The EU Taxonomy is an official classification system created by the European Union to define which economic activities are considered environmentally sustainable. 

It’s part of the EU’s plan to support green investments and fight climate change by giving clear, science-based guidance to companies, investors, and policymakers. 

Why the EU Taxonomy Matters 

The EU Taxonomy helps: 

• Guide investments toward sustainable activities and projects 
• Define what “sustainable” really means, using consistent and transparent rules 
• Prevent greenwashing, so that only activities that truly help the environment can be called “green” 
• Standardize sustainability reporting so that companies can be easily compared 
• Support the EU’s goals for net zero by 2050 and important 2030 climate targets 

It works alongside other EU sustainability tools like the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS). 

Who Needs to Comply with the EU Taxonomy? 

Right now, it applies to: 

• Large companies covered by the Non-Financial Reporting Directive (NFRD) 
• Companies that fall under the newer CSRD rules 
• Banks and investors offering financial products labeled as “green” 

These companies must report how much of their revenue and spending comes from activities that meet the EU Taxonomy’s sustainability criteria. 

How It Works: The Rules for Sustainable Activities 

To be considered taxonomy-aligned, an activity must: 

• Have a positive impact in at least one of six environmental areas (stated below) 
• Not harm any of the other five areas 
• Follow basic human rights and labor standards 
• Meet technical screening criteria defined by the EU 

Companies then report what portion of their turnover, Capital Expenses (CapEx), and Operating Expenses (OpEx) come from these sustainable activities. 

The Six Environmental Objectives 

Objectives	What It Covers
1	Fighting climate change (mitigation)
2	Preparing for climate impacts (adaptation)
3	Protecting water and oceans
4	Moving to a circular economy
5	Preventing and reducing pollution
6	Protecting nature and biodiversity