EU taxonomy

What it means

The EU taxonomy is a classification system that determines which economic activities can be considered environmentally sustainable. Its aim is to create a common language for investors, banks and companies and to curb greenwashing, meaning misleading claims of being green.

Under the taxonomy an activity is sustainable if it contributes substantially to at least one of six environmental objectives, such as climate change mitigation, does no significant harm to any of the others, meets minimum social safeguards and complies with the technical screening criteria for that activity.

Companies publishing a sustainability report under CSRD also disclose the share of turnover, capital expenditure and operating expenditure linked to taxonomy-aligned activities. The do no significant harm principle also applies to projects under the Recovery Plan.

How it works in practice

For smaller companies the taxonomy is not a direct obligation, but they meet it through banks, investors and large customers. Banks ask when lending whether an investment meets the taxonomy criteria, because it affects their own reporting and sometimes the interest rate.

When preparing data for ESG questionnaires and reports we help clients split revenue and investment by activity and identify what might be taxonomy-aligned. We start from the accounts, so it helps to have costs and investments broken down by project.

The taxonomy is closely linked to the ESRS standards and the double materiality assessment. A company first establishes which environmental topics are material for it and then assesses the alignment of its activities in those areas.

What to watch out for

Labelling products or investments as green without meeting the criteria is risky. Misleading claims may be treated as deceptive advertising or greenwashing and damage the trust of customers and investors.

The technical criteria are detailed and change, as does the scope of mandatory reporting. For long-term investments intended to meet the criteria we therefore recommend checking the current version and, where needed, consulting a technical expert.