The EU Taxonomy is a classification that sets criteria to determine whether an economic activity significantly contributes to the six environmental objectives defined in the regulation. It is a tool to help companies and investors make sustainable investment decisions. EU Taxonomy disclosures must be made as part of the NFRD/CSRD and SFDR reporting requirements.
The EU Taxonomy is a classification that sets criteria to determine whether an economic activity significantly contributes to the six environmental objectives as defined in the regulation: ◦ Climate change mitigation; ◦ Climate change adaptation; ◦ Sustainable use and protection of water and marine resources; ◦ Transition to a circular economy, including waste prevention and recycling; ◦ Pollution prevention and control; ◦ Protection of healthy ecosystems.
The EU Taxonomy is a tool to help companies and investors make sustainable investment decisions.
The Taxonomy is part of the EU Sustainable Finance Package that helps to improve the flow of money towards sustainable activities across the European Union.
Due to the complexity of the EU Taxonomy and because part of the methodology still needs to be defined, the disclosure requirements for the companies are being phased in over the course of the next four years. The final goal of the requirements is that:
Companies under the scope of the NFRD have to report the share of their “environmentally sustainable” economic activities (as defined by the EU Taxonomy) in their Revenue, their Capex, and their OPEX.
Financial market participants will have to disclose how their financial products in the scope of the SFDR are aligning with the EU Taxonomy.
Where to report?
Companies in scope of the NFRD have to report their Taxonomy disclosure as part of the annual NFRD report, which needs to be published together with a companies’ management report.
The Taxonomy disclosure of companies in scope of the SFDR needs to be published in periodic reviews and pre-contractual disclosures.
Current state of Taxonomy implementation
In addition to the NFRD reporting requirements, as of January 2022 companies in scope have to disclose the percentage of their economic activities eligible for the EU Taxonomy (for the year 2022).**
In addition to the SFDR requirements, as of January 2022 financial institutions have to disclose the proportion of their total assets of exposures to Taxonomy non-eligible and Taxonomy-eligible economic activities.
Timeline of disclosure requirements
Will the disclosure requirements be externally assured?
The non-financial statements of companies in scope of the NFRD are subject to an existence check by the statutory auditor. There is no requirement in Union Law to verify the content of the disclosures. As soon as the CSRD* is in place, the content of the statements will be audited.
The compliance of the disclosures of financial institutions that are subject to the SFDR will be monitored by competent authorities.
* The Non-Financial Reporting Directive will be amended by the already proposed Corporate Sustainability Reporting Directive (CSRD) - most likely from 2024. With the CSRD more companies will be subject to the reporting requirements, the reporting requirements will be defined by the EU and the disclosures will be subject to external assurance. More information here.
** Eligibility is merely an indication that a company makes money in an activity that can be tested under the Taxonomy.
The clock is ticking! Start reporting on climate risk by complying with the EU Taxonomy. Contact our policy experts to learn more about solutions adapted to your sustainability reporting needs.