EU Taxonomy FAQs Released: European Commission Simplifies Sustainability Framework

The European Commission has published a comprehensive set of FAQs to assist investors and companies in implementing the EU Taxonomy, the classification system for defining sustainable economic activities. The initiative aims to enhance usability and reduce the administrative burden associated with the EU’s sustainable finance framework.

The EU Taxonomy is a cornerstone of the EU Action Plan on Sustainable Finance, designed to classify economic activities that significantly contribute to at least one of six environmental objectives without causing harm to the others. These objectives include:

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

Initially implemented in 2022, the Taxonomy required disclosures on climate change mitigation and adaptation activities. Starting in 2024, it will expand to cover the remaining four objectives under the Environmental Delegated Act.

The newly released FAQs address a range of critical topics, including:

• General Taxonomy requirements
• Compatibility with the Corporate Sustainability Reporting Directive (CSRD) and its European Standards for Sustainability Reporting (ESRS)
• Verification and assurance obligations
• Technical screening criteria for activities aligned with the environmental objectives
• Reporting obligations under the Climate and Environmental Delegated Acts
• DNSH (Do No Significant Harm) criteria clarifications

Mairead McGuinness, EU Commissioner for Financial Services, Financial Stability, and Capital Markets Union, highlighted the importance of the initiative:
“The EU Taxonomy provides investors with a common understanding of the environmental impacts of their investments while guiding companies’ sustainable transition efforts. Our focus now is to improve the usability of the framework, and these FAQs will help companies as they apply the Taxonomy.”