What is the EU Taxonomy?

” The EU Taxonomy is a landmark framework designed to guide sustainable investments and support the European Union’s ambitious climate goals under the European Green Deal. ”

As the EU ramps up efforts to reduce GHG emissions, the Taxonomy provides a classification system for determining which economic activities can be considered environmentally sustainable. By offering clear criteria, it helps investors and businesses align their financial activities with sustainability targets, reducing greenwashing and promoting genuine progress toward a low-carbon economy.

In this article, we’ll break down what the EU Taxonomy is, how it works, the criteria for sustainable activities, and its broader impact on businesses and financial markets.

What is the EU Taxonomy? An overview

The EU Taxonomy is a classification framework designed to identify and promote environmentally sustainable economic activities. It was introduced as part of the EU’s sustainable finance strategy to ensure that capital flows are directed towards projects and businesses that contribute to the EU’s climate and environmental objectives. 

“ At its core, the EU Taxonomy provides a system for evaluating the environmental sustainability of economic activities, helping investors and companies align their financial strategies with global climate goals. ”

In early 2025, the European Commission adopted the Omnibus Simplification Regulation to make the framework more practical, streamlining reporting requirements, clarifying scope thresholds, and better aligning disclosures with other EU regulations like the CSRD. The Taxonomy remains legally binding for large companies and financial market participants, making it a key tool in driving corporate transparency and accountability in sustainability efforts.

What is the purpose of the EU Taxonomy?

The EU Taxonomy was developed to:

The six environmental objectives

The EU Taxonomy is structured around six key environmental objectives, designed to cover the full spectrum of sustainability challenges:

• Reducing greenhouse gas emissions and promoting low-carbon technologies.
• Improving resilience to the impacts of climate change.
• Preventing water pollution and promoting water efficiency.
• Encouraging resource efficiency, recycling, and waste reduction.
• Minimizing harmful emissions and pollutants.
• Preserving natural habitats and biodiversity.

For an activity to be considered sustainable under the EU Taxonomy, it must contribute substantially to at least one of these objectives while complying with strict environmental criteria. 

Criteria for sustainable activities

To determine whether an economic activity can be classified as sustainable under the EU Taxonomy, it must meet a set of four rigorous technical criteria.

These criteria ensure that activities contribute meaningfully to the EU’s environmental goals while avoiding harm in other areas. The framework is designed to prevent greenwashing by providing a clear, science-based standard for sustainability.

The four criteria are:

Why these criteria matter:

These criteria ensure a high standard of sustainability that goes beyond superficial environmental claims. They help to:

• Enhance transparency by clearly defining what qualifies as sustainable.
• Promote accountability among businesses and investors.
• Encourage comprehensive sustainability efforts across dimensions.