Written by: Nicolas Blackburn
What is the EU taxonomy?
The EU taxonomy is a classification system established by the European Union (EU) to identify economic activities that are environmentally sustainable. It aims to provide clarity and transparency on which investments and activities contribute to the EU’s sustainability goals, and to incentivize and support businesses that adopt environmentally friendly practices and technologies.
It focuses on the following six environmental objectives:
According to the EU taxonomy regulation, for a company to be considered sustainable, it must contribute positively to at least one environmental objective, while also avoiding any negative impact on the remaining objectives. The classification of an economic activity’s sustainability is determined by four criteria:
- The economic activity contributes to one of the six environmental objectives
- The economic activity does ‘no significant harm’ (DNSH) to any of the six environmental objectives
- The economic activity meets ‘minimum safeguards’ such as the UN Guiding Principles on Business and Human Rights to not have a negative social impact
- The economic activity complies with the technical screening criteria developed by the EU Technical Expert Group
How does Carbonsight align with the EU taxonomy?
Carbonsight, Autocase’s new building portfolio decarbonization planning tool, can assist organizations in developing and tracking progress towards strategies and action plans to reduce their carbon emissions and transition to more sustainable practices. This in turn can help businesses align with the EU taxonomy by analyzing their current carbon footprint and have tangible steps for improvement. It will be important to show how companies are working towards the EU’s sustainability goals.
Who is subject to the EU taxonomy?
The EU taxonomy applies to a wide range of companies and financial products and services operating within the EU. This includes companies in various sectors such as manufacturing, energy, transportation, construction, and real estate. It also applies to financial institutions, including banks and investment funds. It will require these large companies to disclose the proportion of their revenue and capital expenditure that is generated from environmentally sustainable activities and investments. This promotes transparency and accountability, encouraging companies to align their operations with sustainable practices.
Why is the EU taxonomy important?
Firstly, it helps to address the challenge of greenwashing, where companies falsely claim their activities are environmentally friendly. By providing clear and transparent criteria, the EU taxonomy ensures that sustainable investments are accurately labeled and can be trusted by investors and consumers.
Secondly, the EU taxonomy plays a crucial role in driving sustainable finance. It provides a common language and framework for companies, investors, and policymakers to assess and report on the environmental sustainability of their activities. This enables investors to make informed decisions and allocate capital towards sustainable projects, ultimately contributing to the transition to a low-carbon and climate-resilient economy.
Furthermore, the EU taxonomy supports the EU’s broader sustainability goals, including the European Green Deal and the Paris Agreement. By incentivizing and rewarding investments in environmentally sustainable activities, it helps to reduce greenhouse gas emissions, protect ecosystems, and promote resource efficiency.
In conclusion, the EU taxonomy for sustainable activities is an important framework in promoting sustainable finance and driving the transition to a greener economy. Carbonsight assists companies and investors in streamlining their efforts to align with the EU taxonomy. The tool provides a structured approach to identifying, implementing, and monitoring sustainable practices, ultimately supporting the transition to a low-carbon and sustainable economy.