1. Main Obligations and Implications for Stakeholders

The European Green Taxonomy is a classification system that lists and regulates environmentally sustainable investments. Adopted in 2020, this regulation is part of the European Green Deal and aims to direct capital flows towards activities that contribute to the European Union’s environmental goals.
The primary obligations for financial actors and companies are to evaluate and disclose to what extent their activities align with the sustainability criteria defined by the Taxonomy.
The framework is based on 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.

Companies must demonstrate that their economic activities make a substantial contribution to at least one of these objectives without causing significant harm to the others and must adhere to minimum social safeguards. Asset managers and financial advisors are directly impacted, as they must indicate to what extent their financial products are invested in eligible assets aligned with the Taxonomy.

2. Key Challenges and Difficulties

Implementing the European Green Taxonomy presents significant challenges for companies and financial institutions.
Firstly, data clarity is a major obstacle. Companies must gather detailed information on their supply chains, industrial processes, and environmental impacts, which can be difficult, especially for those lacking systems to monitor their ESG performance. Evaluating compliance with sustainability criteria can also be complex, particularly for activities not directly linked to one of the six defined objectives.

Secondly, the Taxonomy imposes high transparency standards and requires specific expertise in environmental reporting, which many companies lack. Additionally, small and medium-sized enterprises (SMEs) may struggle to meet these new requirements due to limited resources.

Finally, the risk of greenwashing persists, as some companies may attempt to “green” their activities without fully meeting the Taxonomy’s strict criteria, posing a challenge for regulators in terms of monitoring and enforcement.

3. Implementation Timeline

The implementation of the European Green Taxonomy has been phased. It came into effect on January 1, 2022, with a progressive application according to sectors and types of economic activities.

• 2022 : Companies subject to the NFRD (which will be replaced by the CSRD) had to start disclosing the alignment of their activities with the first two environmental objectives: climate change mitigation and adaptation.
• 2023-2024: Other environmental objectives (sustainable use of resources, circular economy, biodiversity, etc.) were gradually introduced into corporate reports.
• 2024: Companies within the scope of the CSRD will also need to meet these requirements and provide detailed information on their activities in relation to the Taxonomy.

This phased implementation allowed companies and financial institutions to gradually adapt to the complexity of the Taxonomy requirements, reducing the risk of greenwashing.

4. Latest Regulatory Updates

Recent updates to the European Green Taxonomy have focused on several aspects. One of the main advancements has been the extension of the technical screening criteria for the remaining four environmental objectives (in addition to climate change), which allows for a broader range of economic activities to be included within the Taxonomy framework.
Another key development was aligning the Taxonomy with the SFDR, particularly for financial products under Articles 8 and 9. This alignment enhances transparency and consistency in how fund managers disclose their sustainability commitments.

Additionally, the EU has worked towards introducing more harmonized data standards to facilitate the collection and comparison of information related to sustainable economic activities, making the Taxonomy system more accessible and transparent for companies and investors..

5. Practical Outcomes

Early results from the implementation of the Taxonomy indicate that, while many companies and investors have started to integrate its criteria into their activities, compliance remains uneven. Large companies, particularly those publicly listed or in highly regulated sectors, have generally made more progress in aligning their activities with the Taxonomy criteria.
In contrast, SMEs and companies in sectors less affected by environmental regulation have been slower to adopt Taxonomy standards, often due to a lack of resources or technical knowledge. Additionally, some companies continue to face challenges in accurately assessing their activities against the environmental criteria, particularly regarding their overall impact on the six environmental objectives.
Nevertheless, the Taxonomy has helped stimulate interest in green financial products and increased investor demand for more precise sustainability information.

6. Recommendations for Navigating This Regulation

To navigate the European Green Taxonomy effectively, several recommendations can be made for companies and financial institutions:

1. Invest in ESG Data Collection: Companies should develop robust systems for collecting and analyzing environmental data to assess the alignment of their activities with the Taxonomy criteria. Partnerships with external ESG data providers can also facilitate this task.
2. Evaluate the Value Chain : Companies should identify critical points in their supply chain that may impact compliance with the Taxonomy’s environmental objectives. A thorough analysis is essential to pinpoint risks and opportunities related to sustainability.
3. Strengthen Internal Capacities : Training internal teams specializing in financial and environmental services is crucial. Additionally, forming multidisciplinary teams dedicated to ESG strategy and transparency requirements can help ensure compliance.
4. Work with Specialized Auditors and Consultants: For companies facing difficulties in understanding the Taxonomy criteria or collecting the necessary information, consulting specialized sustainability reporting experts and qualified auditors can help facilitate compliance.
5. Anticipate Future Regulatory Developments: The Green Taxonomy is part of a broader, rapidly evolving regulatory framework. It is essential for companies to closely monitor regulatory updates to ensure they remain compliant and aligned with future sustainability criteria.

Sources : Taxonomie verte européenne : qu’est-ce que c’est ?, https://eco-act.com/fr/blog/taxonomie-verte-europeenne/

Décryptage du règlement Taxonomie Verte européenne,

https://kpmg.com/fr/fr/insights/information-esg/taxonomie-verte.html

Première année d’application de la taxonomie européenne : enseignements et perspectives 2024, https://www.ey.com/fr_fr/insights/climate-change-sustainability-services/taxonomie-europeenne-enseignements-et-perspectives-2024

EU taxonomy for sustainable activities, What the EU is doing to create an EU-wide classification system for sustainable activities, https://finance.ec.europa.eu/sustainable-finance/tools-and-standards/eu-taxonomy-sustainable-activities_en

Taxonomie verte : mode d’emploi !

https://france.representation.ec.europa.eu/informations/taxonomie-verte-mode-demploi-2022-01-13_fr

Taxonomie européenne : la classification des activités économiques vertes en six questions, https://www.vie-publique.fr/questions-reponses/283166-neutralite-carbone-la-taxonomie-europeenne-en-six-questions