EU Taxonomy and your business

EU Taxonomy – what is it & how does it impact your business?

The EU Taxonomy will soon transform companies priority of sustainable activities. Here you’ll get an EU Taxonomy summary and learn how it will affect your business and the building industry.

To combat climate change, and reduce the ever-increasing environmental degradation, it’s crucial to have a framework which helps determine whether an activity is “sustainable” or not. The EU Taxonomy helps create this classification framework, and motivates organizations and countries to redirect money and efforts towards environment-friendly projects.

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What is the EU Taxonomy?

The word “taxonomy” literally means naming, and classifying something. We use taxonomy in the field of biology to name living organisms, and divide them across groups and levels.

The EU Taxonomy is a classification system for economic activities, to make finance more sustainable. It provides us with all the required definitions, classifications, regulations and guiding principles to separate sustainable projects from those that have a detrimental effect on our planet’s health.

Why do we need the EU Taxonomy?

The EU Taxonomy was formalized to enable European countries to align themselves with the EU’s climate and energy targets for 2030. The rising climate change and environmental degradation were crying out for new regulations, and EU Taxonomy provided just that.

By setting in stone the prerequisites to sustainability, and providing companies, investors, and governments with the tools to transition to climate neutrality, it’s paving our way to reducing net greenhouse gas emissions by a minimum of 55%, come 2030.

EU taxonomy objectives

The EU Taxonomy broadly has the following objectives:

  • Climate change mitigation
  • Climate change adaptation
  • The sustainable use and protection of water and marine resources
  • The transition to a circular economy
  • Pollution prevention and control
  • The protection and restoration of biodiversity and ecosystems

The European Commission also released “delegated acts” which specified the technical screening criteria for all the objectives. The first delegated act, approved in April 2021, focused on highlighting the economic activities that can enable us to meet the environmental objectives established by the EU. This includes sectors which are currently contributing the most towards CO2 emissions, like buildings, travel, and manufacturing.

A second delegated act is still being prepared, and is expected to be formalized in 2022.

How is the EU Taxonomy relevant for businesses?

Following the EU Taxonomy guideline will be good for your business and environment

The EU Taxonomy is relevant for businesses of all sizes and types. The Taxonomy will make more investors interested in companies that comply with the regulations. This will make it even more important for companies to set sustainability goals and work actively with sustainable measures.

First step – Figure out if you are aligned

Every business should start by assessing how aligned their activities are with the EU Taxonomy classifications and conditions. As per the Taxonomy, an economic activity has to “substantially contribute” to at-least 1 of the 6 environmental objectives we mentioned above. It should also “do no significant harm” to any of the objectives, and be compliant with the minimum safeguards, detailed in the regulation.

Second step – Remediation

The second step is to make any required interventions to reduce energy usage/carbon emissions, and achieve compliance with the EU Taxonomy regulations. For example, if your building is consuming too much energy, or releasing too much CO2, you may invest in an HVAC automation software like ClevAir. This can make your building much more environment-friendly.

Mandatory use

Large companies that are included as part of the Non-Financial Reporting Directive (NFRD) are required to reveal information regarding their activitie. They must also inform how attuned they are with the regulations of the EU Taxonomy.

Similarly, it’s mandatory for financial market participants, e.g., asset managers and investors, to reveal which activities they are funding. Also to what extent, they comply with the Taxonomy criteria. This in turn means that businesses seeking investment, will have to ensure that their activities are sustainable, and Taxonomy-approved.

It’s not just for European businesses

Financial markets don’t have geographical bounds; investors spread their funds across the globe. This means that the EU Taxonomy has implications for businesses from around the world. For example, if a European investor funds your business, you are likely to be questioned about your adherence to the Taxonomy guidelines. Moreover, multinational European companies may have to apply the Taxonomy guidelines across all the countries they are operating.

It’s more than just the environment

Taxonomy compliance also requires you to adhere to the UN Guiding Principles on Business and Human Rights and the OECD Guidelines on Multinational Enterprises.

How will companies benefit from being Taxonomy-aligned?

  • Organizations that aligns with the EU Taxonomy regulations will be able to attract investors that are looking to fund green projects.
  •  Large banks may also be inclined towards funding sustainable economic activities. This may mean lower interest rates on loans for Taxonomy-aligned companies.
  • Climate change advocacy is growing across the world. People generally hold sustainable companies in high regard. Becoming Taxonomy-aligned can enhance your company’s reputation and market standing.
  • As you greenify your organizational activities, you may become eligible for different sustainability certifications. This can help you gain a competitive advantage.

EU Taxonomy and the building industry

Buildings have been a primary cause of environmental degradation for decades now. The Taxonomy has formulated specific technical screening criteria for the construction of buildings, installation, repair, and maintenance of renewable energy solutions, sale and ownership, and manufacturing. Some examples of the criteria are as follows:

A)      The newly constructed building should have a primary energy demand that is at least 10% lower than the national threshold for nearly zero-energy buildings.

B)      Components and materials used in the construction must be in compliance with the pollution prevention criteria.

A)      The building’s primary purpose shouldn’t be extraction, transport, storage, or refinement of fossil fuels.

B)      Appropriate measures must be taken to minimize noise, dust, and any pollutants during renovation.

A)      Buildings that were constructed before 31 December 2020, must have an Energy Performance Certificate class A.

B)      Buildings that were constructed after 31 December 2020, must meet the criteria for “construction of new buildings”.

EU taxonomy key points for construction and real estate infographic

Will BREEAM-NOR Certified buildings automatically be Taxonomy-compliant?

BREEAM is the leading sustainability assessment method for buildings. BREEAM-NOR is the Norwegian variant of the system. Different criteria are assessed during a BREEAM certification, including transport, waste, innovation, pollution, materials, and indoor environment.

It’s relatively safe to say that a Taxonomy-aligned building can automatically be BREEAM-NOR certified. However, just because a building is BREEAM-NOR certified, doesn’t automatically make it compliant with the EU Taxonomy rulebook. But that may change in the near future.

The BREEAM team is working to release new “alignment maps” in 2022. This may bridge any remaining gaps between the EU Taxonomy and the certification.

Final Word

Global carbon emissions took a small dip in 2020, owing to the pandemic; however, since the start of 2021, they have significantly rebounded. Similarly, energy consumption has been on the rise throughout 2021. It’s the need of the hour for investors, businesses, and governments to start seeking compliance with the objectives and conditions of the EU Taxonomy.

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