As the key element of the European sustainable finance strategy, the EU taxonomy is the world’s most detailed and comprehensive framework for classifying sustainable economic activities. The regulation, which came into force in 2020, aims to promote the consideration of ESG criteria in the financial market and help investors and businesses make informed investment decisions. With its uniform terminology for sustainable economic activities, the taxonomy provides important guidance for banks, businesses and other stakeholders.
At the same time, the taxonomy and its accompanying reporting obligations also present the financial sector and the economy with some major challenges in implementing it. In addition to the partially incomplete data basis, which is likely to gradually improve with the introduction of new reporting obligations in the coming years, however, the complexity of the framework represents a particular challenge.
In order to simplify this complexity, the Association of German Banks published a guidance document in January 2022. It is aimed at banks and employees who were not yet familiar with the EU taxonomy. The document provides an introduction to the topic and guidance on how to get started, gives practical advice based on processes and projects from members, and provides references to documents for further reading.
Since the taxonomy framework has continually evolved since we first published our guidance, we have now reviewed and updated it. The updated guidance contains a number of changes. These include the delegated act to include, under strict conditions, specific nuclear and gas energy activities, the delegated act on climate and environmental objectives 3-6 (Taxo 4), numerous clarifications in the form of FAQs and the EU Commission recommendation on transition finance from June 2023. In particular, we have addressed the following questions:
- What is the taxonomy?
- How does the taxonomy work?
- Where does the taxonomy apply?
- What are the most important implementation steps?
- How could the taxonomy be further developed in future?
In conclusion, it is clear that the taxonomy is not set in stone but is constantly evolving. Applying the taxonomy is therefore a continuous learning process, in which all stakeholders gradually gain experience in applying the taxonomy and its requirements. Our guidance offers a practical insight into the functioning and requirements of the EU taxonomy and provides support for this learning process.