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The EU Taxonomy imposes sustainability reporting obligations on companies. Since 1 January 2022, large capital market-oriented companies with more than 500 employees that are not financial companies* must disclose in their non-financial statement the share of the KPIs turnover, capital expenditure and operating expenditure that is associated with environmentally sustainable economic activities within the meaning of the EU Taxonomy. From 2025 onwards, the group of companies that have to fulfil the requirements of the EU taxonomy will be expanded to include companies that will be obliged to report on sustainability for the first time due to the Corporate Sustainability Reporting Directive (CSRD).

The EU Taxonomy is a measure set out in the EU Sustainable Finance Action Plan and codified in Regulation 2020/852 (Taxonomy Regulation). The aim of the action plan is to channel capital flows into environmentally sustainable activities. Prerequisites for this are, among others, that there is a uniform understanding of what counts as an "environmentally sustainable economic activity" and that verifiable criteria are created that allow an activity to be classified as environmentally sustainable. The EU taxonomy creates these conditions.

Environmentally sustainable economic activities and environmental objectives

According to the EU Taxonomy an economic activity is environmentally sustainable when:

  1. The economic activity contributes significantly  to one or more of the environmental objectives.
  2. The activity does not harm one or more of the other environmental objectives.
  3. The activity is carried out in compliance with minimum safeguards (e.g. the OECD Guidelines for Multinational Enterprises, the United Nations Guiding Principles on Business and Human Rights and the International Labour Organisation Labour on Fundamental Principles and Rights at Work).

The following six environmental objectives are mentioned in the Taxonomy Regulation:

  • Climate change mitigation
  • Climate change adaptation 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

These criteria are substantiated by further delegated acts and references to other EU regulations and EU directives. 

Identify Taxonomy-aligned economic activities

In order to calculate the required KPIs (turnover, capital expenditures, operating expenditures), it is first necessary to determine the Taxonomy-eligible economic activities of the company, i.e. to identify the activities of the company that are mentioned in the delegated acts (Climate Delegated Act and Environmental Delegated Act).Subsequently, it must be examined whether these activities also fulfil the technical screening criteria for Taxonomy-aligned activities (substantial contribution to one or more of the environmental objectives, do no significant harm one of the other environmental objectives, compliance with minimum safeguards). As a result, the Taxonomy-aligned activities are identified, which are included in the calculation of the KPIs, i.e. the proportion of turnover, capital expenditures and operating expenditures associated with environmentally sustainable economic activities. 

Here, the increasingly strong link between financial and non-financial information in corporate reporting becomes clear: while the determination of the Taxonomy-aligned economic activities often takes place in the sustainability departments, the calculation of the KPIs can be found in the accounting department of the companies.

What needs to be done now?

As a first step, affected companies should carry out an analysis of their economic activities with regard to their Taxonomy-eligibility and Taxonomy-alignment on the basis of the EU requirements. In addition, other dimensions such as systems, processes and control landscape must be taken into account in the analysis for the subsequent reporting in accordance with the EU Taxonomy.

Efficient reporting and assurance requires a holistic concept for implementation involving all key stakeholders.

We support you with our extensive experience and knowledge in implementing the new requirements.

* Additional special requirements apply to financial institutions.

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