EU: Public consultation on delegated acts of the Taxonomy Regulation

 

The EU Commission has launched a public consultation on delegated acts of the Taxonomy Regulation.  Feedback is open till 26 March 2025.

The Taxonomy Regulation established a unified EU classification system for environmentally sustainable economic activities, known as ‘Taxonomy-aligned activities.’ Article 8 of this regulation mandates transparency obligations for certain financial and non-financial entities regarding these activities.

In June 2021, the European Commission adopted the EU Taxonomy Climate Delegated Act to implement the regulation concerning economic activities that contribute significantly to climate change mitigation and adaptation. This Act was later amended in March 2022 to include criteria for specific energy activities in the fossil gas and nuclear sectors. In June 2023, the EU Taxonomy Environmental Delegated Act was introduced to cover remaining environmental objectives, alongside updates to the Climate Delegated Act to incorporate new criteria for manufacturing and transport sectors. These Acts establish technical screening criteria to determine when an economic activity contributes substantially to an environmental objective and ensure it does not significantly harm other objectives.

In July 2021, the Commission introduced a Delegated Act specifying disclosure obligations under Article 8 of the Taxonomy Regulation, known as the Disclosures Delegated Act. This was amended twice:

• In March 2022, to enhance transparency for fossil gas and nuclear energy activities.
• In June 2023, to adjust disclosure requirements for activities covered in the Environmental Delegated Act.

The Disclosures Delegated Act translates the technical screening criteria from the Climate and Environmental Delegated Acts into key performance indicators (KPIs) for financial and non-financial entities. These KPIs are publicly reported in annual management reports, enabling investors and the public to assess companies’ environmental performance and alignment with the EU Taxonomy. This transparency aims to prevent greenwashing by ensuring objective disclosure of Taxonomy-aligned activities.

Non-financial entities began reporting their KPIs on January 1, 2023. By October 2024, 2,180 companies had disclosed their Taxonomy alignment, covering EUR 12.9 trillion in assets (excluding financial sector assets). In the second year of reporting, EUR 250 billion in capital expenditure was designated as Taxonomy-aligned, reflecting a 34% increase from 2022. Taxonomy-aligned turnover grew by 25% in 2023, totaling EUR 764 billion. The sectors with the highest proportion of Taxonomy-aligned turnover in 2023 were manufacturing (36%), electricity supply (33%), and construction (9%). In 2024, reporting was limited to climate objectives, with promising data quality and strong green KPI reporting.

The Disclosures Delegated Act requires financial entities to use disclosed KPIs from their counterparties when calculating their own KPIs, including the Green Asset Ratio (GAR). Additionally, the Sustainable Finance Disclosure Regulation (SFDR) mandates financial market participants to utilize these KPIs in assessing the Taxonomy alignment of financial products making green claims. Since financial entities’ KPI calculations rely on data from the companies they finance, improvements in data quality and availability are expected to enhance the accuracy of reported KPIs over time.

The Taxonomy alignment of existing financial assets is likely to be lower than that of newly financed assets, aligning with the EU Taxonomy’s objective to support new sustainable activities. Financial entities started reporting KPIs in January 2024, though early figures indicate low alignment, as the reporting process is still developing. Over time, with better data flows and broader coverage, reporting quality is expected to improve.

Despite the EU Taxonomy’s initial adoption, both financial and non-financial entities recognize the need for simplified and improved reporting requirements. These refinements would complement—rather than replace—the Commission’s Sustainability Omnibus proposal, which aims to update corporate sustainability reporting and due diligence rules. Lessons from the first years of reporting provide a foundation for streamlining obligations to reduce administrative burdens while preserving the integrity of Taxonomy-related data.

A key challenge in achieving Taxonomy alignment is compliance with the ‘Do No Significant Harm’ (DNSH) criteria. Non-compliance with any DNSH criterion results in an activity being deemed non-aligned. Many companies find these criteria, particularly those in Appendix C related to pollution prevention and chemical usage, complex and difficult to implement. This issue is especially significant for industries crucial to the green transition, such as solar PV, battery manufacturing, and heat pump production. Many non-financial entities argue that assessing compliance with Appendix C is overly burdensome and requires simplification to improve usability.

To address these concerns, the Commission plans to introduce targeted amendments to Appendix C to ease administrative burdens. Additionally, a comprehensive review of all technical screening criteria, particularly DNSH requirements, will be conducted to enhance usability and better align with EU legislation.