The EU Taxonomy is a classification system created by the European Union to help identify economic activities that are considered environmentally sustainable. The system sets out a common language and criteria for determining whether an economic activity contributes to one or more of six environmental objectives: climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems.
The EU Taxonomy was established under the Sustainable Finance Disclosure Regulation (SFDR) and is intended to help investors and companies make informed decisions about sustainable investments and business practices. It is designed to promote transparency and comparability in sustainable finance by providing a standardized framework for measuring and reporting the environmental impact of economic activities.
Companies that wish to advertise their financial products as environmentally sustainable must disclose how their investments align with the EU Taxonomy. The taxonomy is also intended to guide public and private investment toward sustainable activities and to support the transition to a low-carbon, resource-efficient, and sustainable economy.
The EU Taxonomy is an evolving system that will be reviewed and updated on a regular basis as scientific knowledge and environmental standards evolve. In June 2020, the European Commission published the first delegated act of the EU Taxonomy, which covers economic activities related to climate change mitigation and adaptation.
Sources:
- European Commission website: EU Taxonomy: https://ec.europa.eu/info/publications/sustainable-finance-teg-taxonomy_en
- European Parliament website: The EU Taxonomy for sustainable finance: https://www.europarl.europa.eu/news/en/headlines/society/20210513STO04103/the-eu-taxonomy-for-sustainable-finance
- Deloitte: The EU Taxonomy: https://www2.deloitte.com/uk/en/pages/audit/articles/eu-taxonomy.html
