The EU taxonomy is a classification tool for business activities, initially addressing activities in industries that together are responsible for more than 80% of total climate gas emissions. It includes technical screening criteria for each activity that must be complied with to be considered sustainable. The taxonomy was formally adopted in June 2020, with its first delegated act on climate change (mitigation and adaptation) adopted in June 2021.
The primary objective of the Taxonomy Regulation is to redirect capital flows towards more sustainable business activities. The EU initiated it in response to a general lack of consideration for sustainability in investment decisions, the challenges of comparing companies by sustainability performance, companies greenwashing and the need for a common standard for assessing the sustainability of investments.