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EU Taxonomy
The EU Taxonomy Regulation (Regulation (EU) 2020/852) establishes a classification system to identify environmentally sustainable economic activities, aiming to direct investments toward the EU's environmental objectives. It defines 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
1/ EU Taxonomy Regulation (EU) 2020/852 is the Regulation that sets the overall framework and objectives for what constitutes "environmentally sustainable" activities in the EU.
2/ The Delegated Acts are the detailed technical regulations that provide the specific criteria and thresholds for various environmental objectives (climate mitigation, water protection, biodiversity, etc.). These Delegated Acts support the implementation of the Taxonomy Regulation.
The EU Taxonomy is an essential part of the EU's sustainable finance framework. It serves as a classification system to define environmentally sustainable economic activities based on science-based criteria. Its primary goals are to help investors, companies, and financial institutions identify and finance projects and activities that align with the EU's environmental objectives, such as climate change mitigation and adaptation, circular economy promotion, and biodiversity protection
The EU Taxonomy is not a mandatory list for investors to invest in. It does not set mandatory requirements on environmental performance for companies or for financial products. Investors are free to choose what to invest in. However, it is expected that over time, the EU Taxonomy will encourage a transition towards sustainability in order to achieve the EU’s climate and environmental goals.
The Taxonomy sets performance thresholds (referred to as ‘technical screening criteria’) for economic activities which: -> make a substantive contribution to one of the above six environmental objectives; -> do no significant harm (DNSH) to the other five, where relevant; -> meet minimum safeguards (e.g., OECD Guidelines on Multinational Enterprises and the UN Guiding Principles on Business and Human Rights)
🔗 European Commission
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Regulation (EU) 2020/852
- ProposedMay 24, 2018
- ApprovedDec 18, 2019
- AdoptedJun 18, 2020
- PublishedJun 22, 2020
- In ForceJul 12, 2020
- In ApplicationJan 1, 2022
Starting in 2024, these companies are required to report on their alignment with the remaining four environmental objectives, covering the financial year 2023. This means that financial companies must assess and disclose how their activities contribute to:
-> 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
The European Commission has adopted delegated acts to implement the Taxonomy Regulation, specifying technical screening criteria for each environmental objective. The Environmental Delegated Act, published in the Official Journal on 21 November 2023, outlines the criteria for the four remaining environmental objectives and applies from 1 January 2024.
🔗 EC