Environmental Delegated Act set to broaden the scope of the EU taxonomy

Wednesday, November 17, 2021
4 min read

The Taxonomy Regulation was published and entered into force in 2020. It sets out a basis for the EU taxonomy and establishes the conditions an economic activity will have to meet to be considered sustainable. To be recognized as green, economic activities will have to make a substantial contribution to at least one of the EU’s climate and environmental objectives, while also doing no significant harm to the others and meeting minimum social safeguards.

The Taxonomy Regulation establishes six environmental objectives: 

  1. Climate change mitigation
  2. Climate change adaptation
  3. The sustainable use and protection of water and marine resources
  4. The transition to a circular economy
  5. Pollution prevention and control
  6. The protection and restoration of biodiversity and ecosystems

The EU plans to provide consistent, objective criteria on how an activity can make a substantial contribution to one of these objectives by publishing technical screening criteria for eligible activities in two delegated acts.

So far, the EU has finalized the Climate Delegated Act, which covers the technical criteria for which activities can make a substantial contribution to climate change mitigation and adaptation. This act focuses on the economic activities in sectors that are most relevant for climate neutrality and climate change adaptation, including energy, manufacturing, transport, and buildings.

The EU has also published a draft version of the Environmental Delegated Act and called for feedback.  This act will include all the activities that can make a substantial contribution under the other four environmental objectives. This is set to be revised based on the feedback received and due to be finalized early next year.

Although in a draft form, the Environmental Delegated Act looks set to bring a number of new activities and industries within the scope of the taxonomy. The act brings in new activities such as design, manufacture, remanufacture and reselling of furniture, manufacture of food products, animal and crop production, civil engineering, provision of repair services, manufacture of clothing and footwear, and recycling and waste handling.

In total there are over 60 new economic activities set out in the act, along with new criteria for some of the existing activities that will also be eligible to make a substantial contribution under one or more of the four environmental objectives.

The EU has estimated that through the Climate Delegated Act, the taxonomy criteria already cover the economic activities of roughly 40% of listed companies. With the introduction of the Environmental Delegated Act the number of businesses that will have eligible activities looks set to become much higher.

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