EU Taxonomy: New delegated acts expand the scope of covered sectors and activities

Delegated act on environmental objectives 3-6

The recently published delegated act provides a separate annex for each environmental objective, defining the economic activities falling under each objective and the corresponding technical screening criteria. In addition to the two climate objectives, “climate change mitigation” (environmental objective 1) and “climate change adaptation” (environmental objective 2), capital flows will now also be directed towards ecologically sustainable economic activities that significantly contribute to at least one of the following four environmental objectives:

Amendment to the delegated climate act

Simultaneously with the publication of the technical screening criteria for environmental objectives 3-6, new economic activities were added to the climate delegated act, which already came into effect in 2021. The reason for this adjustment was that the initial version of the act prioritized the sectors and activities with the greatest potential to make a significant contribution to greenhouse gas emissions reduction (based on their share of total emissions and their theoretical potential for emission reduction). The EU explicitly emphasized at that time that this initial compilation of economic activities was not final and did not encompass all sectors and activities that could potentially make a significant contribution to climate objectives. It was therefore intended from the outset to gradually expand the scope of covered sectors. As a result, the amendment to the act adopted in June includes, for example, the manufacturing of automotive and mobility components, thereby addressing the long-standing demand to include automotive industry suppliers in the taxonomy. Additionally, the amendment includes specific adjustments to the technical screening criteria for existing activities.

When do the new delegated acts have to be taken into account in reporting?

The new delegated acts will come into effect on January 1, 2024. This means that reporting entities will be required to report on all six environmental objectives for the current financial year 2023. However, due to the short period between the publication of the recent delegated acts and their implementation, the legislator has provided certain simplifications for the first reporting period. The complete taxonomy reporting (taxonomy eligibility and taxonomy alignment) for all six environmental objectives will only be required starting from the fiscal year 2024. For the financial year 2023, companies will be required to disclose only the portion of revenue, investment, and operating expenses that are eligible according to the taxonomy for environmental objectives 3-6 and the newly added economic activities in the climate delegated act (see figure).

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Outlook: What do the new legal acts mean for reporting companies?

The new delegated acts have significantly expanded the range of sectors and economic activities covered by the EU taxonomy and further increased the implementation effort. Especially companies whose economic activities have not yet been included in the EU taxonomy so far should focus on carefully screening the latest delegated acts in order to be able to deal with the requirements and technical screening criteria of newly included activities in good time. In this regard, it is important to note that an economic activity listed in the taxonomy does not necessarily have to be revenue-generating – investment and operating expenses are also taxonomy-relevant and must be analyzed in detail for their taxonomy eligibility and alignment, regardless of revenue activities. Due to the short time remaining until the mandatory application of the new delegated acts, the analysis should be started as soon as possible and corresponding processes, IT systems and control mechanisms should be set up or adapted to the new requirements. Nevertheless, the new legal acts also open up opportunities for companies that have not or hardly been affected by the EU taxonomy so far. In the future, they too will be able to benefit on the capital market from the better financing conditions that can be expected for companies with a high proportion of taxonomy-aligned activities, provided that they organize their economic activities in a sustainable manner in line with EU taxonomy.