EU Taxonomy
The EU Taxonomy is a classification system established by the European Union that defines which economic activities can be considered environmentally sustainable. It provides a common language for investors, companies, and policymakers to identify and compare green investments and business activities.
An economic activity qualifies as taxonomy-aligned if it meets three conditions:
- Substantial contribution to at least one of six environmental objectives
- Do no significant harm (DNSH) to any of the other five objectives
- Minimum safeguards , compliance with human rights and labour standards
The six environmental objectives are:
- 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
Under the CSRD, companies in scope must disclose the proportion of their revenue, capital expenditure (CapEx), and operating expenditure (OpEx) associated with taxonomy-aligned activities. This creates a quantitative measure of how “green” a company’s business model is.
The EU Taxonomy is particularly relevant for financial institutions, which must report the taxonomy alignment of their investment portfolios. It also serves as the reference framework for the EU Green Bond Standard and the Sustainable Finance Disclosure Regulation (SFDR).
Companies use platforms like Dcycle to map their activities against taxonomy criteria and calculate alignment ratios as part of their broader ESG reporting obligations.
