are consistent with the objectives of the taxonomy and the Technical Qualification Criteria.
- Gather data – collect the necessary information on the impact of the activity on the environment.
- Understand DNSH (Do No Significant Harm) requirements – make sure that no activities violate other environmental objectives.
- Ensure compliance with the Minimum Safeguards – implement human rights and labor standards.
Learn more about EU taxonomy
Summary
At EFF, we fully understand that meeting these requirements can be a challenge. Depending on the size of your company and the specifics of your industry, you may need to collect a large amount of data and meet numerous reporting requirements. Our experts are here to help you! We will analyze your operations to determine which data fits into the taxonomy criteria and how well it complies with the applicable requirements. In addition, we will support you in implementing social safeguards where needed.
