EU Taxonomy – Understand the Regulation and Get Started

EU Structure of the EU Taxonomy

The EU Taxonomy does not provide a precise definition of what constitutes an economic activity. However, it includes an appendix outlining the economic activities that must be analyzed and assessed according to the taxonomy’s three-step process, as detailed below. These activity descriptions are matched with the NACE codes, the EU’s industry classification system.

The terms “eligible” and “aligned” are used within the EU Taxonomy. “Eligible” means that the economic activity falls under the Taxonomy Regulation’s scope, while “aligned” indicates that the activity not only falls under the taxonomy but also meets the screening criteria to be considered sustainable. Therefore, eligibility alone does not imply sustainability; it merely indicates that the activity is subject to the taxonomy’s classification rules.

The Six Environmental Objectives of the EU Taxonomy

The EU Taxonomy encompasses six key climate and environmental objectives that companies must report on to be classified as sustainable. These objectives correspond with the five environmental standards (ESRS E1-E5) in the Corporate Sustainability Reporting Directive (CSRD):

1. Climate change mitigation (ESRS E1)
2. Climate change adaptation (ESRS E1)
3. Sustainable use and protection of water and marine resources (ESRS E3)
4. Transition to a circular economy (ESRS E5)
5. Pollution prevention and control (ESRS E2)
6. Protection and restoration of biodiversity and ecosystems (ESRS E4)

Companies’ activities are assessed based on their contribution to one or more of these objectives as defined in the EU Taxonomy.

Screening Criteria in the EU Taxonomy

• The activity must make a substantial contribution to one or more of the six climate and environmental objectives.
• The activity must not significantly harm any of the other climate and environmental objectives (Do No Significant Harm – DNSH).
• The activity must comply with minimum safeguards for human rights and labor rights.

The three steps of the EU Taxonomy—eligibility, alignment, and reporting—are visualized in the model below:

Get help with EU Taxonomy

Navigate the EU Taxonomy with Confidence – Partner with NORD Advise

Achieving compliance with the EU Taxonomy is a complex process that demands careful planning and execution. It’s a significant task that should not be underestimated.

The effort required depends largely on whether your company’s activities fall within the scope of the EU Taxonomy (i.e., whether they are eligible). If your activities are eligible, a detailed alignment analysis will be necessary, alongside the calculation and reporting of three key metrics.

These metrics can be challenging to calculate, as most companies’ financial systems are not naturally aligned with the EU Taxonomy’s activity classifications. This often requires allocating resources and implementing system adjustments to prepare for accurate reporting.

To streamline the process, we recommend starting with an initial analysis of your company’s activities to determine their eligibility under the EU Taxonomy framework.

A practical first step is to review the list of NACE codes and identify activities relevant to your business. For any applicable NACE codes, the Taxonomy Compass can help determine whether specific activities are covered.

Once you have a clear understanding of your company’s activities and their alignment with the EU Taxonomy, you can strategically plan the next steps.

At NORD Advise, our team brings extensive expertise in the EU Taxonomy and has successfully guided a diverse range of clients—from major publicly listed companies to mid-sized businesses—through the process. Let us help you navigate these complexities with confidence.