EU taxonomy: 3 steps to an easy start

On July 6, 2021, the EU Commission published the final version of the law on the Taxonomy Regulation. Its aim is to translate the Green Deal into practice and define exactly which economic activities are classified as sustainable. Companies can learn a lot from this: what they need to do to align their economic activities with the EU taxonomy and be classified as climate-compatible, and what budget decisions can be made on this basis to achieve the greatest possible climate impact.

As is so often the case with new regulations and frameworks, preparation is key. We have therefore compiled the most important 3 steps here that will enable you to get to grips with the EU taxonomy without any complications. Let's get started!

What is the EU taxonomy?

The EU taxonomy is a classification system that translates the EU's six comprehensive climate and environmental goals into a clear set of criteria. This is used to check economic activities for their climate impact and thus align investments with these indicators. From 2022, companies in the real economy will be obliged to disclose the extent to which they comply with the taxonomy criteria.

Step 1: Analyze holistic business activities

The first step in the process is to understand where your company and its business activities fit in relation to the EU's mitigation and adaptation goals. Do you offer solutions for climate protection or adaptation to climate change? The energy, buildings, production, transport and forestry sectors already have their own criteria for this. In future, other sectors will be examined and indicators will be gradually developed further. For an economic activity to be recognized as climate-compatible by the EU taxonomy, it must meet the following technical criteria:

• Make a significant contribution to at least one EU climate / environmental objective

• Not cause significant harm to any other objective

• Meet minimum social standards

These criteria are explained in steps 2 and 3.

Step 2: Make a substantial contribution and do not harm environmental goals

The aim of the taxonomy is to implement the European climate transition and map the requirements of the Green Deal into clear criteria for investment and economic decisions. The new criteria of the EU taxonomy are therefore precise, quantifiable and have been developed to match the ambition required for a climate-relevant transition of the economy. Economic activities must therefore make a significant contribution to at least one of the EU's six environmental objectives.

The EU taxonomy also stipulates that economic activities cannot be classified as sustainable if they harm one of the six climate and environmental objectives. The difficulty is that the current version currently deals with the first two objectives “mitigation and adaptation”, while the other four are expected to be defined from January 2023. An active independent review is therefore highly advisable. This means that each economic activity must contribute significantly to climate change adaptation and/or mitigation without “significantly” compromising the other objectives.

Step 3: Meet minimum social standards

Climate and environmental protection is an integral part of the overarching goal of sustainability. A regenerative economy can therefore only be established if the three pillars of ecology, economy and social affairs are interlinked and bring people, nature and the economy into balance with one another. The criterion “compliance with minimum social standards” therefore implies that an economic activity can only be considered taxonomy-oriented if it fulfills safeguards in the areas of international human and employee rights. This means that buyers must carry out due diligence to rule out negative impacts on the climate, environment and people and comply with the OECD Guidelines, the UN Guiding Principles on Human Rights and labor standards. The company's own Code of Conduct and the progress of implemented measures must be communicated in the annual sustainability report.

Alignment with the EU taxonomy

As things stand today, the EU taxonomy poses quite a complex challenge for companies in the real economy - this is currently unavoidable. Their own economic activities must be checked against the three technical screening criteria: a significant contribution must be made to climate/environmental goals, no other goals must be significantly harmed and minimum social standards must be met. It is important for companies that the EU taxonomy comes into force in 2022 and will initially affect “large public interest entities” with more than 500 employees. In non-financial reporting, they will have to explain how sustainably they operate and how their business activities affect the environment, climate and social issues. The regulations will be gradually expanded and will soon also apply to SMEs.

Recording your own climate performance

The ClimateChoice Scoring helps companies to easily check their own climate reporing and benchmark performance, share climate-relevant data with customers and align with internationally recognized. This gives companies a quick start to the ongoing climate transformation. Sounds like something your organization would benefit from? Our team will be happy to help you. Book a demo to find out more about how your organization will benefit from using our software solution