EU Taxonomy Regulation

In order to reach the climate and energy targets of the EU, investments must be channeled into sustainable projects and activities. Therefore, a clear definition of the term “sustainable” is required. This is the purpose of the EU Taxonomy Regulation. It represents the joint classification system for environmentally sustainable economic activities.

Which investments and economic activities are green and environmentally sustainable? Which activities truly contribute to achieving the climate targets? These questions have to be answered in a clear and transparent manner. To this end, the Taxonomy Regulation (→ EUR-Lex) was adopted at the European level in June 2020. It stipulates that only economic activities that make a substantial contribution to achieving the environmental objectives are green. At the same time, they must not cause significant harm to the other five environmental objectives.

Objectives of the EU Taxonomy Regulation

The EU Taxonomy will play a key role in the re-alignment of capital flows towards sustainable investments. Therefore, the taxonomy constitutes an important step in the realization of the overarching goal of a climate-neutrality in the EU by 2050. The objectives of the EU Taxonomy are the following:

  • establishing appropriate definitions for companies and investors with regard to which activities can be considered environmentally sustainable;
  • enabling investors, including retail investors, to channel their capital into environmentally sustainable activities by limiting the risks of greenwashing (products can no longer be described as “green” if they do not meet the requirements of the taxonomy);
  • preventing market fragmentation by creating a single point of reference for investors, companies, and Member States through the definition of environmental sustainability
  • mandatory disclosure of Taxonomy-relevant revenues and investments of financial market participants and large companies.

The six environmental goals represent the assessment yardstick:

  • climate change mitigation
  • climate change adaptation
  • sustainable use and protection of water and marine resources
  • the transition to a circular economy
  • pollution prevention and control
  • the protection and restoration of biodiversity and ecosystems

According to the taxonomy regulation, an economic activity qualifies as sustainable if it substantially contributes to one or more of the environmental objectives, does not significantly harm one or more environmental objectives, is carried out in compliance with the minimum safeguards (i.e. minimum social criteria), and meets technical screening criteria established by the Commission.

What the EU Taxonomy is not

The EU Taxonomy is not a label for green financial products. However, labels for green financial products can make use of the Taxonomy’s classification system. This is planned for the EU Ecolabel for green financial products as well as the EU Green Bond Standard. It also does not contain an obligation to invest in green financial products, but rather an obligation to disclose Taxonomy-relevant information. The EU Taxonomy is also not intended as a classification of “good” or “bad” companies as the taxonomy focuses on economic activities and does not classify entire companies. Furthermore, the EU Taxonomy does not draw connections to the financial performance of financial products.

Science-based criteria are key

Austria supports the EU Sustainable Finance Strategy as well as the EU Taxonomy Regulation and is committed to ensure that they will not be diluted. For Austria, it is particularly important that the criteria of the EU Taxonomy are science-based and credible. This is the only way to ensure that consumers transparently know where they are investing in. Austria has consistently reiterated this in recent months. The position that technologies such as nuclear energy and fossil gas cannot be classified as green has been expressed very clearly. This demand is also being voiced unambiguously together with allied Member States.

Study: Nuclear energy is not a green investment

A study commissioned by the Ministry for Climate Action confirms that nuclear energy does not meet the requirements of the EU Taxonomy Regulation from a legal perspective, either. Therefore, nuclear energy cannot be considered an “environmentally sustainable economic activity” or a “transitional activity” according to the Taxonomy Regulation. In the study, the legal experts conclude that every legal act that is passed on the basis of the Taxonomy Regulation including nuclear energy would be contestable before EU courts.

Additional information on the EU Taxonomy Regulation

  • The regulation requires financial market participants and large companies to disclose Taxonomy-relevant revenues as well as investments. Thereby existing reporting obligations from the Disclosure Regulation (→ EUR-Lex) and the Non-Financial Reporting Directive are being expanded in order to include Taxonomy-relevant information.
  • On 21 April 2021, the European Commission published the detailed technical screening criteria for economic activities (→ EC) that substantially contribute to climate protection and climate change adaptation. The list of economic activities covers 40 per cent of the listed companies and 80 percent of direct greenhouse gas emissions in the EU.