Navigating EU Green Taxonomy

The EU Taxonomy Regulation, which entered into force in 2020, provides a critical tool in the EU’s efforts to achieve the objectives of the European Green Deal. By setting out a classification system, which defines economic activities which are aligned with a net zero trajectory by 2050, the Taxonomy enables a much more scientific assessment of an organisation’s progress on sustainability, which is valuable to investors and other stakeholders. It makes greenwashing more difficult. The Regulation sets out reporting requirements under the Taxonomy, which became more detailed from 2023.

The Taxonomy divides activities into eligible (which have the potential to contribute to one of the six environmental objectives set out in the Taxonomy but which may not yet be sustainable) and aligned (which meet additional criteria enabling them to be classified as sustainable).  

KPMG has published a study assessing the progress towards sustainability, based on the Taxonomy, of 291 non-financial companies that are headquartered in the European Union and are included in the STOXX Europe 600 Index. The sample is varied and includes large, medium-sized and small firms, from 15 different EU countries and from a broad range of industries. 

The survey reveals a positive trend in the average proportion of activities which were able to be reported under the Taxonomy as eligible or aligned. For companies reporting eligibility greater than zero, the average eligible and aligned turnovers were 44% and 21% respectively. The average eligible and aligned Capital Expenditure activities were 48% and 24% respectively, while the average eligible and aligned Operating Expenses were 44% and 26% respectively. All averages were higher than in the previous reporting period, with the biggest difference seen in average eligible Capital Expenditure, which showed an increase of 8 percentage points.

76% of all companies in our sample reported at least some eligible turnover, which is more than last year when it was only 60%. This indicates that with more environmental objectives and therefore more business activities being covered by the Taxonomy, more companies find their revenue generating activities being included in the Taxonomy’s set of potentially sustainable activities.

Qualitative disclosures still varied in length and content, suggesting that there is still a lack of best practices. Our analysis overall showed that many companies still do not disclose all required qualitative information, similarly to the findings of the previous reporting period. This is expected to change when more companies obtain assurance on their Taxonomy disclosures.

In our sample, 40% of all companies disclosed that they have commissioned an audit of their EU Taxonomy information, an increase of only 3 percentage points from last year. However, when the Corporate Sustainability Reporting Directive (CSRD) has been implemented, obtaining limited assurance will become mandatory. Hence there is a need for many companies to step up their activity in this area. 

Despite improved average eligibility figures compared to last year, many industries still report averages below 50%, suggesting that their business models are not fully or only partially covered by the Taxonomy. As in the previous reporting year, Real Estate recorded the highest average eligibility, while the Utilities sector reported the highest Taxonomy-aligned turnover. With the addition of activities related to the four other environmental objectives in 2023, sectors such as Consumer Products and Services and Health Care have shown significant increases in average eligibility from previously low figures.

KPMG in Romania has a specialised team with considerable experience in the growing area of sustainability reporting. We keep closely in touch with the latest regulatory and legislative developments in the field, in Romania, at EU level and beyond. We support clients by preparing sustainability reports, to help them comply with legal requirements, and also to meet the increasing demands of stakeholders in this area. We can help your organization with its reporting under the EU Taxonomy, as well as with a wide range of other sustainability services.