Introduction
On November 29, 2024, the European Commission released The Draft Commission Notice on the interpretation and implementation of the EU Taxonomy Delegated Acts. Approved in principle by the European Commission in November 2024, this notice clarifies key issues concerning the classification and reporting of sustainable economic activities to support stakeholders in achieving compliance.
Background
The EU Taxonomy is a framework created as part of the Action Plan on Financing Sustainable Growth, aimed at developing a standardized classification for environmentally sustainable activities. The Taxonomy consists of several delegated acts: the Climate Delegated Act, Environmental Delegated Act, and the Disclosures Delegated Act. Each of these delegated acts defines technical screening criteria (TSC) for evaluating whether an economic activity contributes to environmental objectives, including climate change mitigation, adaptation, pollution prevention, water conservation, circular economy, and biodiversity.
The EU Taxonomy Climate Delegated Act, adopted in June 2021, set out TSC for activities that substantially contribute to climate change mitigation or adaptation while ensuring no significant harm is caused to other environmental goals. The Environmental Delegated Act, adopted in June 2023, extends TSC to cover additional environmental objectives, such as the sustainable use of water, pollution control, and biodiversity protection. Amendments to these Acts, as well as the Disclosures Delegated Act, were adopted in November 2023, becoming effective from January 2024.
Highlights of the Draft Commission Notice
This notice primarily addresses frequently asked questions (FAQs) about the technical screening criteria and reporting obligations under these delegated acts. These clarifications are aimed at ensuring comparability and usability of reported data across financial and non-financial undertakings. For instance, the document provides clarity on how specific legal requirements should be interpreted, such as the application of the “Do No Significant Harm” (DNSH) principle. The DNSH principle ensures that activities contributing to one environmental objective do not adversely affect others, thereby maintaining an integrated approach to sustainability.
The notice also clarifies the criteria for activities like electricity generation using renewable sources, including solar, hydropower, and hydrogen production. It outlines how to apply life-cycle assessments of greenhouse gas emissions, compliance requirements, and third-party verification frequency. For instance, activities like the manufacture of plastics or soda ash must comply with TSCs that include greenhouse gas emission thresholds. Compliance with these criteria must be verified by independent third parties, and the notice specifies the circumstances in which companies can rely on previously verified data.
In addition, the document outlines the role of NACE codes, which serve as indicative references for categorizing economic activities. It emphasizes that while these codes help identify taxonomy-eligible activities, the specific activity descriptions provided in the delegated acts take precedence over the codes.
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Conclusion
This notice with the FAQs on EU Taxonomy reporting is a useful resource for firms reporting under EU Taxonomy regulations, providing clear guidance on compliance and practical implementation. By offering clarifications on technical screening criteria and reporting requirements, it aims to reduce ambiguities in EU Taxonomy reporting.
The 75 page Draft Commission Notice containing the FAQs related EU Taxonomy delegated acts can be downloaded here. This draft received in-principle approval from the European Commission on 29 November 2024, with formal adoption across all official EU languages to follow once the translations are finalized.
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