EU Taxonomy

The EU Taxonomy is a classification system that sets out criteria for when an economic activity can be called environmentally sustainable. It is intended to be a shared reference point so that "green" claims across EU sustainable finance rules mean the same thing.

The framework defines 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.

For an activity to be taxonomy-aligned it must substantially contribute to at least one objective, do no significant harm (DNSH) to the others, and meet minimum social safeguards. Detailed technical screening criteria for activities are set in delegated acts.

In practice, companies and investors report two related measures: taxonomy eligibility (whether an activity is covered by the criteria at all) and taxonomy alignment (whether it actually meets them). The Taxonomy is closely tied to CSRD reporting and SFDR disclosures, making it central to sustainable finance and ESG reporting roles.