Why a Common Classification Is Needed
Terms such as "green", "clean", and "sustainable" can mean different things. Without common criteria, investors struggle to compare projects and companies may overstate environmental performance. The EU Taxonomy creates a shared language but is not an automatic quality label for an entire company. A business may earn part of its revenue from taxonomy-aligned activities while other activities are outside the Taxonomy or do not meet all criteria.
The Six Environmental Objectives and Technical Criteria
The Regulation defines six 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. Delegated acts establish technical criteria for included activities — thresholds for emissions, energy efficiency, climate resilience, materials, waste, or nature protection. Criteria evolve, so the assessment must use the version applicable to the reporting year.
Eligibility vs Alignment — A Critical Distinction
Taxonomy eligibility is the first step: whether an economic activity is described in the delegated acts at all. An unlisted activity is not automatically harmful; it simply lacks taxonomy criteria. Taxonomy alignment is the higher bar: an eligible activity is aligned only when it simultaneously makes a substantial contribution, does no significant harm (DNSH) to other objectives, complies with minimum safeguards, and meets technical screening criteria. Investment in renewable energy does not automatically ensure alignment if a project fails climate-resilience checks or causes unacceptable biodiversity damage.
KPIs: Turnover, CapEx, and OpEx
Non-financial companies analyse the share of turnover, capital expenditure, and — depending on the regime — operating expenditure associated with eligible and aligned activities. Turnover reflects the current business mix; CapEx may show investment in transition. The calculation requires mapping activities to accounting data without double counting and documenting allocation rules and reconciliation to financial reporting.
Reporting Scope After Simplification and Common Mistakes
Following Omnibus I, mandatory taxonomy reporting focuses on the largest companies — more than 1,000 employees and net turnover above EUR 450 million. Other large undertakings in CSRD scope may use a more flexible voluntary regime. Common mistakes: calling all revenue sustainable because of one green product; confusing eligibility with alignment; checking substantial contribution but not DNSH; using outdated criteria; double counting CapEx; or treating a certification as automatic proof. The Taxonomy does not replace full impact assessment or ESG strategy — an aligned activity does not remove the need to manage workers, suppliers, and other material matters.
The EU Taxonomy assesses specific economic activities, not a company's reputation. A robust assessment moves through eligibility, substantial contribution, DNSH, minimum safeguards, and technical criteria before linking conclusions to financial KPIs.