The EU Green Taxonomy: Definition, Reporting Obligations, and Key Considerations for Companies

European policymakers have set ambitious climate and sustainability targets, including achieving net-zero greenhouse gas emissions by 2050 under the European Green Deal. To reach these goals, the EU needs to mobilise vast public and private investment – for example, a 55% reduction in greenhouse emissions by 2030 backed by a €1 trillion investment plan over the next decade. Crucially, private sector engagement is required to finance this transition and prevent “greenwashing” (unsubstantiated claims of sustainability). This is where the European Green Taxonomy comes into play. As a cornerstone of the EU’s sustainable finance strategy, the EU Taxonomy establishes a common language defining what qualifies as environmentally sustainable economic activity, thereby guiding capital towards genuinely green projects. In essence, it is a science-based classification system designed to redirect capital flows to sustainable investments, increase market transparency, and discourage greenwashing .

For company leaders, especially those operating or raising funds in Europe, understanding the EU Green Taxonomy is now a strategic imperative. This report – written in polished British English with a business focus – explains what the EU Green Taxonomy is, what reporting it demands from companies, which companies are obligated to report and why, and the key points to consider in such reporting. The discussion centres on EU requirements (as opposed to any non-EU frameworks), incorporating the latest developments and even draft proposals (clearly flagged as such). It is intended as a comprehensive briefing, akin to a consulting outlook, for executives preparing their organisations to comply and compete in an era of green finance.

What Is the European Green Taxonomy?

The European Green Taxonomy is an EU-wide classification system established by the Taxonomy Regulation (EU 2020/852). It provides clear criteria for determining when an economic activity is considered environmentally sustainable – effectively answering the question, “what counts as green?”. Before the taxonomy, companies often used inconsistent definitions of “sustainable” or “eco-friendly”, which enabled selective reporting and even greenwashing. The EU Taxonomy now sets uniform standards and thus brings clarity and credibility to sustainability claims.

Key features of the EU Green Taxonomy include:

·       Six Environmental Objectives: The regulation defines six broad environmental goals. For an activity to be taxonomy-aligned (i.e. officially “sustainable”), it must substantially contribute to at least one of these objectives (while not harming the others). The six objectives are :

i.         Climate change mitigation (e.g. reducing greenhouse gas emissions);

ii.        Climate change adaptation (e.g. building resilience against climate impacts);

iii.        Sustainable use and protection of water and marine resources;

iv.        Transition to a circular economy (e.g. recycling, waste reduction);

v.         Pollution prevention and control;

vi.        Protection and restoration of biodiversity and ecosystems.

·       Technical Screening Criteria: For each objective, detailed technical criteria are set to judge whether an economic activity makes a substantial contribution to that goal. These criteria are grounded in the latest scientific and industry expertise and are periodically reviewed and updated to stay in line with technological advances. For example, to qualify under climate change mitigation, an activity like electricity generation must meet specific emissions thresholds.

·       “Do No Significant Harm” (DNSH) Requirement: An activity contributing to one objective must not significantly harm any of the other objectives. This ensures, for instance, that a renewable energy project (supporting climate mitigation) does not, say, cause excessive harm to biodiversity or water resources.

·       Minimum Social Safeguards: In addition to environmental criteria, companies must meet basic social and governance standards for an activity to be considered sustainable. These safeguards refer to compliance with international norms on human rights, labour rights, and anti-corruption (such as the OECD Guidelines and the UN Guiding Principles). In other words, an environmentally beneficial activity is not deemed “green” if it violates fundamental social principles.

·       Activity-Level (Not Company-Level) Classification: Importantly, the taxonomy assesses specific economic activities rather than whole companies. It is not a rating of “good” or “bad” companies ; instead, it identifies which parts of a business are sustainable. A company may have some taxonomy-aligned activities and others that are not – the taxonomy allows it to quantify and disclose those portions.

By applying these criteria, the EU Taxonomy creates a common framework for investors, companies, and regulators. It defines, in concrete terms, what counts as a sustainable investment. This common definition is vital for directing investment towards activities needed for the green transition, providing confidence to investors that “green” funds are truly green, and protecting against greenwashing by holding companies to objective standards. Ultimately, the taxonomy is a tool to help channel Europe’s vast capital markets into achieving the EU’s environmental objectives in line with the Paris Agreement and European Green Deal.

Reporting Requirements under the EU Taxonomy

EU law now requires that certain companies report on their alignment with the Green Taxonomy, integrating these disclosures into their regular financial or sustainability reports. The Taxonomy Regulation’s Article 8 works in tandem with the EU’s corporate reporting directives to mandate this transparency. In practice, this means that companies falling under EU sustainability reporting rules must include specific metrics showing how their activities align with the taxonomy’s criteria.

What exactly must companies report? In-scope companies are required to disclose the proportion of their economic activities that meet the taxonomy criteria. Concretely, firms must report key performance indicators (KPIs) indicating the share of their business that is taxonomy-aligned :

·       Turnover KPI: The percentage of a company’s turnover (revenue) derived from products or services associated with taxonomy-aligned activities. This shows how much of the company’s core business is “green” as per the taxonomy.

·       CapEx KPI: The proportion of capital expenditures (investments in assets such as equipment, infrastructure, R&D) that are related to taxonomy-aligned activities. This reflects how much the company is investing in sustainable projects or assets for future growth.

·       OpEx KPI: The proportion of operating expenditures (for example, maintenance costs) related to taxonomy-aligned activities. This is relevant for certain sectors where OpEx is significant for sustainability (though many companies focus mainly on Turnover and CapEx).

These KPIs are usually expressed as percentages. For example, a manufacturing firm might report that 20% of its revenue in the past year came from taxonomy-aligned activities (perhaps from selling renewable energy equipment), 15% of its capital spending was on green projects, and so on. Alongside the numbers, companies provide qualitative disclosures explaining the nature of their taxonomy-aligned activities, the methodology used, and any assumptions. The goal is to “clearly indicate how and to what extent” the company’s activities are associated with environmentally sustainable (taxonomy-aligned) activities .

Eligibility vs. Alignment: It’s important to distinguish between taxonomy-eligible and taxonomy-aligned activities in reporting, as the regulatory requirements have been phased in stages:

·       Taxonomy-eligible activities are those that fall within the scope of the taxonomy’s definitions (i.e. the activity is described in the official list of taxonomy criteria, even if it hasn’t yet met all the criteria). Initially, companies were required to report the proportion of their activities that were taxonomy-eligible, as a first step. For example, an electric utility might determine that 40% of its revenue comes from activities covered by the taxonomy (such as power generation or transmission); this is the eligibility assessment.

·       Taxonomy aligned activities are the subset of those eligible activities that fully meet the taxonomy’s criteria; in other words, they make a substantial contribution to an objective and satisfy the DNSH and minimum safeguards conditions. Continuing the example, out of the 40% eligible revenue, perhaps only 25% is from activities that actually meet the strict thresholds and safeguards (e.g. generation from renewables would count as aligned, whereas generation from coal, while “in scope”, does not meet the criteria and hence is not aligned). Companies now must report on this aligned share.

Phased Implementation: The EU introduced taxonomy reporting in a phased manner, linked to the timeline of developing the technical criteria and the rollout of broader reporting mandates:

·       2022 Reports (for FY2021 data): The first disclosures under the taxonomy focused on eligibility. Large public-interest companies (those already under the EU Non-Financial Reporting Directive) had to report what percentage of their activities were eligible for the first two objectives (climate change mitigation and adaptation). This gave investors a view of which portion of the business could even be considered for alignment, based on the climate criteria in place.

·       2023 Reports (for FY2022 data): These companies then reported their alignment with the taxonomy for the climate objectives. By this time, they had to assess, out of their eligible activities, which met all criteria (substantial contribution to climate mitigation/adaptation, DNSH, safeguards) and to what extent (using the KPIs). This was the first full alignment reporting, covering Climate Change Mitigation and Climate Change Adaptation.

·       2024 Reports (for FY2023 data): Draft/Planned – With the EU having adopted criteria for the remaining four environmental objectives by early 2023 , companies are expected to report eligibility and alignment across all six environmental objectives going forward. Indeed, as of 2024, firms are beginning to include the other objectives (water, circular economy, pollution, biodiversity) in their taxonomy reporting. This significantly expands the scope of reporting, since more business activities can be evaluated against more criteria.

·       2025 and beyond: The Corporate Sustainability Reporting Directive (CSRD) takes effect, expanding the range of companies subject to these disclosures (discussed in the next section). Under CSRD, all large companies will need to report taxonomy alignment from 2025 (covering FY2024), and listed SMEs from 2027 (with an opt-out until 2028). By 2025, reports will also reflect alignment on all six objectives (not just climate) for those companies that were previously only reporting on climate objectives. In summary, taxonomy reporting moves from a niche requirement for climate-related activities into a comprehensive sustainability disclosure for a broad set of firms.

It should be noted that financial institutions and asset managers also have taxonomy-related reporting obligations. For example, under the Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy Regulation, an investment fund marketed in the EU as environmentally sustainable (an Article 9 SFDR fund, or an Article 8 fund with environmental characteristics) must disclose the proportion of its portfolio aligned with the taxonomy. Conversely, funds that do not pursue environmental objectives must explicitly state that they do not take the EU criteria into account. Banks and insurers, in their own disclosures, have analogous requirements (e.g. banks report a “Green Asset Ratio” showing the share of their lending aligned with the taxonomy). These financial-sector disclosures ensure that sustainable investment products are transparent about their green assets, and they complement corporate disclosures – in fact, once companies report their own alignment, that data feeds into the metrics that investment firms and banks use .

Reporting format and verification: The taxonomy disclosures are typically integrated into the annual non-financial or sustainability report (which, under CSRD, will be part of the management report and subject to audit/assurance). Regulators expect clear, tabular presentation of the KPIs, accompanied by explanatory notes. As this is a new and technical area of reporting, many companies are involving sustainability experts, accountants, and assurance providers to ensure the figures are accurate and criteria are correctly applied. In fact, EU rules will soon require limited assurance (verification) on sustainability information, including taxonomy metrics, meaning external auditors will review these disclosures for reliability.

Which Companies Must Report – and Why

The EU Taxonomy’s reporting requirements do not apply to every business, but they do cover a large and growing segment of the market. The obligation to report taxonomy alignment is tied to the scope of EU sustainability reporting regulations (previously the NFRD, now broadened by the CSRD). In general, larger companies and financial institutions are in scope, on the rationale that these organisations have the biggest impact on climate and the environment, as well as the resources to undertake detailed reporting. Below is an overview of who is required to report:

·       Large Public-Interest Entities (PIEs) under NFRD: Under the prior Non-Financial Reporting Directive, this included large companies of public interest – for example, EU companies with over 500 employees that are either listed on EU regulated markets or are banks/insurance companies. These companies were the first obligated to report under the taxonomy (from 2022 onwards). They typically include major listed corporations and financial institutions across Europe (approximately 11,000 entities previously).

·       All Large Companies under CSRD: The new Corporate Sustainability Reporting Directive greatly expands the scope. From financial year 2024 onward, all large companies in the EU will have to report, whether listed or not. The EU defines “large” as meeting at least two of: €50 million+ turnover, €25 million+ balance sheet, and 250+ employees. This brings in many non-listed large enterprises that were previously exempt. In numbers, the affected companies will rise to around 50,000 companies in Europe required to report taxonomy alignment under CSRD – a dramatic increase in transparency across the economy.

·       Listed SMEs: Small and medium-sized enterprises with securities listed on regulated markets will also come into scope, though with a time lag and some flexibility. Listed SMEs are expected to start reporting sustainability information (including taxonomy metrics) from 2026 (for FY2025), but they can opt-out until 2028 if needed. This phased approach acknowledges the challenges smaller firms face and gives them more time.

·       Financial Market Participants: Banks, asset managers, insurance providers, and pension funds offering financial products in the EU must disclose how those products align with the taxonomy. This includes even non-EU firms selling funds or products into the EU market – they are subject to the same disclosure requirements for those products. The reasoning is to inform end-investors about the sustainability of their investments. For instance, an EU-based investment fund must report the percentage of its portfolio invested in taxonomy-aligned economic activities (using data from investee companies, or estimates if necessary). Likewise, banks report the portion of their lending book financing green activities (the Green Asset Ratio).

·       Non-EU Companies with Significant EU Operations (Draft/Upcoming): In recognition of global business, the EU is extending certain reporting requirements to large third-country companies that have substantial turnover in the EU. Draft rules (set out in the CSRD) indicate that non-EU companies generating over €150 million in EU revenues and having at least a branch or subsidiary in the EU will be required to produce a sustainability report for their EU activities from 2029 (covering FY2028). This report would include taxonomy alignment metrics. The aim is to level the playing field and ensure that foreign companies competing in the EU market (or seeking EU investors) provide equivalent transparency on sustainability.

It’s worth emphasising that companies outside these groups can still choose to report taxonomy alignment voluntarily. Some mid-sized firms or privately held companies opt to do so to demonstrate sustainability to investors or prepare for future regulations. However, the mandatory burden is intentionally placed on larger entities and financial actors, consistent with the EU’s proportional regulatory approach.

Why these companies? 

The underlying rationale for focusing on large and listed companies and financial institutions is multifaceted:

·       Impact and Accountability: Large companies typically have outsized environmental footprints and influence over supply chains. Requiring them to report creates transparency about a significant share of economic activity. These firms’ actions (or inaction) on sustainability have a substantial impact on whether the EU meets its climate goals. Thus, holding them accountable through disclosure is logical.

·       Investor Relevance: Public-interest companies are exactly those that investors, analysts, and stakeholders scrutinise. For markets to price sustainability risks and opportunities, they need information from the companies they invest in or lend to. Taxonomy alignment data helps investors decide which firms are truly contributing to the green transition. It essentially enables direct comparison between companies on their share of sustainable activities, which is valuable information for an investor choosing between (say) a green energy company and a conventional one .

·       Reorienting Capital Flows: A core objective of the EU Green Deal and the sustainable finance action plan is to redirect capital towards sustainable investments. By mandating disclosure from large companies and finance providers, the EU influences investment decisions at scale. If, for example, Bank A shows a high Green Asset Ratio and Bank B a low one, investors and customers may favour Bank A, pressuring Bank B to finance more green projects. In aggregate, this shifts capital towards greener economic activities. The European Commission explicitly wants to “encourage long-termism” in business and finance and make sustainability a component of risk management .

·       Preventing Greenwashing: Requiring specific, standardised metrics from companies means they cannot simply call themselves “green” without evidence. It combats the inflated or misleading claims that sometimes plagued ESG (Environmental, Social, Governance) communications in the past. Large companies must now show their work – e.g. how much of their turnover is aligned with EU criteria – in a format investors can trust. This bolsters overall confidence in sustainable finance products (which often include those companies in portfolios) .

·       Focus on the Largest Players (Efficiency): The compliance burden is non-trivial – it involves detailed data gathering and analysis. The EU has chosen to concentrate that burden where it will have the most bang for the buck. Indeed, recent simplification proposals from the European Commission (February 2025) underscore focusing on “the largest companies which are likely to have a bigger impact on the climate and the environment, while still enabling SMEs to access sustainable finance for their transition”. This reflects a policy decision: regulate big players stringently and simplify or delay requirements for smaller ones, to avoid stifling business unnecessarily while still achieving environmental transparency at scale.

In summary, the taxonomy reporting mandate falls primarily on large corporates and financial institutions because they are pivotal in the shift to a sustainable economy. By mandating these disclosures, the EU is effectively enlisting the private sector in its climate strategy: companies are pushed to assess and, ideally, increase the sustainability of their activities. Over time, this is expected to influence corporate behaviour – companies may seek to expand their taxonomy-aligned turnover (to attract investors or improve their cost of capital), thus directly contributing to environmental objectives. For company owners and executives, being in scope of taxonomy reporting means heightened scrutiny but also an opportunity to showcase sustainability leadership. Many businesses are treating the taxonomy not just as a compliance exercise, but as a strategic framework to guide green business development.

Key Considerations for Companies’ Taxonomy Reporting

Preparing taxonomy-aligned disclosures is a complex task that cuts across technical environmental analysis and financial reporting. Companies need to approach it diligently to ensure compliance, accuracy, and meaningful communication. Based on both regulatory guidance and industry best practices, here are key considerations and steps for companies as they implement EU Taxonomy reporting:

·       Understand the Criteria and Scope: Begin by identifying which of your company’s activities might be taxonomy-eligible. This involves mapping your business lines against the EU Taxonomy’s list of economic activities (often classified by NACE codes or descriptions in the Delegated Acts). Once you know what could potentially be in scope, study the technical screening criteria for those activities. Determine what is required for each to be considered sustainable – for example, emissions thresholds, energy efficiency requirements, or other quantitative/qualitative criteria. Ensure also that you understand the specific DNSH measures applicable (e.g. an infrastructure project might need an environmental impact assessment to avoid biodiversity harm) and the minimum safeguards (e.g. confirming adherence to OECD Guidelines on Multinational Enterprises). This deep dive is necessary to establish a compliance roadmap for each activity. In many cases, companies create an internal checklist or decision tree for each eligible activity, summarising the criteria that must be met .

·       Data Collection and Validation: Fulfilling the taxonomy criteria is a data driven exercise. Companies must gather evidence and metrics to demonstrate substantial contribution and no significant harm. This could include carbon emission data, energy consumption, pollution levels, or use of recycled materials, depending on the objective. Data silos need to be broken down: sustainability teams, engineering departments, and finance teams must collaborate to collect the right data. Many firms find gaps in available data initially – for example, a company may not yet track water usage by facility in the detail required for the water objective, or suppliers may not provide necessary information. It is crucial to develop a plan to close these data gaps early. Data quality control is equally important; since these disclosures may be assured by auditors, the underlying data should be auditable and well-documented. Implement internal checks or audits on the data and consider using digital tools (there are software solutions emerging for ESG data management and taxonomy alignment tracking). Remember that if you cannot demonstrate alignment for an activity in a given year (due to lack of data or failing criteria), you must report it as 0% aligned – there is no “nearly aligned” gradation allowed .

·       Financial Alignment Calculations: Once the environmental assessment is done for each activity, finance teams need to calculate the Turnover, CapEx, and OpEx KPIs as defined by the Article 8 Delegated Act. This requires linking the taxonomy-eligible/aligned activities to financial figures. For turnover, this usually means revenue segmentation – e.g. identifying the revenue from sales of green products or services. For CapEx/OpEx, it means tagging investment projects or expenses that are aimed at green activities. Companies should ensure their accounting systems or project tracking systems can apply these “green tags” to relevant expenditures. A prudent practice is to define clear methodology notes for these calculations (for instance, how you attributed certain overhead costs to OpEx, or how you treated joint ventures or minority holdings) and to apply the methodology consistently year over year. Where estimation is needed (say, for parts of turnover that indirectly support a green activity), be transparent about assumptions. The goal is to produce KPIs that are accurate, verifiable, and comparable to peers. This exercise often uncovers the need for better internal accounting of sustainability-related revenues and spending – many companies are establishing internal processes to budget and track “green CapEx” for both management and reporting purposes.

·       Integration with Broader ESG Reporting: Taxonomy reporting should not occur in isolation. It is now a component of the broader corporate sustainability reporting landscape, which includes the CSRD’s upcoming European Sustainability Reporting Standards (ESRS). Companies should ensure that the narrative they present in their sustainability reports is consistent. For example, if your annual report’s strategy section touts a commitment to climate action, the taxonomy disclosure should ideally reflect progress on climate-aligned revenue or investment. Double materiality assessments, climate transition plans, and other disclosures will all interrelate with the taxonomy data. A coherent story increases credibility. Also, consider how taxonomy KPIs might be used in investor communications, sustainability bond prospectuses, or even executive remuneration (some companies are starting to link a portion of pay to sustainability metrics, which could include taxonomy alignment). In short, weave the taxonomy into your overall ESG strategy and reporting framework so that it complements and strengthens your corporate message on sustainability.

·       Governance and Responsibility: Clear internal governance is needed to produce high-quality taxonomy disclosures. Many companies establish a cross-functional working group or steering committee for this purpose. For instance, the environmental specialists identify eligible activities and criteria, operations managers implement required processes on the ground (ensuring projects meet criteria), finance aggregates the financial data, and legal/IR ensure the disclosures meet regulatory requirements. Assign specific responsibilities – who owns the data collection, who validates the technical compliance, who calculates the KPIs, and who signs off on the final numbers. In addition, involve top management: the board or C-suite should understand the company’s taxonomy alignment profile, since it can be seen as a proxy for future-readiness in a green economy. Having robust governance not only reduces the risk of errors but also signals to investors that the company is treating sustainability with the same rigour as financial reporting.

·       External Assistance and Assurance: Given that taxonomy reporting is new and complex, don’t hesitate to seek expert help. Engaging an assurance provider or consultant early in the process can provide invaluable guidance. For example, professional services firms (consultancies, auditors) can perform a readiness assessment – checking your approach against regulatory expectations and industry best practices. They can highlight common pitfalls (e.g. misinterpreting a technical criterion, or forgetting to include certain operations in the scope). Furthermore, since an external audit of sustainability information will soon be mandatory, it’s wise to prepare as if your data will be audited. Conduct “dry-run” assurance on your taxonomy numbers to flush out issues. Training staff on the nuances of the regulation is also helpful – many firms run internal workshops to build literacy around terms like DNSH or how to evidence an environmental benefit. The investment in these capabilities will pay off through smoother reporting cycles and greater credibility. A Big 4 firm’s sustainability partner put it succinctly: an early start and expert input can ensure you stay ahead of the curve in compliance and avoid last-minute scrambles .

·       Continuous Improvement and Adaptation: Treat taxonomy compliance as an evolving process, not a one-off project. The EU Taxonomy itself is dynamic – criteria will be updated, new activities may be added (for instance, criteria for more sectors or new technologies), and regulations could extend to new areas (the concept of a “social taxonomy” is already being explored in draft form – aiming to define socially sustainable activities in the future ). Companies should stay abreast of these developments. Make a plan to review new Delegated Acts or guidance that come out: for example, the European Commission periodically issues FAQs and user guidance for taxonomy disclosures , and the Platform on Sustainable Finance (the expert advisory group) publishes reports with recommendations (often foreshadowing regulatory changes). By monitoring such updates, companies can anticipate changes – such as adjusted technical criteria or simplified disclosure requirements – and adapt their internal processes accordingly. Flexibility is key, as sustainability reporting is one of the fastest-changing fields in corporate reporting. Companies that build agile systems and keep knowledgeable staff or advisors will handle regulatory changes with less disruption.

·       Strategic Opportunities: Finally, remember that taxonomy reporting is not just a compliance chore – it can uncover strategic insights. Companies are using the taxonomy as a lens to evaluate their own business portfolios: e.g., “How much of our revenue is green today, and where could it be in five years?” This can inform investment decisions and capital allocation. Some firms set targets to increase their taxonomy-aligned revenue or CapEx as part of their sustainability strategy. In discussions with investors and lenders, a higher proportion of green activities can potentially lead to benefits (such as access to sustainability-linked financing at better rates). The taxonomy thus offers a framework for companies to communicate their transition plans in concrete terms. It also forces introspection on business models – if a significant portion of your business is not aligned today, do you have a plan for making it more sustainable, or might you face regulatory and market risks? Thinking like a McKinsey-style strategist, use the taxonomy data to identify where your company can grow in the green economy or where it needs to innovate or divest to remain competitive. Leading companies will not only report the taxonomy numbers but also explain in their narrative how they intend to improve those numbers over time. That proactive stance can bolster your reputation among stakeholders.

In sum, tackling the EU Taxonomy reporting requires a blend of technical environmental knowledge, meticulous data management, strong governance, and strategic vision. Companies that pay attention to these considerations will not only meet their compliance obligations but can also gain business value – by building trust with investors, uncovering efficiencies, and positioning themselves as sustainability frontrunners.

Latest Developments and Draft Proposals

The sustainable finance landscape continues to evolve. Company owners and executives should be aware of the latest developments (as of 2024-2025) regarding the EU Taxonomy and related regulations, including proposals still under discussion (marked as draft). Being up-to-date will ensure long-term plans can accommodate upcoming changes. Here are some recent and upcoming developments:

·       Expansion to All Environmental Objectives: Initially, the taxonomy’s technical criteria existed only for climate change mitigation and adaptation (the first two objectives). In April 2023, the European Commission released criteria for the remaining four objectives (water, circular economy, pollution prevention, biodiversity). These were formally adopted in a Delegated Act published in the Official Journal in late 2023. As a result, company reports in 2024 (and onward) are expected to cover all six objectives. This greatly broadens the taxonomy’s coverage, bringing in sectors like water management, waste, and nature conservation into the fold of what can be counted as sustainable. For companies, it means more of their activities might qualify (for example, a manufacturing firm’s recycling initiatives or a utility’s water treatment projects could now be recognised), but also more criteria to assess. It’s a development that underscores the taxonomy’s comprehensive approach to environmental sustainability.

·       Inclusion of Transition Activities (Gas & Nuclear): In a controversial move, the Commission in 2022 adopted a Complementary Climate Delegated Act that included certain nuclear energy and natural gas activities as taxonomy-eligible, under strict conditions; for example, efficiency and emissions standards, and plans to switch to low-carbon gases. The rationale was to recognise these as transitional activities for achieving climate goals. After intense debate, the European Parliament did not object to this inclusion, meaning it stands. This decision generated significant discussion – some stakeholders argued it risked the taxonomy’s credibility by labelling fossil gas as “sustainable”, while others contended it was a realistic compromise to accelerate the energy transition. For businesses, the immediate effect is that investments in new nuclear plants or high-efficiency gas-fired plants (that meet EU criteria) can be reported as contributing to climate objectives. However, this area remains under scrutiny (indeed, it has even triggered legal challenges by certain Member States and NGOs ). The takeaway for companies is that the taxonomy is not static nor free of politics; certain definitions may evolve, and one should watch for updates to criteria or possible removals if political winds shift in the future.

·       Simplification and SMEs – Draft 2025 Omnibus Proposals: In February 2025, the European Commission announced an “Omnibus” package of proposals aiming to simplify sustainability reporting rules and reduce burdens, especially for smaller companies. Among the ideas are postponing some CSRD reporting deadlines, streamlining indicators, and focusing requirements more on large companies. For example, there are discussions about extending the phase-in periods for certain sectors or thresholds, and clarifying definitions to improve reporting efficiency. While these are proposals (not yet law as of mid-2025), they indicate a regulatory intent to make the framework more practicable. Company leaders should follow these debates closely. If adopted, such changes could mean slightly more time to comply or simpler templates – a welcome relief for many. It’s also possible that some metrics might be adjusted to align better with international standards or to avoid duplication. Nonetheless, the core taxonomy disclosure (turnover, CapEx, OpEx alignment) is expected to remain a fundamental requirement.

·       Corporate Sustainability Reporting Standards: Alongside taxonomy updates, the European Financial Reporting Advisory Group (EFRAG) has been developing detailed sustainability reporting standards (the ESRS) under the CSRD. These standards, finalised in mid-2023, integrate the requirement for taxonomy disclosures. Notably, the ESRS E1 (Environment – Climate) standard dovetails with taxonomy by requiring those alignment metrics for climate-related activities. As companies implement CSRD in 2024-2025, they will do so using ESRS, which means taxonomy information will appear as part of a holistic sustainability report, rather than a standalone report. Keeping track of EFRAG’s guidance and how auditors approach these new standards will be important. It’s advisable to ensure that taxonomy reporting processes are compatible with the broader CSRD reporting processes; for example, using the same data systems and governance).

·       Prospects of a Social Taxonomy (Draft): The EU is exploring extending the taxonomy concept to social objectives (a “Social Taxonomy”). In February 2022, the Platform on Sustainable Finance (the Commission’s expert group) issued a report on a Social Taxonomy , proposing how objectives like affordable healthcare, inclusive employment, or education could be defined as “socially sustainable economic activities”. This is still only at a proposal stage – the Commission has not yet put forward legislation to create a social taxonomy, and it’s a subject of ongoing debate. If it eventually progresses, companies might in the future have to assess and report on socially sustainable activities with similar principles (substantial social benefit, do no harm, etc.). For now, company owners should note this as a potential horizon issue. Some are already voluntarily considering social impact metrics, but until any social taxonomy becomes law, the focus remains on environmental factors.

·       Significantly Harmful and Transition Taxonomies (Draft Concepts): Another idea floated by the Platform on Sustainable Finance is to develop complementary classifications for activities that are significantly harmful or those in transition. The notion here is a three-tier system: green (sustainable), amber (intermediate/transitional), and red (unsustainable) – which could guide investors not just on what’s good, but also on what to phase out. A report on an “environmental transition taxonomy” was published by the Platform in March 2022. Again, this is not (yet) part of EU law, but it signals how the conversation is moving. Practically, this could mean in the future companies might disclose not only their % of green activities but potentially % of activities that are not aligned or even detrimental. The EU has not committed to this approach formally, but it reflects the broader policy thinking: to leave no ambiguity about what needs retiring in a net-zero economy. Company strategists might use this insight by identifying any “red” activities in their portfolio now and planning for their transformation or phase-out, as markets may increasingly discriminate against clearly harmful activities even absent formal reporting requirements.

·       Global Alignment and Market Impact: While focusing on the EU, it’s worth noting that the EU Taxonomy has become a reference point globally. Other jurisdictions (China, UK, Canada, etc.) are developing or have developed their own taxonomies. An International Platform on Sustainable Finance (IPSF) is working on a “Common Ground Taxonomy” to map equivalences between the EU and Chinese taxonomies, for instance. This global dialogue may, over time, simplify reporting for multinational companies. As of 2025, however, such harmonisation is limited; companies must adhere to EU requirements for EU operations and investors. Nonetheless, large companies might keep an eye on these international developments, since alignment could become a competitive factor in accessing global sustainable finance. The EU is also considering how its taxonomy can be used in trade and investment agreements, potentially influencing companies abroad that seek European capital.

In conclusion, the regulatory environment around the EU Green Taxonomy is active. Draft proposals are on the table to refine the system, and further evolution is likely as the EU reviews how effective the taxonomy is (a formal review of the Taxonomy Regulation is expected by 2024-2025). Companies should treat compliance as a moving target; staying informed through professional advisors or industry associations is wise. Adapting early to new rules will avoid unpleasant surprises. The good news is that as the rules evolve, they are also becoming clearer through practice: early reports from 2023 and 2024 are offering examples and benchmarks, which regulators and companies alike are learning from. The trajectory is set towards more transparency and more nuanced green definitions, not less. Businesses that embrace this and build capability now will find themselves with a competitive advantage as sustainability becomes ever more ingrained in how business is done in Europe.

Briefly speaking

The European Green Taxonomy represents a paradigm shift in how companies report and think about sustainability. It provides a rigorous, standardised mechanism to measure and disclose the environmental performance of business activities. For company owners and executives, meeting the Taxonomy reporting obligations is now a key aspect of doing business in the EU; but beyond merely complying, it offers a chance to reorient strategy toward the future. Firms that proactively align a greater share of their operations with the Taxonomy not only contribute to global climate and environmental goals, they also signal to investors that they are forward-looking and resilient in a world rapidly pivoting to sustainability.

Admittedly, the Taxonomy can be complex and initially challenging; it demands new data, cross-departmental coordination, and a deep understanding of technical criteria. However, those who master it can unlock benefits. High taxonomy alignment can potentially attract sustainability focused investment, improve stakeholder trust, and possibly yield financial advantages (such as easier access to green financing). It is increasingly seen that taxonomy alignment is not just a regulatory checkbox, but a strategic metric that reflects a business’s innovation and commitment to sustainable growth. In the eyes of European regulators and markets, it separates genuine action from hollow promises.

As a final thought, consider the mindset of a top-tier strategy consultant evaluating your business. Such an advisor would highlight that embracing the EU Green Taxonomy goes hand in hand with long-term value creation: it forces clarity on which parts of the business are fit for a low-carbon, resource efficient economy and which are not. It provides a roadmap for where to invest, where to divest, and how to manage transition risks. Companies that integrate taxonomy considerations into their core decision making will be better positioned in an era where customers, investors, and regulators are all aligned on one principle “sustainability is no longer optional, but fundamental”. By diligently reporting and improving sustainability performance in line with the EU Taxonomy, businesses can not only avoid compliance pitfalls but actively strengthen their market position and legacy as leaders in the green transition.