EU Taxonomy explained: classification, criteria, KPIs

What is the EU Taxonomy?

EU Taxonomy Regulation (EU) 2020/852 is a classification system defining which economic activities count as environmentally sustainable. It creates a common language for investors, companies and authorities, is meant to steer capital towards sustainable activities and to make greenwashing harder. It prohibits nothing — it requires transparency.

The 6 environmental objectives

An activity can be taxonomy-aligned if it contributes substantially to at least one of these:

• Climate change mitigation
• Climate change adaptation
• Sustainable use and protection of water and marine resources
• Transition to a circular economy
• Pollution prevention and control
• Protection and restoration of biodiversity and ecosystems

The four conditions for alignment

An activity is taxonomy-aligned only if it meets all four conditions of the Taxonomy Regulation:

• Substantial contribution to at least one environmental objective, measured against the technical screening criteria
• No significant harm to the remaining objectives (DNSH)
• Compliance with minimum social safeguards, in particular the OECD Guidelines and the UN Guiding Principles on Business and Human Rights
• Compliance with the technical screening criteria for the activity — the Regulation lists this as a condition of its own

Eligible or aligned?

The distinction drives the entire disclosure. Eligible means the activity is described in the delegated regulation and therefore falls within scope. Aligned means it additionally meets the technical screening criteria, the DNSH requirements and the minimum safeguards, demonstrably. You first determine the eligible share, then evidence the full criteria set for the aligned share.

Who has to disclose the taxonomy KPIs?

The Article 8 duty follows CSRD scope. Omnibus I ((EU) 2026/470) has narrowed that scope considerably.

• Mandatory: companies in CSRD scope — from financial year 2027, above 1,000 employees and above EUR 450m net turnover. For financial years 2025 and 2026 the previous rules still apply; Member States may exempt companies below these thresholds
• Voluntary: companies below these thresholds may disclose the KPIs voluntarily. Neither Omnibus I nor Regulation (EU) 2026/73 contains a separate opt-in rule
• Companies leaving CSRD scope are generally relieved of the taxonomy duty too
• Non-financial undertakings report the shares of turnover, CapEx and OpEx
• Financial undertakings report different metrics, such as the Green Asset Ratio — the three KPIs above do not apply to them

The simplification is adopted

This is still often described as an intention. Delegated Regulation (EU) 2026/73 (Official Journal Jan 8, 2026, in force Jan 28, 2026) amends Delegated Regulation (EU) 2021/2178 on Article 8 disclosures, simplifies certain technical screening criteria and applies from Jan 1, 2026. For the financial year beginning in 2025, companies may keep applying the previous versions.

• A 10% materiality threshold: activities cumulatively below 10% of the denominator of a mandatory KPI may go unassessed for eligibility or alignment; their turnover, CapEx and OpEx are reported separately as non-material, in aggregate and as an itemised list with the sector; they stay in the denominator
• The test is applied per KPI, not across all three at once
• The OpEx KPI may be dropped entirely where it is immaterial to the business model — the total value plus an explanation suffices

Relationship to the CSRD and the ESRS

There is a widespread misunderstanding here. The taxonomy disclosures belong in the same sustainability statement as the ESRS report, under the revised ESRS 1 for example in a separate annex — but they are expressly not subject to the ESRS. They are not an ESRS E1 datapoint. The basis is Article 8 of the Taxonomy Regulation with its delegated regulation, not ESRS E1. In practice: two rulebooks, one document, separate derivation.