EU Taxonomy

Introduction

As part of the European Commission’s Sustainable Growth Financing Action Plan, Regulation (EU) 2020/852 establishing an EU classification system for ecologically sustainable economic activities (EU Taxonomy) came into force on 12 July 2020. The EU Taxonomy is a key instrument for the European Union to redirect capital flows towards sustainable investments and to create transparency. It encourages increased channelling of investments by companies, investors and policymakers to where they are most needed for sustainable development. Therefore, the EU Taxonomy Regulation will play an important role in scaling up sustainable investments and implementing the European Green Deal. ¹⁾

Within Article 3, the EU Taxonomy Regulation 2020/852 sets out four conditions that an economic activity has to meet in order to qualify as environmentally sustainable. These require that the activity: ²⁾

• contributes substantially to one or more of the environmental objectives set out in Article 9 in accordance with Articles 10 to 16;
• does not significantly harm (DNSH) any of the environmental objectives set out in Article 9 in accordance with Article 17;
• is carried out in compliance with the minimum safeguards laid down in Article 18; and
• complies with technical screening criteria that have been established by the Commission in accordance with Article 10 (3), 11(3), 12(2), 13(2), 14(2) or 15(2).
  

The six environmental objectives specified within Article 9 of the regulation are: ³⁾

• climate change mitigation;
• climate change adaptation;
  
• the sustainable use and protection of water and marine resources;
• the transition to a circular economy;
• pollution prevention and control; and
• the protection and restoration of biodiversity and ecosystems.

The Commission Delegated Regulation (EU) 2021/2139 of 4 June 2021 supplements regulation (EU) 2020/852 by establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change mitigation or climate change adaptation. Furthermore, it determines whether that economic activity causes no significant harm to any of the other environmental objectives.⁴⁾ At the time of writing this chapter, the EU Commission has not yet defined the four environmental objectives c) to f) listed above.

The minimum safeguards stated in point c) of Article 3 of the EU Taxonomy Regulation have been implemented following a request from the European Parliament. These safeguards shall ensure that entities which are carrying out environmentally sustainable activities, which are labelled as “taxonomy-aligned”, meet certain minimum governance standards and do not violate social norms, including human rights and labour rights, as laid out in Article 18. <sup>5)

1) See: EU Taxonomy for sustainable activities | European Commission (europa.eu) // 2) See: Regulation (EU) 2020/852 // 3) See: Regulation (EU) 2020/852 // 4) See: Regulation (EU) 2021/2139 // 5) See: Final Report on Minimum Safeguards (europa.eu)</sup>

For more details, please refer to the full Combined Annual Report 2022.