What is the EU Taxonomy?


Demystifying Europe’s classification system for sustainable economic activities

The EU Taxonomy is one of the most ambitious regulatory efforts to define what constitutes a “sustainable economic activity”. Introduced under the EU Sustainable Finance Action Plan, it aims to create a common language for green finance across Europe.



At its core, the taxonomy is a classification system that identifies which activities are environmentally sustainable, based on science-driven criteria.



Key Features:


  1. Six Environmental Objectives:

1. Climate change mitigation
2. Climate change adaptation
3. Sustainable use of water and marine resources
4. Circular economy
5. Pollution prevention and control
6. Biodiversity and ecosystems protection

  1. Three-Part Criteria for Inclusion:

1. Makes a substantial contribution to at least one environmental objective
2. Does no significant harm (DNSH) to the other five
3. Complies with minimum social safeguards



Who Does It Apply To?


  1. Large companies subject to the CSRD
  2. Financial market participants offering ESG-labelled products under SFDR
  3. EU Member States and the EU itself when setting public measures, standards, or labels

Why It Matters: The taxonomy is not just a list—it shapes the flow of capital. It guides banks, asset managers, corporates, and policymakers on:



  1. What can be marketed as “green”
  2. How ESG products are labelled and reported
  3. Which investments qualify for green bonds or public support

While currently focused on climate objectives, social and transition taxonomies are in development—potentially expanding its scope dramatically.



The EU Taxonomy is reshaping ESG disclosures, product design, and corporate strategy—not just in Europe, but globally.



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