EU taxonomy reporting: Greenwashing through incorrect use of NACE codes

Once again, the European Commission warns of the risks of relying solely on NACE codes when reporting on the EU taxonomy.

The NACE code is the Statistical Classification of Economic Activities in the European Community, the industry standard used in the EU. For each industry in the EU taxonomy, the NACE code to which the industry can be assigned is given. It should be noted that the EU taxonomy and the NACE code were created based on different motivations and driving forces. So, although it is helpful to relate associated activities and even use them as proxies where appropriate, we must remember that they do not match perfectly.

If one does not thoroughly examine each activity, one runs the risk of neglecting the technical criteria associated with the activity. When companies classify EU taxonomy activities, there is a natural tendency to overestimate eligibility.

While the European Commission first mentions the mapping of NACE codes to EU taxonomy activities, it has recently published a Frequently Asked Questions document to provide additional guidance on reporting eligible economic activities and assets under the EU Taxonomy Regulation. In the document, it is highlighted how users can use the NACE codes to “navigate” the taxonomy, but it is noted that the scope of the activities described in the Climate Delegated Act should govern.