EU Taxonomy: Implementation and connection with the CSRD

What is the EU Taxonomy?

The EU taxonomy is a central element of the European Green Deal. This instrument provides a classification for the identification of sustainable economic activities. The aim is to promote targeted investment in environmentally friendly innovations in order to drive forward the green transition within the EU.

By supporting the EU's goals of climate neutrality by 2050 and a significant reduction in greenhouse gas emissions by 2030, the EU Taxonomy serves as a guideline for investors who wish to invest in sustainable projects.

According to the EU Taxonomy Regulation, an economic activity is classified as sustainable and therefore taxonomy-compliant if it contributes substantially to at least one of the six defined environmental objectives without causing significant harm to other objectives (principle of “Do No Significant Harm” - DNSH). In addition, investments and activities must comply with basic social and human rights standards.

The focus is on the following six environmental objectives:

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
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EU Taxonomy Reporting: Framework and interfaces to CSRD:

From 2025, all large companies that are subject to the requirements of the CSRD (Corporate Sustainability Reporting Directive) and therefore also the NFRD (Non-Financial Reporting Directive) will be obliged to report in accordance with the EU taxonomy.

This obligation affects a broad range of companies in the EU and places new demands on transparency in sustainability reports: Taxonomy-compliant business activities must be disclosed within the management report and quantified according to their contribution to revenue, capital expenditure and operating expenses. The requirements of the CSRD are also published in the management report, albeit in separate sections.
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In terms of data collection and preparation, the overlap between the CSRD and the EU taxonomy is very limited. Within the CSRD, only the disclosure of taxonomy-eligible activities in connection with fossil gas is requested, stating the respective sales revenues ESRS 2 SBM-1 40 (d)i.

The EU taxonomy requirements relate to financial data from the annual financial statements. The greatest effort in the recurring implementation of the EU Taxonomy lies in the collection of key performance indicators and the monitoring of changes in the delegated act. Effective compliance with these guidelines is ensured by integrating them into existing reporting processes and systems. Implementation should therefore be carried out in close cooperation with the finance or controlling department.
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Five steps for applying the EU taxonomy

The following steps provide an overview of the reporting process, which may vary depending on the company's specific situation. It is important to consider the current EU directives and legal requirements.

1. Identification of eligible taxonomy activities

Summarize all the business activities and compare them with the business activities according to the NACE Codes activities of the delegated act. All activities listed in Annex A are considered taxonomy-eligible.

2. Data collection

Collect accurate data on the three key performance indicators for the activities classified as taxonomy-eligible:

• Turnover (according to the income reported in the respective consolidated financial statements)
• CapEx (capital expenditure)
• OpEx (operating expenses)

3. Conformity assessment

Taxonomy conformity goes beyond taxonomy capability and implies a positive assessment of the technical evaluation criteria.
Answer the following three questions for all relevant activities from the first step to determine their taxonomy compliance based on the technical evaluation criteria.

Technical evaluation criteria

1. Does the activity make a significant contribution to at least one of the 6 environmental objectives in accordance with Annex A of the delegated act?

• Climate change mitigation
• Climate change adaptation
• Sustainable use and protection of water and marine resources
• Transition to a circular economy
• Pollution prevention and control
• Protection and restoration of biodiversity and ecosystems

2. Does the activity not imply a significant impairment of one of the other environmental objectives

• No significant harm principle (DNSH - "Do No Significant Harm")

3. Does the activity comply with minimum social protection (including in the supply chain)?

• OECD Guidelines for Multinational Enterprises
• UN Guiding Principles on Human Business & Human Rights
• ILO Declaration on Fundamental Principles of Human Rights
• International Bill of Human Rights‍

‍‍‍4. Presentation of the results

Present the data in relation to the company's overall figures. This should include both the absolute figures and the percentage of total sales or total CapEx/OpEx.

Disclose the results of the compliance assessment together with the data collected on the three key performance indicators. We recommend structuring the disclosure according to the three performance indicators and using the template provided by the EU to present the results in each case.‍
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^{The EU template contains both the results of the conformity assessment for each taxonomy-eligible activity and its expenditure according to one of the performance indicators.}

^‍5. Transparency and disclosure

Report this information transparently in your management report. Ensure that reporting is clear, comprehensible and in accordance with the relevant EU regulations.

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Note: The same accounting standards on which the regular financial reporting is based should be applied when disclosing the key performance indicators.‍