Frequently Asked Questions

The EU taxonomy is a classification system that sets out a list of environmentally sustainable economic activities. It forms part of the EU’s plan to scale up sustainable investment and implement the European green deal. It includes technical criteria that must be complied with in order for an activity to be considered sustainable.

The EU Taxonomy is set out in an EU Regulation with several delegated acts and will apply to all EU Member States. It has not yet been integrated for EEA countries, but this process has been started.

Companies will be required to assess how their activities perform against the taxonomy criteria and disclose these results publicly.

The EU Taxonomy is a part of the EU’s Green Deal. The primary objective of the taxonomy is to redirect capital flows towards more sustainable business activities. The EU initiated it after seeing a general lack of sustainability considerations in investment decisions and the need for a common standard for assessing the sustainability of investments.

The EU taxonomy will create well-defined, harmonised criteria for when economic activities can be considered sustainable. It will provide companies, investors and policymakers with appropriate definitions for which activities can be categorised as sustainable and the technical screening criteria they need to meet. By directing investments towards sustainable projects and activities, the taxonomy should help to meet the EU’s 2030 and 2050 climate and energy targets.

The goal of the taxonomy is to create security for investors, prevent greenwashing, help companies to become more climate-friendly, mitigate market fragmentation, set a harmonised standard to help investors compare investments across Member States, and to help shift investments where they are most needed.

The taxonomy is an initiative from the European Union. The taxonomy framework is set out in a regulation from the European Commission, and technical screening criteria and additional rules are set out in delegated acts. The taxonomy is a part of the Green Deal, and it is designed to help the EU meet key 2030 and 2050 climate goals.

The Platform on Sustainable Finance is a permanent expert group of the European Commission that has been set up as a part of the taxonomy regulation. The Platform is made up of world-leading sustainability and industry experts representing a range of stakeholders. This includes financial market participants, industry, civil society and academia.

The Commission has to consult the Platform before adopting delegated acts on technical screening criteria, and the Platform also plays a key role providing advice, and in developing technical screening criteria by providing technical and scientific input to the Commission.

The taxonomy is relevant for all large companies and small and medium sized enterprises (SMEs) in the EU, as well as a significant share of non-EU companies that trade with EU companies or that have EU funds as shareholders.

Through the Sustainable Finance Disclosure Regulation, public interest entities, meaning listed companies, banks and insurance companies with more than 500 employees (11,000 in the EU) will be required to report according to the taxonomy.

The proposed Corporate Sustainability Reporting Directive, as of now not yet implemented, extends coverage to all large companies and all listed SMEs, and on a voluntary basis to all other SMEs - totalling more than 40,000 additional companies.

Companies who are required to report in accordance with the taxonomy will have to conduct an assessment of their business activities and determine to what extent they are aligned with the technical criteria. The share of turnover, CAPEX and OPEX that are associated with *taxonomy-aligned* business activities are considered a company’s taxonomy scores, and is what owning entities (i.e. a private equity fund) will have to use into calculation of their own, aggregated taxonomy scores.

As a company, the requirement is to disclose information 'to the extent necessary for an understanding of the development, performance, position and impact of the company's activities’, according to the regulation. This means that a company’s activities are disclosed with a level of detail that breaks down, and shows specifically, where the company is achieving sustainability targets, where shortfalls may be occurring, and where potential improvements can be made.

A goal of the taxonomy is to provide a clear framework for assessing the level of sustainability of one’s business activities. This way, the Taxonomy gives you an unambiguous score to improve from.

A high taxonomy score may lower your cost of capital. The taxonomy score of banks and institutional investors’ portfolios will affect their cost of borrowing, and most banks already provide lower interest rates to companies that operate more sustainably.

Companies that fall under the CSRD will be required to disclose to the financial markets whether they have taxonomy-aligned activities or not. Investors will be able to access this information and use it to make investment decisions accordingly. Companies with taxonomy-aligned activities will benefit from institutional investors, retail investors, and banks interested in green investments as the taxonomy will provide a harmonised ‘gold standard’ on sustainable activities. The Taxonomy Regulation, SFDR, CSRD, together with other ongoing policy initiatives such as the EU Ecolabel for retail financial products and the EU Green Bond Standard, will ensure that Taxonomy-aligned activities are visible and recognised in investment decisions.