EU taxonomy

Why does the EU taxonomy exist ?
With the adoption of the Green Deal in 2019, the European Union has set the course for more sustainable investments. The goal is to achieve a climate-neutral economy in the EU by 2050, with a 55% reduction to be implemented as early as 2030. To achieve these climate targets, the Green Deal includes an investment plan of €1 trillion over the next 10 years. Despite this huge investment, the EU also relies on the support of the private sector to achieve the Paris Climate Agreement.

The EU taxonomy follows the objective of the Green Deal and has the following main objectives:

• Realignment of capital flows with a focus on sustainable investments
• Establishing sustainability as a component of risk management
• Promotion of long-term investments and economic activities

What exactly is the EU Taxonomy?
The taxonomy describes a framework for classifying "green" or "sustainable" economic activities carried out in the EU. The EU Taxonomy creates a clear framework for the concept of sustainability and defines exactly when a company or business is operating in a sustainable or environmentally friendly manner. These companies stand out positively compared to their competitors and should therefore benefit from higher investment. In doing so, the legislation aims to reward and promote environmentally friendly business practices and technologies. The focus is on the following six environmental goals:

• Climate change mitigation
• Adaptation to climate change
• Sustainable use and protection of water and marine resources
• Transition to a circular economy
• Pollution prevention and control
• Protection and restoration of biodiversity and ecosystems

In order to be classified as a sustainable economic activity according to the EU taxonomy, a company must not only contribute to at least one environmental objective, but must also not violate the other objectives. The classification of an economic activity in terms of sustainability is based on the following four criteria, which are based on the previously mentioned environmental objectives:

• The activity contributes to one of the six environmental objectives
• The activity does not significantly harm any of the six environmental goals (DNSH).
• The activity meets "minimum guarantees" such as the UN Guiding Principles on Business and Human Rights to have no negative social impacts
• The activity meets the technical testing criteria developed by the EU Technical Expert Group

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