Global climate change is increasingly prompting companies to act sustainably and responsibly in economic terms. Through the so-called EU Taxonomy Regulation, the European Parliament calls on companies to address the issue of the environment and contribute to climate protection. With the EU Taxonomy Regulation, the reporting obligations will be expanded to include "green" financial indicators. This will become mandatory for companies as early as the 2022 reporting year for the 2021 financial year.

The Taxonomy Regulation aims to create a climate-neutral Union by 2050. With the help of various conditions for companies and investors that must be fulfilled, it is to be determined whether an economic activity can be claimed sustainable or not. In addition, the Taxonomy Regulation is intended to serve as a benchmark in the assessment of activities that are significantly in line with social and/or environmental objectives.

So far, the regulation has focused on environmental goals in particular, but in the future, social goals and governance goals will also be included. Whether an economic activity is green or not is defined in the Taxonomy Regulation by six EU environmental targets. 

Four conditions are defined for an economic activity to be considered environmentally sustainable and thus taxonomy-oriented.

1. The economic activity contributes to one or more of the six environmental objectives.
2. The economic activity does not compromise any of the six environmental objectives.
3. The economic activity meets the minimum level of protection.
4. The economic activity meets the technical assessment criteria.

The Taxonomy Regulation applies to: 

• ... the EU and its Member States when they take measures to introduce guidelines or designations for sustainable financial products (e.g. investment funds) or bonds (e.g. green bonds).
• ... Financial market participants when they make financial products available.
• ... Companies or large organisations that are obliged to report non-financial information according to the EU Directive.

The objectives of the Taxonomy Regulation are:

1. Uniform requirements for sustainable economic activities
2. Increase transparency
3. Evidence and avoidance of greenwashing
4. Create awareness of the environmental impact of financial products
5. Redirecting capital flows to sustainable investments and businesses

Why should you care about the Taxonomy Regulation?

Companies will already have to report on the first two environmental objectives (climate change mitigation & adaptation) in the 2021 financial year and on the remaining four environmental objectives (sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, protection and restoration of biodiversity and ecosystems) in 2022. Companies should address important key issues before implementation in order to understand the measures and their consequences. Whether the Taxonomy Regulation is introduced or not is not in question. Only the resulting scope and additional effort are unclear.

• Regulation has a major impact on reporting obligations for financial entrepreneurs & other companies
• Commission wants to use Taxonomy Regulation as benchmark
• Regulation also has an impact on the strategy of the company and the financial system

What are the technical challenges of the EU Taxonomy Regulation?

• How do I record accurate values with regard to my sustainable investments instead of estimated figures?
• How can I record, classify and report my green investments?
• How can I determine the green share of my total investments per year?
• How can I clearly show which investments contribute to the goal of sustainability?