FAQS about EU Taxonomy
The EU Taxonomy is a list of economic activities that contribute to meeting the goal of being climate neutral by 2050, as set out in the European Green Deal and the Paris Climate Agreement. Companies and financial institutions can use the Taxonomy to guide their investments in sustainability.
What is the EU Taxonomy?
With the Paris climate agreement and growing regulation from the EU, sustainable real estate is becoming more important than ever. The EU Taxonomy (European Union Taxonomy) is a science-based classification system that is expected to become the global standard in assessing whether an economic activity is sustainable or not. In other words, the EU Taxonomy sets the ground rules for green investments.
What is the purpose of the EU Taxonomy?
Developed as a tool under the EU Green Deal, the EU Taxonomy or EU Taxonomy aims to guide and align investments with the EU's climate goals as formulated in the Paris Climate Agreement.
How does the EU Taxonomy work?
The EU Taxonomy or EU Taxonomy consists of six environmental objectives to be met:
- Mitigation (combating climate change). Mitigation includes all measures leading to CO2 reduction and reducing emissions of other greenhouse gases. Examples include energy conservation and (large-scale) use of renewable energy.
- Climate change adaptation. That is, adaptation to mitigate the negative effects of climate change.
- The sustainable use and protection of water and marine resources.
- The transition to a circular economy.
- The prevention and control of pollution.
- The protection and restoration of biodiversity and ecosystems.
How do you know if an investment is in line with the EU Taxonomy?
To assess whether an investment is in line with the EU Taxonomy or EU Taxonomy, it must meet three criteria:
- The activity invested in must make a substantial contribution to at least one of the above six goals. To assess whether there is a substantial contribution, Technical Screening Criteria (TSC) have been formulated against which the activity is assessed.
- The activity must not have a negative impact on the other five objective. This is tested based on Do no significant harm criteria.
- The activity must meet a set of Minimum Safety Guarantees.
What are the obligations from the EU Taxonomy?
The first obligation in the EU Taxonomy or EU Taxonomy took effect on 1 January 2022 and is an annual reporting requirement for organisations offering financial products and public interest enterprises (PIEs) with more than 500 employees. Smaller organisations will also have to comply in the near future and would do well to take up the criteria voluntarily at this stage, for instance by giving direction to their ESG strategy.
Who do the EU Taxonomy rules apply to?
For now, the initial rules under the EU Taxonomy or EU Taxonomy only apply to organisations offering financial products and public interest enterprises (PIEs) with more than 500 employees. When the legislation is extended, smaller organisations will also be affected.
