The EU Taxonomy regulation

Requirements for environmental sustainability?

According to the EU Taxonomy, an economic activity is considered environmentally sustainable if it:

Makes a substantial contribution to one or more environmental objectives,
Does not cause significant harm to any of the other environmental objectives ("Do no significant harm / DNSH"),
Complies with minimum social safeguards, and
Meets the technical screening criteria.

Environmental objectives?

The EU Taxonomy describes six underlying environmental objectives as the basis for environmental sustainability. These environmental objectives have been successively adopted through delegated acts and include technical assessment criteria on the following topics:

Climate change mitigation,
Climate change adaptation,
Sustainable use and protection of water and marine resources,
Transition to a circular economy,
Pollution prevention and control, and
Protection and restoration of biodiversity and ecosystems.

Substantial contribution?

Substantial contribution to "Climate change mitigation": The economic activity must significantly contribute to stabilizing greenhouse gas concentrations in the atmosphere by avoiding or reducing greenhouse gas emissions in line with the Paris Agreement's "1.5-degree target" or by enhancing greenhouse gas storage.
Substantial contribution to "Climate change adaptation": This includes adaptation solutions that either substantially reduce the risk of the adverse impact of the current climate and the expected future climate on that economic activity or substantially reduce that adverse impact, without increasing the risk of an adverse impact on people, nature or assets.
Substantial contribution to "Sustainable use and protection of water and marine resources": The economic activity contributes to achieving good status of waters or preventing the deterioration of water quality.
Substantial contribution to "Transition to a circular economy": The economic activity significantly contributes to the transition to a circular economy, including waste prevention, reuse, and recycling.
Substantial contribution to "Pollution prevention and reduction": The economic activity significantly contributes to protecting against pollution by reducing or preventing emissions, improving air, water, or soil quality, avoiding adverse effects on human health or the environment from chemicals, or eliminating pollutants and waste.
Substantial contribution to "Protection and restoration of biodiversity and ecosystems": The economic activity contributes to the protection, preservation, or restoration of biodiversity or the achievement of a good state of ecosystems or the protection of ecosystems.

Taxonomy-eligibility vs. -alignment?

An economic activity is considered taxonomy-eligible if it is described in the delegated acts for the EU Taxonomy's environmental objectives. This means that the economic activity can potentially make a substantial contribution to an environmental objective.

An economic activity is considered taxonomy-aligned if it is taxonomy-eligible and meets the technical screening criteria for substantial contribution to at least one environmental objective as well as the "DNSH", and the associated Minimum Safeguards. After fulfilling all these requirements an economic activity is considered taxonomy-aligned and simultaneously, environmentally sustainable.

Technical Screening within the EU Taxonomy?

The technical screening criteria are scientifically founded, very technical and comprehensive criteria that must be met for an economic activity to achieve EU Taxonomy alignment. These criteria, which are listed in the delegated acts of the EU Taxonomy, aim to help companies make a significant positive impact on the environment or reduce their negative impact on the environment.

Do No Significant Harm (DNSH)?

For an economic activity to be considered environmentally sustainable, it must not significantly harm any environmental objective. The DNSH requirements establish the fundamental criteria for environmental sustainability, serving as the minimum standard that must never be compromised. Whether significant harm has occurred is determined by predefined threshold values.

The Minimum Safeguards?

To achieve EU Taxonomy alignment, an economic activity must also comply with specific social requirements and agreements. These comprise the OECD Guidelines for Multinational Enterprises and the United Nations Guiding Principles on Business and Human Rights, including core labor standards of the International Labor Organization (ILO) and the International Bill of Human Rights.