Dive Brief:
- The European Commission adopted a proposal last week to simplify the European Union’s taxonomy regulation that defines “sustainable economic activities and investments” by exempting companies from assessing the taxonomy’s eligibility and alignment for activities that are “not financially material to their business.”
- The proposed simplification would apply to both financial and non-financial institutions, with different definitions of “non-material” factors proposed for each, according to a July 3 press release. The changes would reduce the number of reported data points by 89% for financial institutions and 64% for non-financial companies.
- The simplification is designed to relieve some of the administrative burdens that accompany assessing and reporting alignment with the taxonomy “in line with the principle of proportionality,” according to the July 4 proposal.
Dive Insight:
The European Commission first announced its intention to simplify the bloc’s sustainability taxonomy as part of an omnibus package the body adopted in February. That package also included proposals to delay reporting timelines for the EU’s Corporate Sustainability Reporting Directive and Corporate Sustainability Due Diligence Directive while legislators work on simplifying the reporting requirements for those regulations.
Under the Commission’s proposal to simplify the taxonomy, activities for non-financial companies would be considered “non-material” if they account for less than 10% of a company’s total revenue, capital expenditure or operational expenditure, the release said. Non-financial corporations would also be exempt from having to assess their alignment with the taxonomy across their operational expenditures when alignment “is considered non-material to their business model.”
Financial institutions covered by the taxonomy would be exempt from assessing financial asset alignment or eligibility with the law, if the assets “account for less than 10% of loans and investments financing specific economic activities whose use of proceeds is known,” the Commission said in an FAQ document. Financial institutions would still have to report on those assets separately, but the move is designed to create flexibility and reduce reporting costs, the document said.
The revised standards would also give credit institutions the option to not report key performance indicators — including their green asset ratio on stock and flow, financial guarantees, assets under management and fees and commission — “that capture financial activities and assets that are not material for their business,” the FAQ said. Such KPIs would be considered “non-material” if the financial activities and assets they capture “generate less than 10%” of the institution’s net turnover.
Financial institutions can also opt out of reporting detailed taxonomy information altogether, if they forgo claiming their activities are “associated with environmentally sustainable activities under the Taxonomy Regulation,” the FAQ said. Financial institutions would be required to issue a statement in their management report to that effect and have until the end of 2027 to make that claim.
“Our measures simplify the application of the EU Taxonomy and strike the right balance between reducing excessive administrative burden for our companies, while keeping our longer-term goals in focus, including the transition to a sustainable economy,” European Commissioner for Financial Services and the Savings and Investments Union Maria Luís Albuquerque said in the release.
The European Union has already adopted the Commission’s “stop the clock” proposal to delay CSRD and CSDDD reporting timelines, following approval from the European Council and European Parliament. The next wave of CSRD reporting companies and the first set of CSDDD reporting companies will now have until 2028 to comply with the laws.
The European Commission said the simplification proposal will next be considered by the Council and Parliament for four months, with the option to extend consideration another two months, according to the press release. The simplification measures are expected to go into effect Jan. 1, 2026, and cover the 2025 financial year, but there will also be an option to apply the measures starting with the 2026 financial year “if [the Council and Parliament] find this more convenient.”
