EU Taxonomy: The Classification System for Sustainable Economic Activities

The EU Taxonomy is a scientifically-based classification system created by the European Union to clearly define what qualifies as an environmentally sustainable economic activity. This classification plays an important role in helping investors and businesses navigate the world of sustainability-driven economic initiatives and avoid greenwashing, the exaggeration of sustainability outcomes.

Why was the EU Taxonomy created?

The EU aims to accelerate the fight against climate change and support the energy transition. The EU Taxonomy helps define which activities contribute to these goals and assists investors, businesses, and policymakers in identifying green projects. All of this takes place through a unified, comparable, and transparent system that classifies activities based on scientific criteria.

Main Objectives of the EU Taxonomy

The classification system defines six key environmental objectives, and at least one must be fulfilled for an activity to be considered sustainable:

• Mitigation of Climate Change: Activities aimed at limiting global warming, such as the use of renewable energy or improving energy efficiency.
• Adaptation to Climate Change: Activities that help society and ecosystems adapt to the effects of climate change.
• Sustainable Use of Water and Marine Resources: Economic activities that protect and sustainably use water resources, preventing pollution.
• Support for the Circular Economy: Economic activities that focus on recycling materials and minimizing waste production.
• Pollution Prevention and Reduction: Activities aimed at reducing or eliminating harmful emissions.
• Protection of Biodiversity and Ecosystems: Activities aimed at preserving biological diversity and natural ecosystems.

How does the EU Taxonomy work?

The taxonomy is not just a simple classification system. Each economic activity must meet several requirements to be considered sustainable. For example, a company must not only strive to reduce greenhouse gas emissions but also ensure that its activities do not cause significant harm to other environmental objectives, such as water protection or biodiversity. This principle is known as “Do No Significant Harm” (DNSH), which is a core pillar of the EU Taxonomy.

The activities defined by the Taxonomy not only contribute to the fight against climate change but also make economic growth more sustainable. Using the taxonomy facilitates the financing of green initiatives, as it makes it clear to investors and financial institutions which projects are environmentally sustainable.

Why is the EU Taxonomy important?

The EU Taxonomy aims to provide clear, scientifically grounded criteria for companies and investors during the green transition. This transparency helps grow sustainable investments and prevents greenwashing. The creation of the taxonomy aids in achieving the Union’s objectives, especially the goals of the EU Green Deal, which aims to achieve climate neutrality by 2050.

The EU Taxonomy fundamentally contributes to ensuring that green investments truly have a positive environmental impact and ensures that financial markets become more sustainable.

Back to the glossary