What is the EU's green taxonomy regulation?

The EU's green taxonomy regulation was adopted in June 2020 and constitutes a framework regulation to determine which economic activities are to be considered environmentally sustainable in the taxonomy. But what does the EU's green taxonomy really mean for companies and businesses? We at Ava guide you through all the requirements and goals for taxonomy.

Our society is constantly moving towards a greener and more sustainable future. Although there is still a long way to go, the EU is introducing new goals and systems for us to live more sustainably. The EU taxonomy, also known as the green taxonomy, forms part of the European Commission's work and action plan for the EU's Green Deal

Taxonomy is a framework and a classification system that will function as a common language and a common yardstick for sustainability. The taxonomy is based on the goal of meeting the Paris Agreement, Agenda 30 and the EU's goal of climate neutrality 2050.

The first delegated act with review criteria for two of the goals in the taxonomy began to apply on 1 January 2022. Previously, a delegated act specifying the content was also adopted. of the information to be submitted in accordance with Article 8 of the Taxonomy Regulation. 

This means that in 2022, larger companies need to report how large a share of their operations is affected by the taxonomy. By 2023, larger companies need to report how well they meet the criteria in the taxonomy. In order to be classified as a sustainable activity, the activity must make a significant contribution to one or more of the EU's environmental goals.

The EU's six environmental objectives:

  1. Climate change mitigation

  2. Climate adaptation (adaptation to climate change)

  3. Sustainable use of water and marine resources 

  4. Transformation into a circular economy

  5. Prevention and reduction of environmental pollution

  6. Protection and restoration of biodiversity and ecosystems.

How do you achieve the rules of taxonomy?
The European Commission's set goals are two. One environmental goal is about limitations of climate impact and the other environmental goal concerns adaptations due to climate impact. For non-financial corporations, this means requiring an indication of the extent to which economic activities are sustainable through three key ratios: share of turnover, capital expenditure (CAPEX) and operating expenditures (OPEX).  

The information on the extent to which the economic activities can be considered sustainable in the three categories must be included in the sustainability report. How the three key figures are to be calculated and presented in the sustainability report is the latest area specified by the European Commission. For the financial year 2021, information on the share of a company's financial activities covered by the taxonomy must be reported. For the financial year 2022, the Commission has proposed to increase reporting with more key figures for non-financial corporations.

Who is affected by the EU's new taxonomy?
The EU's taxonomy initially includes financial market players and issuers that offer financial products within the EU, as well as listed companies and institutions with more than 500 employees. The taxonomy will eventually be expanded to include more industries and more companies.

We at Ava are familiar with the EU's taxonomy and are aware of future requirements and goals that may affect companies and businesses. We can help you introduce EU taxonomy. Contact us to find out more about how we can help you!

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