The EU Taxonomy Regulation: Classification of economic activities
The overarching aim of EU taxonomy regulation is to classify economic activities. In essence, the taxonomy establishes the requirements for economic activities to be considered sustainable. Together with EU regulation on sustainability related disclosures and reporting obligations, it provides information on clearly defined requirements. Accordingly, application of the EU taxonomy is obligatory for:
- Financial market participants offering financial products and providers of occupational pension plans
- large companies that are already obliged to disclose under the Corporate Sustainability Reporting Directive (CSRD)
- EU Member States, to the extent they define labels/standards for green financial products and bonds
All companies affected by EU taxonomy regulations must declare which of their business activities are defined as economic activities according to the EU taxonomy (taxonomy-eligible) and which also meet technical requirements (taxonomy-compliant). The taxonomy classifies cash flows. Accordingly, the proportion of turnover, operating costs and investment expenditure attributable to taxonomy-eligible or taxonomy-compliant economic activities must be reported. Other companies may be indirectly affected by the need to meet requirements or provide data to customers and investors.
The Sustainable Finance Disclosure Regulation: transparent financial products
The Sustainable Finance Disclosure Regulation (SFDR) requires EU financial market participants such as asset managers, financial advisers and insurance providers to disclose information on the sustainability of their investment decisions. The Regulation has been in force since March 2021. Among other things, the Regulation is intended to create transparency for end investors regarding sustainability risks that could have a negative impact on financial returns. On the other hand, it is intended to enable the evaluation of investments that could have a negative impact on the environment and social factors. To the regulation
Corporate Sustainability Reporting Directive
Building on the non-financial reporting requirements already in place for publicly listed and large companies since 2018, the Corporate Sustainability Reporting Directive (CSRD) has expanded corporate sustainability reporting to make it more consistent and comparable. The CSRD applies to publicly listed companies, credit institutions and insurance companies, as well as companies that meet at least two of the following criteria: more than 250 employees; a balance sheet total of more than €250 million; turnover of more than €50 million. Starting in 2025, sustainability reports should be an integral part of the annual reports of affected companies and institutions, and they must follow the structure of European Sustainability Reporting Standards (ESRS). In addition, sustainability reports must be verified by an external auditor. To the CSRD