• Emma Van De Sompel & Marco Matrisciano

A glance into the EU Taxonomy:

Updated: May 18

Looking into the requirements, expectations and benefits of the EU Taxonomy

Written by Emma Van De Sompel & Marco Matrisciano, edited by Renaud Lauriot Dit Prevost

Leading up to 2050, the EU is mobilising all its forces to support their climate and sustainable development agenda. One such force, The EU Taxonomy, is a central element in reorienting investments towards building a net-zero, resilient and sustainable economy. The benefits of the EU Taxonomy as part of the EU Green Deal are becoming more prevalent to the users and the wider economy. With the first deadline to report on your activities just around the corner (March 2022), the urgency to jump on the sustainability train is high.

But what do you need to report? What can you expect for the coming year? And how can you capitalise on the benefits of the EU Taxonomy?

What is the EU Taxonomy?

In order to meet the 2030 & 2050 EU climate and energy targets, the EU must mobilise €1 trillion in sustainable investments over the coming decade. In doing so, the financial sector will play a crucial role in attracting private capital (I.e., equity, loans, project finance) that should be invested in climate change mitigating economic activities.

To do so, the EU Taxonomy was set up as a new type of classification system aiming to define which economic activities are in line with Europe’s climate ambition. This framework will require financial market participants (I.e., investors, asset managers...) and companies to disclose their sustainable performance in a comparable way by the start of 2022, creating security for investors from greenwashing, helping companies implement sustainability in their entire supply chain and, ultimately, reorienting investments towards building a climate neutral Europe by 2050.

What is expected from organisations?

In general, the EU Taxonomy Regulation introduces a requirement to disclose information on how, and to what extent, their economic activities are aligned with the taxonomy. The precise reporting requirements, however, differ per taxonomy user and per economic activity. Currently, the Taxonomy touches sectors that are responsible for over 90% of Europe’s GHG emissions - sectors where an urgent operational shift is needed.

In its essence, organisations will have to report on the proportion of environmentally sustainable economic activities that aligned with the EU Taxonomy criteria. A firm’s environmental performance is then translated into financial variables (turnover, CapEX and OpEX KPIs). Doing so allows financial institutions to make comprehensive financing decisions. Accompanying qualitative information about the calculation, the impact of Environmental, Social and Governance issues on the firms’ ecosystem and its value chain will also be required.

What does the future of the EU Taxonomy look like?

Since the first Climate Delegate Act was released in April 2021, more and more sectors have been added to the EU Taxonomy list. Only recently, within the energy sector, nuclear energy and fossil gases were added to the Climate Delegate Act with their own set of eligibility and alignment criteria. 2022 is promising to be a big year for the EU Taxonomy, with more sectors expected to be included within the green classification tool, a delegate act for the four remaining objectives of the EU Taxonomy anticipated by Spring 2022, and more progress is expected on the Social Taxonomy - the sister document of the Environmental Taxonomy. It’s becoming ever more evident that all sectors will be impacted by the EU Taxonomy and that every company should be taking the EU Taxonomy into account when setting their goals for the upcoming year(s). By jumping on this train before its too late, organisations will be able to unlock an array of benefits that ripple across the entire economy.

How can Greenfish help you?

The classification of each economic activity according to the EU Taxonomy requires companies to redefine their reporting methodology to ensure compliance with a new regulatory framework designed to increase sustainable investment in Europe. If today this classification has an impact “only” on the 10,000 companies falling under the Non-Financial-Directive (NFRD), with the introduction of the Corporate Sustainability Directive (CSRD) in 2023 is expected that almost 50,000 companies in Europe will have to comply with the new directive.

Greenfish designed a five steps approach aiming to support companies to build the knowledge needed to navigate the complexity of the constantly evolving EU Taxonomy legislation and in parallel, meet the reporting requirements for the fiscal years 2021 and 2022.

Figure 1: Greenfish EU Taxonomy 5-step methodology

Starting in 2022, the eligibility and alignment test, currently required only for climate change mitigation and adaptation, will include the other environmental goals: water, circularity, pollution prevention, and biodiversity. Which together with technical screening criteria periodically evaluated, will force companies to develop specific processes and competencies needed to ensure compliance against the EU Taxonomy.

Greenfish supports its clients to assess where and how their activities are included in the legislation, how to be compliant with the regulation, and how to develop sustainability information and indicators needed by different stakeholders.

Figure 2: Greenfish EU Taxonomy Approach

In addition, the engineering expertise of Greenfish guarantees the opportunity to assess the compliance with the technical screening criteria, but also to develop the technical solutions needed to make sure that economic activities can be classified as sustainable according to the EU Taxonomy.

If you want to stay up to date with future amendments or want more information regarding the new EU Taxonomy Climate Delegated Act and how to report on it, please contact Marco Matrisciano at mmatrisciano@greenfish.eu.

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