The EU Taxonomy is a classification system established by Regulation (EU) 2020/852 that sets uniform criteria for determining whether an economic activity qualifies as environmentally sustainable. Its purpose is to give investors, companies and policymakers a common, science-based language for green activities, reduce greenwashing, and channel capital toward the EU's climate-neutrality and broader environmental goals.
The Taxonomy itself does not ban or mandate any activity. Instead, it defines what counts as sustainable and is used as the reference point for disclosure obligations under related EU laws. An activity is assessed against six environmental objectives and must pass a four-part test (substantial contribution, do no significant harm, minimum safeguards, and technical screening criteria) to be considered Taxonomy-aligned.
What is the EU Taxonomy and what does it classify?
The EU Taxonomy is a classification (or "green list") system for economic activities, set out in Regulation (EU) 2020/852 (the "Taxonomy Regulation"). It defines the conditions under which an activity is environmentally sustainable.
Key points:
- It applies at the level of economic activities, not whole companies. A company can have a mix of aligned, eligible-but-not-aligned, and non-eligible activities.
- Taxonomy-eligible means an activity is described in the EU's delegated acts; Taxonomy-aligned means it also meets all the detailed criteria.
- It is a transparency and disclosure tool — it standardises what sustainability information must be reported, rather than prohibiting activities.
What are the six environmental objectives?
The Regulation defines six environmental objectives (Article 9). An activity must substantially contribute to at least one of them:
- 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
The two climate objectives were the first to have detailed criteria, applicable from 1 January 2022. Criteria for the four remaining objectives followed under a later delegated act.
What is the test for an activity to be "Taxonomy-aligned"?
To qualify as environmentally sustainable, an economic activity must meet four conditions together:
- Substantial contribution — it contributes substantially to at least one of the six environmental objectives, per the criteria for that objective.
- Do No Significant Harm (DNSH) — it does not significantly harm any of the other five objectives (Article 17).
- Minimum safeguards — the company conducting the activity respects minimum social and governance standards (Article 18), aligned with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, including core ILO labour standards.
- Technical screening criteria (TSC) — it complies with the specific, activity-level performance thresholds set out in the relevant delegated act.
Failing any one of the four means the activity is not Taxonomy-aligned.
What are the technical screening criteria and the Climate Delegated Act?
The technical screening criteria (TSC) are the detailed, activity-specific rules that define how much contribution is enough and what counts as significant harm. They are set out in delegated acts adopted by the European Commission, not in the main Regulation itself.
Key delegated acts:
- Climate Delegated Act — Regulation (EU) 2021/2139; TSC for the two climate objectives; applicable from 1 January 2022.
- Complementary Climate Delegated Act — Regulation (EU) 2022/1214; covers certain nuclear and gas energy activities under strict conditions.
- Environmental Delegated Act — Regulation (EU) 2023/2486; TSC for the four non-climate objectives.
- Disclosures Delegated Act — Regulation (EU) 2021/2178; specifies the content and presentation of Taxonomy disclosures.
Who must report under the EU Taxonomy?
The Taxonomy Regulation does not create a standalone reporting population — it plugs into other EU laws:
- NFRD / CSRD — Article 8 of the Taxonomy Regulation requires undertakings in scope of the EU's corporate sustainability reporting (originally the NFRD, replaced and expanded by the CSRD) to disclose how, and to what extent, their activities are Taxonomy-aligned.
- SFDR — under the Sustainable Finance Disclosure Regulation, financial market participants use Taxonomy alignment to describe the environmental sustainability of investment products.
In practice this covers large companies and listed firms (with phased application for financial vs. non-financial undertakings). The exact scope is being narrowed by the 2025–2026 Omnibus (see below).
What KPIs do companies report?
Non-financial undertakings disclose the proportion of their activities that are Taxonomy-eligible and Taxonomy-aligned using three key performance indicators (KPIs):
- Turnover — share of net revenue from Taxonomy-aligned products/services.
- CapEx — share of capital expenditure linked to aligned activities (including transition plans).
- OpEx — share of relevant operating expenditure linked to aligned activities.
Financial undertakings (banks, asset managers, insurers) use adapted indicators appropriate to their balance sheets, such as the Green Asset Ratio (GAR) for banks. The detailed templates are set by the Disclosures Delegated Act (EU) 2021/2178.
What is the 2025–2026 Omnibus simplification?
In February 2025 the European Commission proposed a "Simplification Omnibus" package to reduce sustainability-reporting burdens across CSRD, the CSDDD, and the EU Taxonomy.
For the Taxonomy, the Commission adopted a Taxonomy Omnibus delegated act in 2025 aimed at:
- Introducing a materiality / de minimis approach, so activities below a defined share of turnover need not be assessed in detail (commonly cited as a 10% threshold).
- Simplifying certain DNSH criteria and reducing the volume of reporting templates and data points.
Separately, the broader "Omnibus I" directive narrows the CSRD/Taxonomy reporting scope toward large undertakings (reported thresholds: roughly over 1,000 employees and net turnover above €450 million). Check the final adopted texts for exact thresholds and dates.
Frequently asked questions
Is the EU Taxonomy mandatory?
The Taxonomy classification itself does not require or prohibit any activity. However, reporting on Taxonomy alignment is mandatory for companies in scope of the CSRD/NFRD (via Article 8) and is used in disclosures under SFDR. Using the Taxonomy to label products as green is voluntary but, where used, must follow the criteria.
What is the difference between "Taxonomy-eligible" and "Taxonomy-aligned"?
Eligible means an activity is described in the EU delegated acts (the kind of activity the Taxonomy covers). Aligned means it is eligible and meets all four conditions: substantial contribution, DNSH, minimum safeguards, and the technical screening criteria.
What does "Do No Significant Harm" (DNSH) mean?
DNSH (Article 17) means an activity that substantially contributes to one environmental objective must not significantly harm any of the other five. The specific harm thresholds are defined in the technical screening criteria for each activity.
What are the minimum safeguards?
Under Article 18, the company must respect minimum social and governance standards aligned with the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights, and core ILO labour conventions. Breaching these means the activity cannot be Taxonomy-aligned even if it meets the environmental criteria.
How does the EU Taxonomy relate to the CSRD and SFDR?
The Taxonomy defines what is sustainable. CSRD (which replaced NFRD) requires in-scope companies to disclose their Taxonomy alignment via the turnover, CapEx and OpEx KPIs. SFDR uses Taxonomy alignment to describe the environmental sustainability of investment products.
How is the 2025–2026 Omnibus changing Taxonomy reporting?
The Omnibus package aims to simplify and reduce the burden: a materiality/de minimis threshold (commonly cited as ~10% of turnover), simplified DNSH and fewer data points, plus a narrowing of the overall CSRD/Taxonomy reporting scope toward large undertakings. Rely on the final adopted texts for exact thresholds and dates.