What is the eligibility of activities under the EU Taxonomy?
The EU Taxonomy, a cornerstone of the European Green Deal, aims to integrate environmental considerations into financial decision-making and align investments with the EU’s climate and environmental goals.
The EU Taxonomy compass provides clear criteria for determining which economic activities are considered taxonomy-eligible, focusing on sustainable practices that are directly tied to a company’s core business.
EU Taxonomy and the CSRD
Understanding the taxonomy-eligibility requirements is essential for businesses, especially those subject to the Corporate Sustainability Reporting Directive (CSRD). These businesses must report on the extent to which their activities align with the EU Taxonomy Regulation, particularly under Article 8. This article mandates that companies disclose the proportion of their turnover, capital expenditures (CapEx), and operating expenses (OpEx) associated with taxonomy-aligned activities.
The EU Taxonomy Regulation is a classification system established to guide sustainable investment within the EU. It consists of several articles that outline the framework for determining which economic activities can be considered environmentally sustainable.
6 environmental objectives of the Taxonomy Regulation
The EU Taxonomy Regulation, formally known as Regulation (EU) 2020/852, establishes the criteria for determining whether an economic activity is environmentally sustainable:
- Climate change mitigation: activities that contribute to reducing greenhouse gas emissions
- Climate change adaptation: activities that help adapt to the impacts of climate change
- Sustainable use and protection of water and marine resources
- Transition to a circular economy: activities that support the efficient use of resources and waste reduction
- Pollution prevention and control
- Protection and restoration of biodiversity and ecosystems
To be considered taxonomy-aligned, an activity must substantially contribute to at least one of these objectives and do no significant harm to any of the others, while also respecting minimum safeguards related to human rights and labour standards.
Carbon credit purchases: Not taxonomy-eligible
A common question is whether carbon credit purchases are taxonomy-eligible. The short answer is no. The EU Taxonomy prioritises core economic activities within a company’s value chain and sets sustainability metrics based on KPIs such as turnover, CapEx, and OpEx. Carbon credit purchases do not align with these criteria, as they are not directly linked to a company’s primary economic activities.
Under the EU Taxonomy Regulation, companies can report eligible expenses related to activities such as research and development, building renovations, and asset maintenance, if these initiatives are connected to taxonomy-compliant projects.
As companies prepare to comply with the CSRD, understanding how your activities align with the EU Taxonomy Regulation is crucial. At ClimatePartner, we offer consulting services tailored to help you assess and report on your sustainability efforts. Our team is here to guide you through the intricacies of Article 8 and ensure your business meets regulatory requirements.