In 2018, the European Commission presented its comprehensive Action Plan: Financing Sustainable Growth. One of the most important components of this action plan is the development of a “clear and detailed EU classification system” (EU Taxonomy Regulation) that identifies economic activities which contribute to the EU’s six environmental objectives. The EU Taxonomy will constitute a transparent and standardized basis for sustainable financing and investment decisions.

TEG final report on the EU Taxonomy

In March 2020, the European Commission’s Technical Expert Group on Sustainable Finance (TEG) released its final recommendations for the EU Taxonomy (TEG report) detailing the environmental objectives one (climate change mitigation) and two (climate change adaptation). The TEG report sets the overarching design of the EU Taxonomy and provides guidance on how to use it. For an economic activity to be considered aligned with the Taxonomy, the activity must satisfy the following key requirements: 

  • substantially contribute to at least one of the six environmental objectives, 
  • do no significant harm to any of the other five objectives, and 
  • comply with minimum social safeguards. 

The Technical Annex to the TEG Final Report (TEG Technical Annex) specifies the activities which come into consideration for Taxonomy alignment and details the technical screening criteria against which compliance with the three key requirements must be assessed. 

Next steps

The TEG’s recommendations will inform the finalisation of delegated acts by the European Commission by the end of 2020, which will enter into application by the end of 2021. The Platform on Sustainable Finance will continue the technical work of the TEG and develop technical screening criteria covering economic activities which substantially contribute to objectives three to six. The Platform will develop these activities during 2021. The second set of technical screening criteria will be adopted by the end of 2021 and enter into force by late 2022.

Relevance of the EU Taxonomy

The EU Taxonomy is of key relevance to large companies and financial market participants: 

  • Companies subject to disclosure requirements under the Non-Financial Reporting Directive will have to make disclosures for activities related to environmental objectives one and two with reference to the Taxonomy during 2022 (covering the financial year 2021). Particularly, non-financial companies will have to report on the share of taxonomy-aligned turnover and taxonomy-aligned capital (and operational) expenditures (CapEx and OpEx).
  • Financial market participants offering green financial products in Europe must incorporate disclosures covering activities that substantially contribute to climate change mitigation and/or adaptation with reference to the Taxonomy as of the 31st of December 2021.