The EU Taxonomy

Introduction

The EU Taxonomy is a regulation that establishes a criteria for determining whether an economic activity qualifies as environmentally sustainable. The regulation applies to financial market participants such as investors and lenders to determine whether an investment in the economic activity can be considered to be environmentally sustainable.

Criteria for environmentally sustainable economic activities

Article 10

To be classified as environmentally sustainable, an economic activity should:

1. contribute significantly to one or more of the following objectives;

   1. climate change mitigation;
   2. climate change adaptation;
   3. the sustainable use and protection of water and marine resources;
   4. the transition to a circular economy;
   5. the prevention and control of pollution;
   6. the protection and restoration of biodiversity and ecosystems.

2. not significantly harm any of the environmental objectives above;

3. be carried out in compliance with minimum safeguards laid down in Article 18 of this regulation;

4. comply with technical screening criteria outlined in Article 19 of the regulation.

Objective 1: climate change mitigation

Article 10

An economic activity qualifies to contribute significantly to climate change mitigation if it helps stabilise greenhouse gases in the atmosphere in accordance with the Paris Agreement, either through the avoidance, reduction or removal of these gases. The activity can do this either by:

1. generating, transmitting, storing, distributing or using renewable energy;

2. improving energy efficiency, except for power generation activities that use solid fossil fuels¹;

3. increasing clean or climate-neutral mobility;

4. switching to the use of sustainably sourced renewable materials;

5. increasing the use of environmentally safe carbon capture and utilisation (CCU) and carbon capture and storage (CCS) technologies that deliver a net reduction in greenhouse gas emissions;

6. strengthening land carbon sinks², including through avoiding deforestation and forest degradation, restoration of forests, sustainable management and restoration of croplands, grasslands and wetlands, afforestation, and regenerative agriculture;

7. establishing energy infrastructure required for enabling the decarbonisation of energy systems;

8. producing clean and efficient fuels from renewable or carbon-neutral sources; or

9. enabling any of the activities listed above.

If technologically and economically feasible low-carbon alternatives do not exist, an economic activity can be said to substantially contribute to climate change if:

1. its greenhouse gas levels correspond to the best performing levels in the industry or sector;

2. it doesn’t prevent the development and deployment of low-carbon alternatives;

3. it prevents the production of carbon-intensive assets.

Objective 2: climate change adaptation

Article 11

An economic activity substantially contributes to climate change adaptation if it includes or provides solutions that reduce the risk of climate problems today and in the future, without making things worse for people, nature, or assets.

Objective 3: sustainable use and protection of water and marine resources

Article 12

An economic activity contributes substantially to the sustainable use and protection of water and marine resources if:

1. it helps in achieving the good status of water bodies (both surface water and ground water) or prevents the deterioration of water bodies that already have good status;

2. it helps in achieving the good environmental status of marine waters or prevents the deterioration of those that are already in good environmental status.

The activity should achieve this by:

1. protecting the environment from the harmful effects of waste water from cities and industries, including new pollutants like pharmaceuticals and microplastics, by making sure waste water is properly collected, treated, and safely released;

2. protecting human health from harmful water contamination by making sure drinking water is free from harmful microorganisms, parasites, and substances, and by increasing access to clean drinking water;

3. improving water management and efficiency by:

   1. protecting and enhancing the status of aquatic ecosystems,

   2. promoting the sustainable use of water through the long-term protection of available water resources e.g. through measures such as water reuse,

   3. ensuring the progressive reduction of pollutant emissions into surface water and groundwater,

   4. contributing to mitigating the effects of floods and droughts,

   5. any other activity that protects or improves the qualitative and quantitative status of water bodies.

4. ensuring the sustainable use of marine ecosystem services or helping to maintain the health of marine waters, including by protecting, preserving, or restoring the marine environment and preventing or reducing pollution entering the oceans; or

5. enabling any of the activities listed above

Objective 4: transition to a circular economy

Article 13

An economic activity qualifies as contributing substantially to the transition to a circular economy³ if it :

1. uses sustainably sourced natural resources such as bio-based raw materials efficiently e.g. by reducing the use of primary raw materials, increasing the use of by-products and secondary raw materials⁴ or by using energy efficient measures;

2. increases the durability, reparability, upgradability or reusability of products, in particular in designing and manufacturing activities;

3. increases the recyclability of products, including recyclable products contained in those products, either by substituting or reducing the use on non-recyclable products;

4. reduces the content of harzadous substances and substitutes substances of very high concern (SHVCs)⁵ with safer alternatives;

5. prolongs the use of products by reusing them, designing them to last longer, repurposing them, taking them apart, rebuilding them, upgrading or repairing them;

6. increases the use and quality of secondary raw materials e.g high-quality recycling of waste;

7. prevents or reduces waste generation e.g. waste from the extraction of minerals or from the construction and demolition of buildings;

8. helps improve processes that make waste ready for reuse or recycling;

9. helps develop better waste management systems to prevent waste, prepare materials for reuse, and improve recycling. This ensures that recovered materials are recycled into high-quality secondary raw materials for production, rather than being downgraded into lower-quality products⁶;

10. reduces waste incineration⁷ and prevents waste from being dumped or sent to landfills, following the principles of the waste hierarchy, which prioritizes prevention, reuse, and recycling;

11. avoids and reduces litter; or

12. enables any of the activities listed above.

Objective 5: prevention and control of pollution

Article 14

An economic activity qualifies as contributing substantially to the prevention and control of pollution if it:

1. prevents or reduces pollutant emissions (other than greenhouse gases) into the air, water or land;

2. improves the quality of air, water or soil in the area where it takes place while minimising any risk and adverse effects on human health and the environment;

3. prevents or minimises the adverse effects of the use or disposal of chemicals, on human health and the environment;

4. helps in cleaning up litter and other pollution;

5. is an enabler of any activity listed above

Objective 6: protection and restoration of biodiversity and ecosystems

Article 15

An economic activity qualifies as contributing substantially to the protection and restoration of biodiversity⁸ and ecosystems if it:

1. contributes to protecting, conserving or restoring biodiversity;

2. helps in achieving the good condition of ecosystems;

3. protects ecosystems that are already in good condition.

The activity can do this through:

1. conserving nature and biodiversity in various ways such as;

   1. achieving favourable conservation status of natural and semi-natural habitats and species;

   2. preventing their deterioration where they already have favourable conservation status;

   3. protecting and restoring terrestrial, marine and other aquatic ecosystems in order to improve their condition and enhance their capacity to provide ecosystem services.

2. sustainable land use and management for example through ;

   1. adequate protection of soil biodiversity,

   2. land degradation neutrality,

   3. remediation of contaminated sites.

3. sustainable agricultural practices, such as those that contribute to enhancing biodiversity or to halting or preventing the degradation of soils and other ecosystems, deforestation and habitat loss;

4. sustainable forest management practices e.g. practices that use forests and forest land that contribute to enhancing biodiversity or to halting or preventing degradation of ecosystems, deforestation and habitat loss.

5. enabling any of the activities listed above

Enabling activities

Article 16

An economic activity qualifies as contributing significantly to one or more environmental goals if it helps other activities make a big impact on those goals, as long as the activity:

1. does not lock in assets that harm long-term environmental goals, considering the lifetime of those assets; and

2. has a significant positive environmental impact based on its entire life cycle.

Principle of ‘do no harm’

Article 17

The second condition for an economic activity to be considered environmentally sustainable is that it should not significantly harm any of the environmental objectives above. An activity is considered to significantly harm:

1. climate change mitigation if it leads to significant greenhouse gas emissions;

2. climate change adaptation if it leads to increased effects of the current and expected future climate, on the activity itself or on people, nature or assets;

3. the sustainable use and protection of water and marine resources if it is damaging to the good status or the good ecological potential of bodies of water (ground and surface water) and to the good environmental status of marine waters;

4. the circular economy if it;

   1. leads to significant inefficiencies in the use of materials or in the direct or indirect use of natural resources such as non-renewable energy sources, raw materials, water and land at one or more stages of the life cycle of products;

   2. leads to a significant increase in the generation, incineration or disposal of waste, with the exception of the incineration of non-recyclable hazardous waste;

   3. leads to the long-term disposal of waste which may cause significant and long-term harm to the environment;

5. the prevention and control of pollution if it leads to a significant increase in the emissions of pollutants into the air, water or soil much more than there was before the activity started;

6. the protection and restoration of biodiversity and ecosystems if the activity significantly damages the good condition and resilience of ecosystems or is detrimental to the conservation status of habitats and species.

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Footnotes

1. These activities do not qualify as environmentally sustainable economic activities even if they improve energy efficieny.

2. A carbon sink is anything that absorbs more carbon from the atmosphere than it releases; for example, trees, the ocean and soil.

3. A circular economy is a system where products and materials are reused, repaired, and recycled instead of being thrown away. It aims to reduce waste and pollution by keeping resources in use for as long as possible, protecting the environment and making better use of resources.

4. These are materials that have been recovered, recycled, or repurposed from waste or used products instead of being extracted from natural resources. Examples include scrap metals, reclaimed wood, recycled glass, paper and cupboard. These maerials reduce waste and lower environmental impact.

5. See this article

6. This is known as downcycling

7. Waste incineration is the process of burning waste at high temperatures to reduce its volume and sometimes generate energy. It is used as an alternative to landfilling, especially for waste that cannot be easily recycled.

8. Biodiversity is the variety of different plants, animals, and other living things in the world from tiny insects to big trees.