Faced with the climate emergency, the European Union (EU) has equipped itself with a new classification tool: the European green taxonomy. The objective? Guide investments towards the most sustainable economic activities, and this, in order to promote the achievement of the EU's climate objectives, and in particular carbon neutrality by 2050.
But what does this term exactly cover? Why was this classification put in place? Is your company concerned? What are the activities that are considered “sustainable” and can, as such, be integrated into the European taxonomy? How do the CSRD and the green taxonomy fit together? And concretely, what are the information that companies will have to provide in their CSRD sustainability report in connection with the green taxonomy?
In this article, we go through all these questions and we provide you with the keys to understand this new indispensable nomenclature.
1. What is the European green taxonomy?
Adopted in 2020 by Regulation 2020/852 on the taxonomy, the European green taxonomy is a classification system that aims to identify, according to many criteria, the economic activities of a company considered as “sustainable” and “green” from an environmental point of view.
Concretely, it is a common framework at the European level that allows to evaluate whether an activity contributes or not to the achievement of at least one of the 6 environmental objectives defined by the EU. This regulation defines precise criteria for determining whether or not a given economic activity can be considered “sustainable” and be integrated into the European Union's taxonomy as such.
The six environmental objectives set by the EU are as follows:
- Mitigation of climate change.
- Adaptation to climate change.
- Sustainable use and protection of water and marine resources.
- Transition to a circular economy.
- Prevention and reduction of pollution.
- Protection of biodiversity and ecosystems.
2. Why was the European green taxonomy put in place?
The main objective of the green taxonomy is to direct financial flows as much as possible towards the most environmentally friendly activities by helping investors to distinguish truly sustainable activities from those that are not.
Other objectives are pursued by the EU through this new taxonomy: to have a clear and uniform reference at the European level, to fight against greenwashing and to increase the transparency of financial markets for example.
3. Is your company concerned by the European green taxonomy?
There is a good chance! Indeed, many companies have the obligation to integrate into their extra-financial reporting information related to their activities considered as “sustainable” in the sense of the green taxonomy:
- Since 2022, large companies with more than 500 employees, already subject to the NFRD (Non Financial Reporting Directive), and therefore to the obligation to provide an extra-financial report, must publish indicators related to the green taxonomy.
- Since 2024 and the entry into force of the CSRD (Corporate Sustainability Reporting Directive) which replaces the NFRD, the scope of extra-financial reporting has been extended. Thus, any company subject to the CSRD directive must publish information on its activities eligible and aligned with the green taxonomy. To find out if you are concerned by the CSRD, do not hesitate to consult our article “Everything about the CSRD: the obligations of extra-financial reporting”
- Conversely, companies not subject to the CSRD are not directly obliged to comply with the European taxonomy. However, they may be indirectly concerned and may also be encouraged to do so because of their commercial relations, for strategic reasons or if they seek to obtain financing for example.
Companies are not the only ones concerned by the European green taxonomy and other actors are also concerned. Among them, the EU Member States (which set up green financial products or green bonds); certain financial market actors such as asset managers and investment funds which must be able to justify why their products integrate the taxonomy or insurance companies which must be transparent about the nature of their investments.
4. What are the “sustainable” economic activities that can be integrated into the European green taxonomy?
Concretely, to be classified as “sustainable” and integrated into the green taxonomy, the activity must meet several cumulative criteria set by the European texts.
- On the one hand, the activity must substantially contribute to at least one of the six environmental objectives defined by the EU mentioned above (adaptation to climate change, mitigation of climate change, etc.)
- On the other hand, the economic activity must comply with the "Do No Significant Harm" (DNSH) principle, thus ensuring that it does not harm and does not cause significant damage to some of the other aforementioned environmental objectives.
- Finally, the economic activity in question must respect the minimum guarantees in terms of human rights and labor rights.
In parallel with activities that contribute directly to achieving the EU's environmental objectives, two other categories of activities are also provided for by the EU and taken into account in the taxonomy:
- Enabling activities: these are those that do not directly enable one of the EU's objectives to be achieved but that enable other activities to contribute to one of the objectives "indirectly". This is the case, for example, of an activity that would promote soft mobility such as walking or cycling.
- Transitional activities: these are activities that play a role in the ecological transition, those that enable the environmental impact to be reduced in sectors for which there are no alternatives. For example, gas and nuclear power, electricity producers, have been included in the green taxonomy since January 1, 2023 for this purpose.
As we have just seen, in order to be included in the European taxonomy, the economic activity must contribute "substantially" to at least one of the six environmental objectives defined by the EU. But how to determine whether the activity of your company meets one of these 6 objectives without harming the others, and can therefore claim to be included in the European green taxonomy? The European Commission has drawn up precise criteria for each type of activity, and this, in order to be able to say whether the activity in question is considered sustainable, or not, in the sense of the taxonomy.
ZOOM on objectives n°1 and n°2 "Climate change mitigation" and "Climate change adaptation": how to know if your activity meets them?
On January 1, 2022, a first climate section of the European green taxonomy came into force: the delegated regulation 2021/2139. This text (in Annex 1) lists activities and specifies the technical examination criteria for responding to the first two objectives of the taxonomy, namely "climate change mitigation" and "climate change adaptation."
These criteria therefore make it possible to determine the conditions under which an economic activity is considered to substantially contribute to climate change mitigation and to know in which cases the economic activity in question causes significant harm to one of the other environmental objectives.
Among the main categories of activities governed by this text, the following can be found:
- Forestry
- Environmental protection and restoration activities
- Manufacturing industries
- Energies
- Water production and distribution, sanitation, waste management and depollution
- Transport
- Construction and Real Estate Activities
- Information and communications
- Specialized, scientific and technical activities
These main categories are themselves subdivided into more specific activities. For example, the "Energy" category is subdivided into several types of other activities covered by the regulation: production of electricity from wind energy, transport and distribution of electricity, thermal energy storage, installation and operation of electric heat pumps, etc.
For each type of activity, the regulation specifies: the precise description of the activity to enable you to know whether your activity actually corresponds to it and the technical examination criteria to be met to determine that the activity substantially contributes to climate change mitigation without harming the other objectives (i.e. objectives 3, 4, 5, 6 listed above).
5. CSRD and green taxonomy: What information must companies publish in their extra-financial report?
The CSRD directive and the taxonomy regulation are two important, complex and relatively recent texts. For these reasons, it will be useful for you to understand how the green taxonomy is used within the framework of the CSRD. And above all, to understand how the articulation between these two texts, which sometimes seem to overlap, operates.
For the record, the CSRD requires companies subject to it to provide a detailed sustainability report on their environmental, social and governance (ESG) impacts. In this context, the taxonomy plays a key role in providing a methodology for assessing and presenting the environmental performance of companies within the report.
What you need to remember is that a company subject to the CSRD will have to take into account the expectations of the green taxonomy in its extra-financial reporting and thus declare whether some of its economic activities are eligible and aligned with this taxonomy.
Concretely, this means that:
- Companies subject to the CSRD must use the technical criteria of the taxonomy to identify, among the activities they carry out, which are "sustainable" and therefore eligible for inclusion in the European green taxonomy. This means measuring the share of their activities that are eligible and aligned with the criteria defined by the European taxonomy. Companies must also be able to provide proof of compliance with the technical criteria set out in the regulations.
- Once the share of activities considered sustainable under the green taxonomy is determined, companies must measure the percentage of their revenue, investment spending (CapEx), and operational spending (OpEx) that are eligible and aligned with the criteria defined by the EU green taxonomy. Companies must also be able to specify the methodologies used to achieve these calculations.
- Finally, the company must declare all this information in the sustainability report provided under the CSRD.
Is it necessary to draw up two reports (one on taxonomy and one on extra-financial sustainability)? No, companies do not need to write a separate report for the EU green taxonomy in addition to the sustainability report provided for under the CSRD. However, they must integrate the specific information relating to the green taxonomy into their sustainability report.
6. CSRD VS green taxonomy: what are the differences?
Although the green taxonomy and the CSRD are complementary and interlinked at the stage of formalizing the sustainability report, they differ on several points:
What resources are available to help me understand this better?
-The official page on the EU green taxonomy from the European Commission provides an overview of the framework, objectives, and criteria and may be useful to you.
-The European Commission's FAQ on the climate aspect of the taxonomy may also help to clarify things.
CONCLUSION
The EU green taxonomy is a central pillar of the EU's climate strategy.
For companies, it represents a demanding framework but one that offers many opportunities. Indeed, by understanding its objectives and obligations, you can not only comply with regulatory requirements, but also gain in competitiveness and enhance your environmental commitments to investors and other stakeholders.
Be aware, however, that the interconnection between the green taxonomy and the CSRD reinforces the need for companies to equip themselves with robust and adapted tools to collect, analyze and publish their ESG data. Do not hesitate to contact the Sami teams if you wish to be accompanied on these different aspects.
Mission Décarbonation
Don't miss the latest climate news and stay ahead of regulatory changes
Les commentaires