What is the EU Taxonomy?
A practical overview of the EU classification system for environmentally sustainable economic activities.
Short answer
The EU Taxonomy is the EU's rulebook for deciding which economic activities can be counted as environmentally sustainable, and which ones are only in scope for screening or reporting.
It works at activity level, not company level.
Alignment requires all four conditions to be met together.
Reporting scope and aligned performance are not the same thing.
Introduction
The EU Taxonomy is a classification framework created by Regulation (EU) 2020/852 to identify which economic activities can be considered environmentally sustainable.
It is designed to improve comparability, reduce greenwashing, and channel capital toward activities that materially support the EU's environmental goals.
Legal basis
The legal foundation is Regulation (EU) 2020/852, supplemented by delegated acts that define activity-specific technical screening criteria.
Those delegated acts determine when an activity makes a substantial contribution and when it avoids significant harm to the other objectives.
Link to the European Green Deal
The Taxonomy is part of the EU sustainable finance architecture and supports the European Green Deal by creating a common reference point for green economic activity.
It works alongside disclosure frameworks such as the CSRD and SFDR.
Omnibus simplification
In February 2025, the Commission proposed simplifications intended to reduce reporting burden.
The simplification track focuses on process and disclosure burden rather than lowering the core environmental thresholds.
Delegated acts
The European Commission has expanded and updated the Taxonomy through delegated acts that set technical criteria and disclosure rules.
Climate Delegated Act
Introduced criteria for climate change mitigation and climate change adaptation.
Environmental Delegated Act
Added criteria for water, circular economy, pollution prevention, and biodiversity.
Simplification Delegated Act
Amended selected Taxonomy criteria and Article 8 disclosure rules to simplify reporting.
The six environmental objectives
A taxonomy-aligned activity must substantially contribute to at least one objective while doing no significant harm to the others.
Climate Change Mitigation
Reducing greenhouse-gas emissions and supporting the transition to a low-carbon economy.
Climate Change Adaptation
Increasing resilience to physical climate risks.
Water and Marine Resources
Protecting water quality and sustainable water use.
Circular Economy
Resource efficiency, reuse, repair, and recycling.
Pollution Prevention
Preventing and controlling pollutant releases.
Biodiversity and Ecosystems
Protecting and restoring biodiversity and ecosystem health.
Four conditions for alignment
An activity is taxonomy-aligned only if it meets all four conditions at the same time.
Substantial contribution
The activity must materially support at least one environmental objective.
Do No Significant Harm
The activity must not significantly harm any of the other environmental objectives.
Minimum safeguards
The undertaking must comply with core social and governance safeguards.
Technical screening criteria
Activity-specific quantitative and qualitative thresholds must be met.
Technical screening criteria
Technical screening criteria translate the regulation into measurable activity-level requirements.
For buildings and infrastructure they often combine energy, climate-risk, and DNSH evidence.
The criteria are defined in delegated acts and can be updated over time.
Enabling and transitional activities
The framework distinguishes between standard activities and specific categories such as enabling and transitional activities.
Transitional activities are limited and subject to conditions designed to avoid long-term lock-in.
Eligible vs aligned vs reportable
These three labels are often mixed up. They describe different steps in the decision and disclosure chain.
| Aspect | Eligible | Aligned | Reportable |
|---|---|---|---|
| What it means | The activity is covered by the Taxonomy and can be screened. | The activity passes substantial contribution, DNSH, minimum safeguards, and technical criteria. | The reporting entity must disclose Taxonomy KPIs, even if aligned values are low or zero. |
| Evidence level | Mostly a scope check. | Requires documented evidence and thresholds. | Requires entity-level KPI reporting. |
| Can it be counted as aligned turnover or CAPEX? | No. | Yes, if the company is in scope and the KPI rules are met. | Not by itself; reportable figures can include non-aligned amounts. |
| Typical use | Pipeline screening and first-pass mapping. | Final sustainability and finance claims. | Annual disclosures under Article 8 and related reporting regimes. |
Who must report?
Taxonomy reporting is linked to the CSRD scope for non-financial undertakings and to sector-specific requirements for financial institutions.
Companies disclose turnover, CAPEX, and OPEX, while financial institutions report taxonomy-related portfolio indicators such as the Green Asset Ratio.
Relationship with CSRD and SFDR
The CSRD provides the corporate reporting framework that carries taxonomy disclosures into sustainability statements.
The SFDR uses taxonomy data in financial-product disclosure.
Together, these frameworks create a chain from company data to investor-facing reporting.
Reporting timeline
Taxonomy reporting and rule updates have been phased in over several years.
Concrete examples
Simple scenarios help show where businesses usually get confused.
New office development meeting Activity 7.1 criteria
The project meets the energy threshold, completes the climate risk assessment, documents DNSH evidence, and can be counted as taxonomy-aligned CAPEX.
Renovation project in scope but missing DNSH evidence
The activity fits a covered building category, but the documentation is incomplete, so it may be taxonomy-eligible without being aligned yet.
Company in CSRD scope with no aligned activities
The company may still need to disclose Taxonomy KPIs and explain that the current aligned share is zero or limited.
Where to go next
Most readers need one of these follow-up paths after the first overview.
Check who must report
Understand which companies and financial institutions fall into Taxonomy disclosure scope.
Explore the six objectives
See how substantial contribution and DNSH differ across the six environmental objectives.
Follow the regulatory timeline
Track the main reporting phases, delegated acts, and recent simplification updates.
Dive into climate adaptation for buildings
BuildingsIf you work on real estate, this is the most common bridge from Taxonomy rules to project evidence.
Need the building-specific path next?
For real estate and infrastructure projects, the Taxonomy often turns into climate-risk evidence, DNSH checks, and project-level adaptation analysis. Start with the CRVA workflow, then see where CFD fits.