EU Taxonomy: Implementation and connection with the CSRD

What is the EU Taxonomy?

The EU Taxonomy is a central element of the European Green Deal. This instrument provides a classification for the identification of sustainable economic activities. The aim is to promote targeted investment in environmentally friendly innovations in order to drive forward the green transition within the EU.

By supporting the EU's goals of climate neutrality by 2050 and a significant reduction in greenhouse gas emissions by 2030, the EU Taxonomy serves as a guideline for investors who wish to invest in sustainable projects.

According to the EU Taxonomy Regulation, an economic activity is classified as sustainable and therefore Taxonomy-compliant if it contributes substantially to at least one of the six defined environmental objectives without causing significant harm to other objectives (principle of “Do No Significant Harm” - DNSH). In addition, investments and activities must comply with basic social and human rights standards.

The focus is on the following six environmental objectives:

1. Climate change mitigation
2. Climate change adaptation
3. Sustainable use and protection of water and marine resources
4. Transition to a circular economy
5. Pollution prevention and control
6. Protection and restoration of biodiversity and ecosystems

EU Taxonomy Reporting: Framework and interfaces to CSRD

Companies subject to the requirements of the CSRD (Corporate Sustainability Reporting Directive) are required to report in accordance with the EU Taxonomy. Based on the thresholds adjusted under the Omnibus procedure, this currently applies to companies with more than 1,000 employees and over €450 million in revenue (Wave 1 already subject to reporting obligations, Wave 2 from the 2027 financial year).

This obligation affects a broad range of companies in the EU and places new demands on transparency in sustainability reports: Taxonomy-compliant business activities must be disclosed within the management report and quantified according to their contribution to revenue, capital expenditure and operating expenses. The requirements of the CSRD are also published in the management report, albeit in separate sections.
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In terms of data collection and preparation, the overlap between the CSRD and the EU Taxonomy is very limited. Within the CSRD, only the disclosure of Taxonomy-eligible activities in connection with fossil gas is requested, stating the respective sales revenues ESRS 2 SBM-1 40 (d)i.

The EU Taxonomy requirements relate to financial data from the annual financial statements. The greatest effort in the recurring implementation of the EU Taxonomy lies in the collection of key performance indicators and the monitoring of changes in the delegated act. Effective compliance with these guidelines is ensured by integrating them into existing reporting processes and systems. Implementation should therefore be carried out in close cooperation with the finance or controlling department.

EU Taxonomy: A practical guide for manufacturing companies

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Five steps to EU Taxonomy

The following steps provide an overview of the reporting process, which may vary depending on the company's specific situation. It is important to consider the current EU directives and legal requirements.

1. Preparation

EU Taxonomy reporting requires both time and substantial resources to demonstrate eligibility and alignment at the level required for compliance. A clear data foundation and a solid understanding of internal financial structures are essential for making sound decisions.

Setting up the project plan

Although controlling and finance are heavily involved, responsibility for EU Taxonomy reporting often sits with the sustainability team. Allow enough time for all five steps, especially compliance (step 3), which requires internal and external resources. The goal is an automated, auditable reporting process that reduces effort and cost. Extra effort is needed in the first year to understand the regulation and apply it to the business.

Identifying financial structures and existing social safeguards

The EU Taxonomy classifies revenue, capital expenditure, and operating expenditure into non-eligible, eligible, and aligned categories. This requires adapting financial data structures such as accounts, cost centers, or products to enable automated reporting. The regulation also includes minimum social safeguards covering labor rights and workplace safety, based on standards such as the ILO conventions and OECD guidelines.

Determining the reporting scope

The reporting scope defines which group entities, subsidiaries, and business units must be included in EU Taxonomy reporting. It follows the consolidation scope of the annual financial statements and forms the basis for all subsequent steps.

Assessing relevance of the OpEx KPI

‍It should be assessed early on whether the OpEx metric is material for the given business model. Since the Omnibus procedure, companies may report the OpEx KPI as "0" if operating expenses for maintaining taxonomy-eligible assets are not material relative to the overall business — significantly reducing the data-collection burden.

2. Taxonomy Eligibility

Identifying the taxonomy eligibility of the company's activities

There are 151 taxonomy-eligible economic activities covering 198 NACE codes across 16 sectors. These can be found in the EU Taxonomy Compass or in the Tanso app. "Enabling" activities support other activities, while "transitional" activities acknowledge the current lack of low-carbon alternatives. Both are treated the same as other activities under Article 10 of the Delegated Act. Identify your company's economic activities, including revenue, capital expenditure (CapEx), and operating expenditure (OpEx), and analyze your financial data, investment decisions, and operating costs for classification.

Allocating revenue, CapEx & OpEx to eligible activities

After identifying eligible activities, revenue, CapEx, and OpEx are matched against the EU Taxonomy's activity descriptions to assess eligibility. Distinctions, for example between "installation of renewable energy technologies" and "electricity generation using photovoltaics", need to be taken into account.

Determining immaterial activities under the 10% materiality threshold

The Omnibus procedure introduced a 10% materiality threshold: activities that cumulatively account for less than 10% of revenue, CapEx, or OpEx can be excluded from detailed eligibility and alignment assessment. This particularly relieves the burden on companies with many small peripheral activities.

3. Taxonomy Alignment

Implementing and documenting minimum safeguards

Companies reporting under the EU Taxonomy must establish due diligence procedures and corrective actions to comply with the OECD Guidelines, UN Guiding Principles, and ILO core labor standards. Document these procedures and their implementation, and explain how adverse impacts on human rights across business operations, value chains, and business relationships are addressed.

Assessing and demonstrating substantial contribution

For each eligible activity, the Technical Screening Criteria (TSC) and its associated environmental objective under the EU Taxonomy are assessed. Some activities, such as "renovation of existing buildings," may be assigned to multiple objectives, e.g. climate mitigation and the circular economy. In such cases, the activity should be assigned to the most relevant objective and highlighted in the report to avoid double counting. TSC requirements are extensive and require careful planning and budgeting. Most companies seek external support for this assessment, for example from consultancies, tool providers, or external auditors. First-time reporters should focus on demonstrating and documenting existing compliance.

Demonstrating DNSH compliance for the remaining 5 objectives

Each adapted activity should be examined for potential negative impacts on the remaining five environmental objectives. Verifying compliance with the DNSH criteria ensures that progress on some objectives isn't achieved at the expense of others, recognizing the reinforcing relationships between different environmental objectives.

‍‍‍4. Reporting

Defining allocation models and quantifying KPIs

To quantify taxonomy eligibility and alignment, the share of revenue, CapEx, and OpEx from taxonomy-aligned activities (numerator) is calculated relative to the respective totals (denominator).

• Revenue: Net turnover per IAS 1, paragraph 82(a). Revenue from climate adaptation activities is not eligible, since once an activity has contributed to adaptation it is no longer considered taxonomy-eligible.
• CapEx: Capital expenditure on assets or processes, categorized as: (a) directly linked to taxonomy-eligible activities (e.g. constructing an energy-efficient building), (b) part of a plan to expand or enable taxonomy-eligible activities (e.g. investing in a production line for low-carbon products), (c) measures to improve energy efficiency and reduce emissions (e.g. installing solar panels).
• OpEx: Direct, non-capitalized costs such as maintenance, building renovation, and IT support. Overheads, raw materials, and machine operation are excluded. The aim is to ensure the continued functionality of assets.

Developing a CapEx plan

For activities that are not yet taxonomy-aligned but are intended to become so, a CapEx plan is recommended. A distinction is made between an Expansion Plan, which describes investments to scale up taxonomy-eligible activities, and an Upgrade Plan, which brings existing activities into alignment step by step.

Publishing EU Taxonomy disclosures in the annual sustainability report

The EU regulation requires that taxonomy information be published as part of CSRD sustainability reporting in the annual report, either before or after the environmental ESRS. This section includes documentation of eligibility and alignment assessments as well as three tables covering revenue, capital expenditure, and operating expenditure. Annex II of the Delegated Act provides recommended template tables for non-financial undertakings.

5. Embedding & Governance

The final step turns EU Taxonomy reporting into an ongoing process rather than a one-off exercise, aimed at reducing effort in subsequent years while systematically increasing taxonomy alignment.

Deriving lessons learned for future reporting years

Once the reporting season is complete, evaluate which steps were particularly resource-intensive, where data gaps existed, and which assumptions need to be reviewed. These insights form the basis for efficiency gains in the next cycle.

Embedding into standard operations

Anchor EU Taxonomy processes organizationally, for example through clear ownership, recurring data-collection routines, and integration into existing finance and controlling processes, so reporting doesn't have to be rebuilt from scratch each year.

Implications for sustainability governance

Actively use the metrics derived from the EU Taxonomy for strategic steering, for example, to align investment decisions more closely with taxonomy-aligned activities and deliberately increase the share of taxonomy-aligned revenue.