What is the EU-Taxonomy Regulation?
As part of the European Green Deal, the "EU Taxonomy Regulation" is a first harbinger of the legal paradigm shift that follows the political announcements of the nation states of the European Union. A paradigm shift in that it now legally defines at the European level the conditions under which an economic activity is to be classified as "sustainable". The "EU Taxonomy Regulation" is intended primarily as a steering instrument to help allocate more capital to sustainable activities in the European Union.
How is the EU-taxonomy defined?
A taxonomy is a uniform classification scheme used to classify objects according to certain criteria, i.e. to place them in categories or classes. The EU taxonomy specifies criteria for companies in various industries for the provision of services. These must be met in order to be considered a "sustainable company" and thus "taxonomy-compliant".
EU - Taxonomy - Sustainability
The EU taxonomy will be of essential importance in business practice for decades to come. It closes the gap between claim and reality, or in other words: "The EU taxonomy is the missing link between political-legal realities and real sustainability, in which it clearly specifies the requirements of the legislator for sustainable companies".
What is in the EU-Taxonomy Regulation?
The taxonomy package includes:
The Delegated Regulation on EU Climate Taxonomy, which aims to encourage investment for sustainable economic activities while clarifying which economic activities contribute most to achieving EU environmental goals.
A proposed directive on corporate sustainability reporting, which aims to improve the flow of information on sustainability reporting in the corporate world.
Six delegated amending acts on fiduciary duties and on investment and insurance advice, which will ensure that financial firms such as advisory firms, asset management companies or insurers include sustainability in their procedures and in their investment advice to clients. [1]
From the perspective of the EU Taxonomy, an economic activity can only be considered environmentally sustainable if it contributes to at least one of the environmental objectives set out in the Taxonomy Regulation and does not compromise any of the others.
The six environmental objectives:
Climate change mitigation
Adaptation to climate change
Sustainable use and protection of inland water and marine resources
Transition to a circular economy, waste prevention and recycling
Pollution prevention and control
Protection and restoration of biodiversity and ecosystems
To whom does the EU Taxonomy Regulation apply?
As part of the European Green Deal, the EU Commission has initially defined the scope of application according to three criteria. The companies affected by the Taxonomy Regulation are those that meet at least two of the following three criteria:
SMEs will also be affected by the taxonomy in the future, but simplified reporting requirements will apply to them. In addition to banks, which will query the taxonomy criteria in the event of a financing requirement, proof of compliance is relevant above all for customers in the B2B area. In addition to the expected references to the Taxonomy Regulation in future legislation, the Supply Chain Act is also of particular relevance, as the cost of monitoring sustainable behavior in third countries is already causing many companies to relocate back to the European Union. In the near future, proof of compliance with sustainability criteria will be required of about 50000 companies in the EU, including about 2000 in Austria.
How to prove taxonomy targets?
In the public debate, proof of taxonomy targets is often associated with increased bureaucracy. However, our experience in working with companies and public administration has already shown that, through long-term and structured consideration, the opportunities for reducing environmental impacts outweigh the potential benefits.
In the future, this already existing financial benefit will be further strengthened by additional savings, for example by reducing CO2 taxes or energy costs. Many companies have already recognized that reducing environmental impact can only bring benefits. In addition to cost reduction, the positioning towards customers and employees, as well as corporate social responsibility, are the main motives of the company management.
How can Sustainability& help you comply with the EU taxonomy?
What is the right strategy now? Act proactively and sustainably or wait and see? As often, it will be key to find the right balance as every business is different concerning its environmental impact. We are specialized in finding the right balance, evaluating it and realizing the greatest possible benefit for you and your company. A Carbon Footprint is the quickest way to find your greatest potentials to reduce your environmental impact, such as your CO2 emissions.
[1] Nachhaltige Finanzierung (wko.at)
[2] Nachhaltiges Finanzwesen und EU-Taxonomie (europa.eu)
01.03.2022
