- Key Obligations and Implications for Stakeholders
The European Green Taxonomy is a classification system that lists and frames environmentally sustainable investments.
Adopted in 2020, this regulation is an integral part of the European Green Deal and aims to direct capital flows towards activities that contribute to the European Union’s environmental objectives.
The main obligations for financial players and companies are to assess and disclose the extent to which their activities are aligned with the sustainability criteria defined by the Taxonomy.
It is based on six environmental objectives:
- 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.
Companies must prove that their economic activities make a substantial contribution to at least one of these objectives, without causing significant harm to the others, and must respect minimum social guarantees.
Asset managers and financial advisors are directly concerned, as they must indicate the extent to which their financial products are invested in eligible assets and aligned with the Taxonomy.
- Key Challenges and Difficulties
Implementing the European Green Taxonomy presents a number of important challenges for companies and financial institutions.
First of all, the lack of data clarity is a major obstacle. Companies need to collect detailed information on their supply chain, industrial processes and environmental impacts, which can be difficult, especially for those who don’t yet have a system in place to monitor their ESG performance. Assessing compliance with sustainability criteria can also prove complex, particularly for activities that are 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.
- 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.
- Latest Regulatory Updates
Recent updates to the European Green Taxonomy have focused on several aspects. One of the main advances has been the extension of the technical evaluation criteria to the other four environmental objectives (in addition to climate change), enabling a wider range of economic activities to be included within the framework of the Taxonomy.
Another key development was the alignment of the Taxonomy with the SFDR, in particular for financial products falling under Articles 8 and 9. This improves transparency and consistency in the way 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..
- Practical Outcomes
Early results from the Taxonomy’s implementation show that, although many companies and investors have begun to integrate the Taxonomy’s criteria into their activities, compliance is still uneven. Large companies, particularly those listed on the stock exchange and operating in highly regulated sectors, have generally taken the lead in aligning their activities with the Taxonomy criteria.
On the other hand, SMEs and some companies in sectors less affected by environmental regulations are slow to adopt Taxonomy standards, often due to a lack of resources or technical knowledge.
What’s more, some companies continue to encounter difficulties in accurately assessing their activities against environmental criteria, particularly in terms of their overall impact on the six environmental objectives.
Nonetheless, the Taxonomy has helped stimulate interest in green financial products and increased investor demand for more accurate sustainability information.
- Recommendations for Navigating This Regulation
To navigate the European Green Taxonomy effectively, several recommendations can be made for companies and financial institutions:
- 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.
- 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.
- 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.
- 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.
- 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 :
European Green Taxonomy: what is it? 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
