Surely if you are reading this website it is because you are looking for answers to these questions: What is green taxonomy? What does European Union taxonomy mean? What does the ESG taxonomy cover and what is it? What is the concept of sustainable taxonomy?
At Ecoterrae we help you find these answers in a detailed and developed way. Save this website in your bookmarks, because you will surely want to consult it often.
What is green taxonomy?
What is the European Union taxonomy? Is it the same as green taxonomy?
Well yes, the green taxonomy or EU taxonomy as they usually refer to it is exactly the same. The EU taxonomy is a classification system, which categorizes the economic activities of a company from an environmental point of view. Therefore, it helps companies know if their activity is aligned with the environment.
What is sustainable taxonomy? What is taxonomy in ESG?
Is it also the same? In this case, the sustainable taxonomy could be understood as something broader, since sustainability does not only include the environmental part, but also the socio-economic part.
For its part, the ESG taxonomy, for its acronym in English (Environmental, Social and Governance), actually means the same thing. It is a classification system that defines which activities can be considered sustainable from an environmental, social and governance point of view.
In this sense, there is still a long way to go. In fact, we talk later in this article about social taxonomy.
What is the Taxonomy Regulation?
The General Taxonomy Regulation or Regulation 2020/852 establishes the criteria to determine whether an economic activity is considered environmentally sustainable for the purposes of establishing the degree of environmental sustainability of an investment.
It must also be mentioned that the Taxonomy Regulation or Regulation 2020/852 is completed with:
- Delegated Regulations 2021/2139, which establishes the technical selection criteria to determine the conditions under which an economic activity is considered to contribute substantially to the mitigation of climate change or its adaptation.
- Delegated Regulation 2023/2486: establishes the selection criteria that determine the conditions under which an economic activity is considered to contribute substantially to the sustainable use and protection of water and marine resources, to the transition to a circular economy, to the prevention and control of pollution, or to the protection and recovery of biodiversity and ecosystems.
- Disclosure Delegated Regulation – 2021/2178: Specifies the content that companies subject to articles 19 bis or 29 bis of Directive 2013/34 EU must disclose regarding sustainable economic activities.
When does the European taxonomy come into force?
The EU green taxonomy report came into force gradually from 2020.
- July 12, 2020: The Green Taxonomy Regulation (Regulation (EU) 2020/852) comes into force. This regulation establishes the general framework of the taxonomy and defines the criteria for an economic activity to be considered "green."
- January 1, 2022: Large companies (with more than 500 employees) that are subject to the NFRD Sustainability Reporting Directive (Directive 2014/95/EU) are required to report on their compliance with the green taxonomy.
- January 1, 2023: Product-level disclosure applies under the Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy Regulation article.
- 2025: Companies that are not subject to the Sustainability Reporting Directive, but are subject to the Non-Financial Reporting Directive (Directive 2014/95/EU), will also be required to report on their compliance with the green taxonomy.
It is important to note that green taxonomy is a complex system that is constantly evolving. New criteria and guidelines are expected to be published in the coming years.
Who should report taxonomy? Which companies have to report taxonomy?
They must report taxonomy:
- Large public interest companies (>500 employees) subject to NFRD
- Large companies not subject to NFRD that meet at least two of the following three criteria:
- Total Balance €20M
- Turnover €40M
- Average number of employees 250
- Listed SMEs, small and non-complex financial entities, insurance and reinsurance companies and captives (except microenterprises).
- Companies from third countries with subsidiaries or branches in the EU.
5 steps to report taxonomy
The 5 stages of taxonomy reporting are comprised of eligibility, substantial contribution, DNSH compliance, compliance with minimum social guarantees and KPIS reporting. Below is an explanation of what each of these phases consists of:
- Eligibility: It is the first phase of the taxonomy analysis, it serves to identify whether the economic activity carried out by a company can be selected to study its alignment with the taxonomy criteria.
- Substantial Contribution: Indicates whether the capacity of a company's economic activity to contribute significantly to one or more of the six environmental objectives established in the taxonomy.
- DNSH analysis: It ensures that the economic activity that is being analyzed and that has previously been shown to contribute substantially to some environmental objective does not cause significant damage to the other objectives to which it does not contribute.
- To fulfill the «minimum social guarantees», companies carrying out an economic activity shall implement procedures to ensure harmonization with the OECD Guidelines for Multinational Enterprises and the United Nations Guiding Principles on Business and Human Rights, including the ILO Declaration on Human Rights. fundamental principles and rights at work and the International Bill of Human Rights.
- KPIs Report: Report with quantitative data the alignment of activities aligned with the taxonomy. The KPIs that must be reported are Business Volume, Capital Expenses (CapEX), Operating Expenses (OpEX)
Eligibility taxonomy What is an eligible activity?
Eligibility: It is the first phase of the taxonomy analysis, it serves to identify whether the economic activity carried out by a company can be selected to study its alignment with the taxonomy criteria.
Taxonomy alignment
The taxonomy alignment consists of 3 steps: Substantial contribution, DNSH analysis and minimum social safeguards analysis
Substantial contribution to green taxonomy objectives
The concept of "substantial contribution" is used to define an activity that contributes substantially to at least one of the six environmental objectives of the EU taxonomy, in line with the EU climate and environment objective.
DNSH (Do not mean harm o Not cause significant damage)
The principle of "Do not cause significant damage" (DNSH) guarantees that economic activity does not prevent the achievement of any of the environmental objectives that must be achieved. This means that economic activity will not have a significant negative impact on the objectives.
MSS (Minimum Social Safeguards)
The minimum guarantees that will be the procedures applied by a company that carries out an economic activity to guarantee compliance with:
- The OECD guidelines for multinational companies.
- The united nations guiding principles on business and human rights.
- The principles and rights established in eight fundamental conventions referred to in the International Labor Organization Declaration on Fundamental Principles and Rights at Work.
- The International Bill of Human Rights.
Green taxonomy KPI report
KPIs for each economic activity and total KPIs for all economic activities at the company or group level must be disclosed. The KPIs are:
- Billing KPI: Proportion of net billing derived from eligible products or services according to the taxonomy.
- Capital Expenditure (Capex) KPI: Proportion of an activity's capital expenditure that is already aligned with taxonomy or is part of a credible plan to achieve it.
- Operating Expense (Opex) KPI: Proportion of operating expenses associated with activities aligned with the taxonomy or with the capital expenditure plan. It essentially covers non-capitalized costs related to the maintenance and servicing of companies' assets (plant, equipment) that are necessary to ensure the continued and effective use of the assets.
What are facilitating activities according to the EU taxonomy?
Enabling activities are those activities that can contribute substantially to one or more of the EU environmental objectives by “directly enabling other activities to contribute substantially to one or more objectives”.
What are transitional activities according to the EU taxonomy?
They are those activities for which low-carbon alternatives are not yet available and that have GHG emission levels that correspond to the best performance of the sector or industry.
What is social taxonomy?
The EU social taxonomy: defining sustainable investments from a social point of view
The EU social taxonomy, still in development, is intended to be a classification system that complements the already existing green taxonomy. Its objective is to establish what economic activities are considered socially sustainable in the European Union.
How can we help you?
ECOTERRAE offers a wide range of services to cover any need that companies have to report their taxonomy. Among them are:
- Technical advice on the alignment of business activities
- Technical advice in the exercise of eligibility of activities with the taxonomy
- Report and breakdown of KPIs (CapEX, OpEX and Business Volume)
- Technical assistance to prepare breakdown reports and KPIs reporting (CapEX, OpEX and Business Volume)
- Complete Taxonomy Analysis
- Alignment and eligibility technical advice (CS, DNSH and MMSS)
- Report and breakdown of KPIs
- DNSH analysis
- Technical assistance to access CDTI aid
- Technical assistance for PRTR compliance
