What is Taxonomy?

We have been asked to give a more detailed explanation of the technical report “Taxonomy – Financing a sustainable European Economy”. Here it is.

The introduction to the document explains the basic concepts in a concise way:

The EU Taxonomy is a tool to help investors, companies, issuers and project promoters navigate the transition to a low-carbon, resilient and resource-efficient economy.

The Taxonomy sets performance thresholds (referred to as ‘technical screening criteria’) for economic activities which:


  • make a substantive contribution to one of six environmental objectives (Figure1);
  • do no significant harm (DNSH) to the other five, where relevant;
  • meet minimum safeguards (e.g., OECD Guidelines on Multinational Enterprises and the UN Guiding Principles on Business and Human Rights).

The performance thresholds will help companies, project promoters and issuers access green financing to improve their environmental performance, as well as helping to identify which activities are already environmentally friendly.

In doing so, it will help to grow low-carbon sectors and decarbonise high-carbon ones.

The EU Taxonomy is one of the most significant developments in sustainable finance and will have wide ranging implications for investors and issuers working in the EU, and beyond.

The European Commission asked for this document and charged a Technical Expert Group (TEG) on Sustainable Finance, with the aim of developing recommendations on a range of topics, including what the Taxonomy technical screening criteria should be for the objectives of climate change mitigation and adaptation. The TEG has received input from all parts of the investment chain, industry sector representatives, academia, environmental experts, civil society and public bodies. Both the private sector and EU institutions are well represented, while the representatives of civil society do not fully represent the environment sector.

The TEG’s final report to the European Commission contains recommendations relating to the overarching design of the Taxonomy, as well as guidance on how users of the Taxonomy can develop Taxonomy disclosures. It has a summary of the economic activities covered by the technical screening criteria, but it is supplemented by a Technical Annex containing:

  • A full list of revised or additional technical screening criteria for economic activities which can substantially contribute to climate change mitigation or adaptation (including assessment of significant harm to other environmental objectives); and
  • Methodological statements to support the above recommendations.

Despite raising some doubts, these are important documents to which alternative solutions must however be found, especially if they are destined to guide the allocation of funds for financing Green Deal projects. The soil is never mentioned directly, rather it is taken for granted as an element of the ecosystem; but if we take waste into account, how can we not consider pollution of the soil?

In the meantime, in mid June 2020, the European Parliament approved the taxonomy as an operational tool, to be adopted before the end of 2020.

The TEG’s reports can be found in full here: