Understanding the EU Taxonomy:

1. Scope and Objectives: The EU Taxonomy focuses on economic activities across various sectors, ranging from energy and agriculture to manufacturing and finance. Its primary objective is to classify activities based on their contribution to environmental objectives. It specifically addresses climate change mitigation and adaptation, as well as the sustainable use of water and marine resources, the transition to a circular economy, pollution prevention, and protection of ecosystems.
2. Key Environmental Objectives: The taxonomy is organised around six environmental objectives, each with its own criteria for determining whether an economic activity is environmentally sustainable. These objectives include climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and protection of ecosystems.

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How the EU Taxonomy Works:

1. Principle of 'Do No Significant Harm' (DNSH): The taxonomy operates on the DNSH principle, meaning that an economic activity must not cause significant harm to any of the environmental objectives. This ensures that only genuinely sustainable activities receive the "green" label.
2. Technical Screening Criteria: The taxonomy sets out technical screening criteria for each environmental objective, providing a detailed framework for assessing whether an economic activity is environmentally sustainable. The criteria cover a wide range of aspects, including greenhouse gas emissions, resource use, and environmental impact.
3. Reporting and Disclosure Requirements: Organisations falling within the scope of the taxonomy are required to disclose information on how their activities align with the taxonomy criteria. This transparency is crucial for investors and stakeholders to make informed decisions about the sustainability of investments. SMEs are generally not required to report but may do so on a voluntary basis. This can really enhance the sustainability profile of the SME.

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Compliance with the EU Taxonomy:

1. Identification and Classification: Organisations need to identify and classify their economic activities according to the taxonomy's criteria. This involves a thorough assessment of the environmental impact of their operations.
2. Reporting and Disclosure: Companies falling under the taxonomy's scope are obligated to disclose information on their alignment with the taxonomy criteria. This includes reporting on the percentage of their revenue derived from environmentally sustainable activities.
3. Integration into Financial Products: Financial institutions, such as banks and investment funds, are expected to integrate the taxonomy into their investment decision-making processes. This involves assessing the sustainability of the economic activities in which they invest and disclosing this information to clients.

This is important for SMEs because banks will include a SMEs voluntary alignment disclosure as a element in their credit assessment.

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Conclusion:

The EU Taxonomy represents a significant step towards fostering sustainable finance within the European Union. By providing a standardised framework for identifying environmentally sustainable economic activities, the taxonomy aims to guide investments towards projects that contribute to long-term environmental goals. As organisations adapt to these new requirements, transparency and accurate reporting will play a crucial role in building trust among investors and stakeholders, ultimately contributing to a more sustainable and resilient economy.

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If you want to incorporate the EU Taxonomy in your sustainability strategy, schedule a demo with us today. Our team at Eevery is here to provide you with the tools and insights to assess whether you are aligned with theEU Taxonomy. Let's work together to build a brighter and more sustainable future for your company!