What is the difference between Taxonomy-eligible and Taxonomy-aligned?

An activity is 'eligible' if it is listed and described in the Taxonomy Delegated Acts. It is 'aligned' only if it also meets the strict Technical Screening Criteria for substantial contribution, passes the DNSH tests, and complies with minimum social safeguards.

What are the six environmental objectives of the EU Taxonomy?

1) Climate change mitigation, 2) Climate change adaptation, 3) Sustainable use and protection of water and marine resources, 4) Transition to a circular economy, 5) Pollution prevention and control, 6) Protection and restoration of biodiversity and ecosystems.

Who is required to report Taxonomy alignment?

Large companies and listed SMEs subject to the Corporate Sustainability Reporting Directive (CSRD), as well as financial market participants offering sustainable products under the SFDR.

EU Taxonomy Alignment Checklist

The EU Taxonomy is a classification system establishing a list of environmentally sustainable economic activities. This checklist guides companies and financial market participants through the three-step process of assessing Taxonomy alignment.

Phase 1: Eligibility Assessment

Before assessing alignment, you must determine if the economic activity is covered by the Taxonomy (Taxonomy-eligible).

Identify the Economic Activity: Map your company's revenue-generating activities, capital expenditures (CapEx), and operating expenditures (OpEx).
Check the Delegated Acts: Cross-reference these activities against the descriptions in the Climate Delegated Act and the Environmental Delegated Act.
Confirm Eligibility: If the activity matches a description in the Delegated Acts, it is Taxonomy-eligible. If not, it is non-eligible (which does not necessarily mean it is harmful, just not covered yet).

Phase 2: Substantial Contribution (SC)

For an eligible activity to be aligned, it must make a substantial contribution to at least one of the six environmental objectives.

Select the Objective: Choose the primary environmental objective the activity contributes to (e.g., Climate Change Mitigation).
Review Technical Screening Criteria (TSC): Locate the specific TSC for substantial contribution for that activity in the relevant Delegated Act.
Assess Compliance: Gather data to prove the activity meets or exceeds the quantitative or qualitative thresholds set in the TSC (e.g., specific emissions limits, energy efficiency standards).

Phase 3: Do No Significant Harm (DNSH)

An activity cannot be considered sustainable if it harms other environmental objectives.

Review DNSH Criteria: Locate the specific DNSH criteria for the activity regarding the other five environmental objectives.
Conduct Climate Risk Assessment: For the Climate Change Adaptation objective, perform a robust climate risk and vulnerability assessment.
Verify Compliance: Ensure the activity meets all applicable DNSH thresholds (e.g., water management plans, pollution prevention measures, circular economy requirements).

Phase 4: Minimum Social Safeguards (MSS)

Alignment requires compliance with foundational human rights and labor standards at the entity level.

Human Rights Due Diligence: Implement processes aligned with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights.
Labor Rights: Ensure compliance with the ILO Declaration on Fundamental Principles and Rights at Work.
Anti-Corruption and Taxation: Maintain robust anti-bribery, anti-corruption, and fair taxation policies.
Verify No Convictions: Ensure the company has not been convicted of serious breaches in these areas.

Phase 5: Calculation and Reporting

Calculate KPIs: Calculate the proportion of Turnover, CapEx, and OpEx derived from Taxonomy-aligned activities.
Prepare Disclosures: Format the KPIs using the mandatory templates provided in the Disclosures Delegated Act.
Publish in Annual Report: Include the Taxonomy disclosures in the sustainability statement of your annual report, as required by the CSRD.