Sustainability is becoming increasingly important for companies – not only ecologically, but also economically. The EU Taxonomy plays a central role in this. But what is behind it, and why should companies be concerned with it? This article provides the answers.
1. Why is the EU Taxonomy important?
The EU Taxonomy is a classification system of the European Union that defines which economic activities are considered “environmentally sustainable”. It serves as a guideline for companies and investors to clarify which economic activities contribute to achieving the EU’s environmental goals. The idea behind this is to direct capital flows towards sustainable companies and activities. Companies that apply sustainable practices benefit from better access to financing and increased attractiveness for investors. The aim is to make the economy more environmentally friendly in the long term and achieve European climate targets, such as the reduction of CO₂ emissions.
Why should your company concern itself with this?
- Companies must disclose how sustainably they operate.
- Investors can specifically look for green investment opportunities.
- Those who do not engage with the taxonomy are missing out on financial opportunities.
2. What is behind the EU Taxonomy?
What does “taxonomy” mean?
Taxonomy means classification and, in science, describes the systematic categorization of living beings into groups based on common characteristics. This principle is applied to the economy in the EU Taxonomy: companies and their economic activities are classified according to defined criteria in order to determine whether they are considered sustainable. This creates a standardized system that provides investors and companies with guidance on which economic activities contribute to achieving the EU’s environmental goals. The taxonomy creates transparency and helps to direct capital towards sustainable activities.
Which companies must apply the EU Taxonomy?
All companies that fall under the Corporate Sustainability Reporting Directive (CSRD) must apply the EU Taxonomy. This applies to companies that fulfill at least two of the following criteria:
- More than 250 employees
- More than 50 million euros in sales
- More than 25 million euros in total assets
Financial market participants that offer sustainable financial products must also take the requirements of the EU Taxonomy into account.
When is an economic activity eligible for taxonomy?
Before an economic activity can be classified as sustainable according to the EU Taxonomy, it must first be checked whether it is taxonomy-eligible. This means
- The activity must be listed in the EU Taxonomy Regulation. This list is dynamic, i.e. it constantly adjusts which activities are listed on it.
- If it is not listed, it is not covered by the taxonomy, and no special reporting obligations under the Taxonomy Regulation apply.
What are the six environmental objectives of the EU Taxonomy?
For an economic activity to be considered sustainable, it must contribute to at least one of the following environmental goals:
- Climate protection
- Adaptation to climate change
- Sustainable use of water resources
- Transition to a circular economy
- Prevention of environmental pollution
- Protection of biodiversity
How is taxonomy conformity assessed?
If an economic activity is taxonomy-eligible, its sustainability is assessed on the basis of the following criteria:
- Significant contribution to at least one environmental objective: The activity must demonstrably make a positive contribution to one of the six environmental objectives.
- Do No Significant Harm (DNSH): The activity must not cause significant harm to any other environmental objective.
- Compliance with social and governance criteria: Companies must comply with human rights standards, fair working conditions, and anti-corruption measures.
These three criteria determine whether a taxonomy-eligible economic activity is also considered taxonomy-compliant. If all three criteria are met, the activity can be officially classified as sustainable in the sense of the EU Taxonomy and contributes to the green transformation of the economy.
3. Why is XBRL tagging essential for companies?
Now that we have clarified which economic activities are considered sustainable and how taxonomy compliance is assessed, the question arises: How can companies ensure that their sustainable activities are recognized by investors and regulators?
This is where XBRL tagging comes into play. It helps companies to make their sustainability data structured and digitally accessible so that investors, for example, can search specifically for sustainable investment opportunities.
What is XBRL tagging?
XBRL (eXtensible Business Reporting Language) is a standardized digital reporting language specifically designed to make financial and sustainability data machine-readable. Companies use XBRL to label their reports in a standardized and structured way so that they can be efficiently analyzed by investors, regulators, and other market participants.
A key feature of XBRL is the ability to assign unique, standardized “tags” to financial and sustainability metrics. These tags enable automatic processing and quick comparison of company data, which significantly improves transparency and efficiency in reporting.
Why is XBRL important for the EU Taxonomy?
The EU Taxonomy sets out detailed sustainability criteria that companies must meet and disclose in their reports. Without a standardized and digital structure, it would be almost impossible for investors and supervisory authorities to evaluate relevant data quickly and accurately.
- Automated recording of sustainable activities: XBRL tagging enables companies to precisely identify their sustainable business activities and make them visible to investors.
- Increased transparency: Standardized data structures enable easy comparison between different companies and sectors.
- Mandatory disclosure: Companies that fall under the CSRD (Corporate Sustainability Reporting Directive) must use XBRL to report their taxonomy-compliant activities.
A company that does not label its sustainability KPIs with XBRL risks being overlooked by investors and failing to meet regulatory requirements.
- Investors are specifically looking for sustainable companies.
- A lack of XBRL tagging means low visibility for investors.
- Companies without tagging risk being classified as “unsustainable”.
What are the consequences of missing or incorrect XBRL tagging?
- Missed investment opportunities
- Limited competitiveness
- Possible regulatory disadvantages
4. Will the EU Omnibus Directive 2025 simplify the EU Taxonomy?
What changes does the EU Omnibus Directive bring?
The EU is planning to simplify the taxonomy requirements with the Omnibus Directive. In recent years, there has been increasing criticism of the complexity of the reporting obligations, which are associated with a considerable administrative burden for many companies. The aim of this regulation is therefore to reduce the bureaucratic burden and define the requirements more clearly.
Specifically, the Omnibus Directive is intended to reduce the burden on companies by: The EU plans to simplify the taxonomy requirements with the Omnibus Directive. The aim is to:
- Reduce reporting obligations for companies
- Reduce bureaucratic hurdles
- Create clear and comprehensible rules
What impact does this have on companies?
For companies, the Omnibus Directive presents both opportunities and challenges. On the one hand, the administrative burden could be reduced, while on the other hand, the obligation to produce transparent and comprehensible sustainability reports remains.
The following changes are particularly relevant:
- Less administrative burden
- Easier implementation of sustainability reports
- Despite high transparency requirements
5. Conclusion: Why should companies deal with the EU Taxonomy now?
The EU Taxonomy is a key building block for sustainable investment in Europe. Companies should prepare for this at an early stage, particularly with regard to the digitalization of reporting through XBRL tagging. The EU Omnibus Directive 2025 could bring some simplifications, but the obligation to disclose sustainable activities remains.
Take action now! The requirements of the EU Taxonomy and XBRL tagging can seem complex, but with the right technologies and data-driven approaches, decisive competitive advantages can be achieved. As Blue Bee Intelligence, we combine Business Intelligence (BI) and Artificial Intelligence (AI) with ESG requirements to provide you with customized taxonomy assessment solutions.
Contact us now to optimize your taxonomy strategy with data-driven technologies and secure long-term sustainable success!
