EU taxonomy in practice

The EU Taxonomy is a leading, science-based classification system that aims to become the global standard for determination. The basis for the EU Taxonomy, are four overarching conditions that an economic activity must meet to be considered environmentally sustainable. The Taxonomy Regulation was published in the Official Journal of the European Union on June 22, 2020 and entered into force on July 12, 2020.

The Data and Usability Subgroup of the European Commission’s Sustainable Finance Platform published a report in October 2022 that reviewed the first phase of implementation of the EU Taxonomy and provided recommendations to improve the usability and consistency of the EU ESA regulations. The report draws not only on input from members of the platform, but also from across the market, including industry associations and market practitioners.

According to the report, the overall implementation of the EU taxonomy is making good progress. Out of the 1,956 companies covered by the Non-Financial Reporting Directive, 1,053 have reported data for eligibility for the taxonomy, and 534 have even reported alignment with the taxonomy that is not yet required of them (this includes companies that have reported 0 alignment). Bloomberg data also shows that demand for sustainable investment products continues to grow, evidenced in particular by the success of Article 8 and 9 ETF funds, which have accounted for nearly 60% of inflows into European ETF funds so far this year.