What does the EU Taxonomy mean for financial market participants?
The EU Taxonomy applies to the same companies scoped by the NFRD (Non-Financial Reporting Directive), stating, for all practical purposes, that large public-interest entities with more than 500 employees have to report on their taxonomy alignment. Entities include banks, insurance companies and financial market participants offering listed securities. The EU Taxonomy does not require a level of sustainability performance. It just requires the financial market participant to be transparent on how it is performing.
Furthermore, the Sustainable Finance Disclosure Regulation (SFDR) came into force in March 2021. The SFDR applies to most financial market participants and is linked to the taxonomy through disclosure requirements. The regulation requires that all financial market participants offering financial products that claim to have ‘sustainable investment’ as their objective (article 9 funds or “dark green” funds) or that “promote social or environmental characteristics” (article 8 funds or “light green funds”) assess and report according to the taxonomy.
If you want to know whether or not you are subject to the regulation, see article 2 in the EU regulation for details.