EU Taxonomy Regulation: the standard for sustainable economic activities

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The EU Taxonomy defines which economic activities count as environmentally sustainable. It provides the common language on which CSRD reporting, SFDR disclosure and green financing instruments are built. Like the CSRD and the SFDR it was substantially simplified in the omnibus process. In substance it remains the reference point for what "sustainable" means in EU terms.

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Are you covered?

 

Since the omnibus process, the scope of the taxonomy is tied directly to the scope of the CSRD. Companies with more than 1,000 employees and more than EUR 450 million in net turnover report as a matter of obligation, the same thresholds that apply under the CSRD.

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Companies with more than 1,000 employees but less than EUR 450 million in turnover report voluntarily. Opting in is worth considering above all where a company itself makes a claim linking its activities to sustainability, for instance in the context of green financing.

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Banks, insurers and asset managers fall within the same scope but report additional entity-specific KPIs, for banks above all the Green Asset Ratio.

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What the EU Taxonomy sets out

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An economic activity counts as environmentally sustainable if it makes a substantial contribution to at least one of six environmental objectives without significantly harming the others:

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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

 

Two stages need to be distinguished. Taxonomy eligibility means that an activity is listed in the taxonomy and could in principle contribute to an environmental objective, assigned via NACE codes. Taxonomy alignment means that it additionally meets the technical screening criteria, does no significant harm to the other objectives and observes the minimum safeguards. Only aligned activities count as sustainable within the meaning of the regulation and open up advantages such as easier access to green financing.

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The EU Taxonomy for banks, insurers and asset managers

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Alongside the KPIs for their own turnover, CapEx and OpEx, financial institutions report additional sector-specific KPIs. Where the friction sits differs considerably between the three types of institution.

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Banks and the Green Asset Ratio: The GAR measures the share of taxonomy-aligned assets in total assets. In its no-action letter of 6 August 2025, the EBA recommended that supervisors not enforce disclosure of the taxonomy-related Pillar 3 templates 6 to 10 until the end of 2026. The amended implementing technical standards have been available since 22 June 2026, with 31 December 2026 as the first disclosure reference date. None of this changes the underlying data work, that is assessing individual financings and entire portfolios against the technical screening criteria. Those who paused it will have to catch up by the reference date, and under a new methodology at that.

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Insurers and the comparability gap: Insurers report an investment KPI and an underwriting KPI for their non-life business. Here the problem is not a suspension but the methodology itself. Reported taxonomy eligibility figures for underwriting vary considerably depending on the approach taken, which makes comparison between insurers close to impossible. For the individual undertaking, the choice of methodology therefore becomes a strategic decision in its own right.

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Asset managers and the shrinking data base: Asset managers report the share of taxonomy-aligned investments in their assets under management, and depend for this on the KPIs of their investee companies. Because Omnibus I has substantially narrowed the CSRD scope, fewer companies report taxonomy KPIs of their own today than two years ago. The reporting obligation stays where it is; the data base underneath it gets smaller.

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Why the topic should stay on the agenda

 

The suspended GAR disclosure and the political attention given to the CSRD and the due diligence directive have pushed the taxonomy down many institutions' internal priority lists. That is understandable, and it carries a risk. The data work behind it does not disappear, it merely shifts, and it then meets a data base that has deteriorated rather than improved in the meantime.

 

An example from lending practice

 

A bank finances the acquisition of an office building. Acquisition and ownership of buildings is an activity listed in the taxonomy and contributes to the objective of climate change mitigation, so the financing is taxonomy-eligible.

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It is aligned only under one of two conditions. For buildings constructed before 2021, either an energy performance certificate of class A, or evidence that the building ranks within the top 15 per cent of the regional building stock in terms of primary energy demand. That benchmark moves, because the building stock itself keeps improving. A building that is aligned today can drop out of the top 15 per cent within a few years without anything about the building having changed. New buildings constructed from 2021 onwards face their own, stricter requirements on primary energy demand. On top of this comes the assessment of whether the site is exposed to physical climate risks such as flooding or heat.

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A single energy-efficient new build is therefore comparatively straightforward to assess. A legacy portfolio of several thousand property loans calls for a continuous comparison against a benchmark that shifts over time, not a one-off check.

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The revised requirements

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On 4 July 2025 the European Commission adopted a delegated act simplifying taxonomy reporting. Once the scrutiny period had elapsed, it was published in the Official Journal on 8 January 2026 as Delegated Regulation (EU) 2026/73. The main reliefs are these:

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Materiality threshold: Economic activities accounting for less than ten per cent of turnover, capital expenditure or operating expenditure respectively no longer have to be assessed individually for alignment. The threshold applies cumulatively across all activities classified as non-material.

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Streamlined templates: The reporting templates have been shortened considerably. Alongside this come reliefs on the do-no-significant-harm principle, particularly in relation to pollution, and a simplified, staged process for assessing climate adaptation.

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The new rules apply as an obligation from financial year 2026; for financial year 2025 companies could choose to apply them voluntarily. In parallel the Commission is revising the technical screening criteria of the climate and environmental delegated acts, with a consultation that ran until April 2026.

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How implementation works

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1. Scoping. Whether and to what extent a company is subject to taxonomy reporting is a legal assessment based on the CSRD thresholds and the specific group structure. It is usually handled by the legal department or external counsel. Once the scope is settled, the practical work begins.

2. Activity analysis. The company's economic activities are mapped to the activities listed in the taxonomy via NACE codes. That establishes taxonomy eligibility.

3. Applying the materiality threshold. Activities below the ten per cent threshold are identified and taken out of the detailed assessment. This reduces the scope of the alignment assessment considerably.

​​​​​​​​​​​​​​​​4. Alignment assessment. For the remaining material activities, you assess whether the technical screening criteria are met, whether other environmental objectives are significantly harmed and whether the minimum safeguards are observed.

5. KPI calculation and reporting. The shares of turnover, capital expenditure and operating expenditure attributable to eligible and to aligned activities are calculated and disclosed as part of CSRD reporting. For financial undertakings the entity-specific KPIs come on top.

 

Our services
 

• Activity analysis: Once the scope has been settled legally, we map your economic activities to the relevant NACE codes, which is the basis for the materiality and alignment assessments.
   

• Materiality and alignment assessment: We apply the ten per cent threshold to your portfolio of activities and test the remaining material activities against the technical screening criteria, including the do-no-significant-harm assessment.
   

• KPI calculation: We calculate the eligible and aligned shares of turnover, CapEx and OpEx and prepare them for CSRD reporting. For banks this includes the groundwork for the Green Asset Ratio, for insurers the selection and documentation of a defensible underwriting methodology, and for asset managers how to handle data gaps where investee companies no longer report.
   

• Integration with CSRD, SFDR and carbon accounting: Taxonomy KPIs draw on the same activity and emissions data that the CSRD and the SFDR require. We reconcile the data base across all three reporting obligations instead of collecting it three times over.
   

• Workshops and training: We show your team how to apply the taxonomy criteria in practice.
   

Contact us
 

Whether it is mapping activities or calculating KPIs, we will work out with you where you stand and which step makes sense next.