EU Taxonomy
The EU Taxonomy regulation is a crucial component of the European Green Deal Investment Plan. The overarching objective of this strategy is to encourage a shift towards sustainable investments. The EU Taxonomy regulation specifically focuses on providing a standardised framework for classifying economic activities that are environmentally sustainable. By establishing clear criteria and guidelines, the regulation aims to redirect investments towards activities that contribute to the EU's sustainability goals and facilitate the transition to a low-carbon and sustainable economy. It plays a significant role in promoting transparency, consistency, and accountability in sustainable finance, fostering the alignment of investments with the EU's climate and energy targets.
The EU Taxonomy Regulation (EU 2020/852) is a comprehensive classification system designed to identify environmentally sustainable economic activities. Companies are required to demonstrate how they operate and invest in environmentally friendly manner based on predefined criteria. This involved determining and disclosing taxonomy-compliant sale revenues, capital expenditures, and operating expenses, along with additional explanations as part of sustainability reporting.
The EU Taxonomy Regulation establishes a unified framework for rating companies based on their projects, providing a clear definition of sustainability. It achieves this by creating a list of economic activities aligend with the following environmental targets:
Climate Change Mitigation
Climate Change Adaption
Protection of Water & Marine Resources
Transition to a Circular Economy
Protection of Biodiversity & Ecosystems
Pollution Prevention & Control
By offering appropriate definitions of environmentally sustainable activities, the EU Taxonomy Regulation benefits companies, investors and policymakers alike. It provides clarity on which economic activities can be considered environmentally sustainable or contribute substantially to at least one of the six main environmental objectives of the EU Taxonomy without significantly harming the other five objectives and complying with the Minimum Social Safeguards. This fosters investors’ confidence, protects against greenwashing, encourages companies to adopt more environmental-friendly practices, reduces market fragmentation and facilitates the redirection of investments to areas where they are most needed.
