12.2024 Omnibus procedure

Sustainability reporting and rules from the EU taxonomy are to be simplified. What does this mean for investments?

The CSRD, CSDDD and the EU Taxonomy are key instruments for promoting sustainable business. They set out the key issues and define the indicators that must be reported on. However, the rules are not consistent in themselves and the scale of the indicators is too large. Companies groan under the excessive demands and consultants provide information with different focuses. So how do you deal with a reporting rule that is in flux? This report focuses on a solution that can be easily integrated into reporting as a software module. You can read about what it is and what it can do here:

As a leading software provider for sustainability reporting, Cubemos now offers a new EU Taxonomy Module. Cubemos has developed a new, innovative module specifically for taxonomy. This tool enables companies to design their reporting efficiently and in compliance with the new requirements of the EU taxonomy. Take advantage of this opportunity now, with Cubemos at your side, to position your company sustainably!

Basis of the EU taxonomy

The EU taxonomy is a set of rules of the European Union that identifies economic activities that are considered environmentally sustainable. Introduced by Regulation (EU) 2020/852, the taxonomy sets out clear criteria by which economic activities can be classified as environmentally sustainable. It was developed to provide investors with clear criteria for making sustainable investment decisions. The taxonomy contains criteria that determine which activities make a positive contribution to environmental goals.

Objectives and motivation behind the EU Taxonomy

The EU Taxonomy was introduced as part of the European Green Deal and the Action Plan on Financing Sustainable Growth. Its aim is to channel capital flows into sustainable projects in order to achieve the EU’s climate targets and increase market transparency. This should also help to prevent greenwashing and ensure that only truly sustainable investments are designated as such.

The EU taxonomy is driven by a variety of motives, including combating climate change, protecting the environment, strengthening economic competitiveness and meeting international commitments such as the Paris Climate Agreement. It supports the EU in achieving its ambitious climate targets, preserving biodiversity, reducing pollution and using natural resources sustainably. At the same time, it is intended to help channel capital flows into sustainable investments, promote green technologies and innovations and create sustainable jobs.

Focus on environmental objectives: the six core areas

The EU taxonomy focuses on six key environmental objectives:
1. Climate protection: Measures to reduce greenhouse gas emissions and mitigate the effects of climate change. This includes investments in renewable energy, energy efficiency and sustainable transportation solutions.
2. Climate change adaptation: strategies for dealing with the consequences of climate change. This includes increasing the resilience of the economy and society to the unavoidable effects of climate change. Examples include projects to improve infrastructure and disaster prevention.
3.Sustainable use of water resources: protection and sustainable use of water resources, including improving water quality and efficient water use in agriculture and industry.
4. Transition to a circular economy: promoting recycling and waste minimization through reuse of resources and other innovative processes for more efficient use of resources. This promotes sustainable production and consumption.
5. Pollution prevention: Measures to reduce pollutant emissions. They aim to prevent or significantly reduce pollution of air, water and soil. This includes technologies to limit emissions and environmentally friendly production methods.
6. Protection of ecosystems and biodiversity: conservation and restoration of natural habitats and biodiversity. This includes protected areas, reforestation projects and sustainable land use practices.

Quelle: BMWK – Sustainable Finance-Taxonomie

Do no significant harm

A central element of the EU taxonomy is the principle of “Do No Significant Harm” (DNSH). This ensures that an economic activity that makes a significant contribution to one of the above-mentioned environmental objectives must not cause significant harm (Do No Significant Harm), i.e. must not have a significant negative impact on other environmental objectives.

Mandatory nature and timeframe of the EU taxonomy

The EU taxonomy will be mandatory for large companies covered by the Non-Financial Reporting Directive (NFRD) and for financial market participants. From 2022 or 2023, these players will have to assess their activities according to the criteria of the EU Taxonomy and disclose how their investments contribute to environmental objectives. This applies in particular to companies in the energy, transportation, real estate and raw materials sectors.

Reporting obligations: Turnover, CapEx and OpEx

Companies must provide detailed information on the following indicators as part of the EU Taxonomy:
1. Turnover refers to a company’s total revenue from ordinary activities. In the context of the EU taxonomy, companies must indicate the proportion of their turnover that comes from sustainable economic activities.
2 CapEx (Capital Expenditures) refers to funds spent on the acquisition, improvement or maintenance of physical assets. Companies must report what proportion of their capital expenditure is spent on sustainable projects and assets.
3 OpEx (Operational Expenditures) are operating expenses that include the ongoing costs of maintaining day-to-day operations. According to the EU taxonomy, companies must indicate what proportion of this expenditure is used for sustainable activities.

This reporting enables investors and other stakeholders to better assess a company’s sustainability performance and make informed decisions.

Why companies should act now

This all sounds like a lot of effort. However, companies that adapt to the requirements of the EU taxonomy at an early stage will benefit from several advantages:
– Market leadership: early adaptation to sustainable practices gives companies a competitive advantage.
– Building trust: Transparent reporting strengthens the trust of investors, customers and other stakeholders.
– Risk minimization: Early compliance reduces the risk of sanctions and reputational damage.
– Contribution to global goals: Companies make an active contribution to achieving European and global sustainability goals.

Conclusion: The future relevance of the EU taxonomy

The EU taxonomy is more than just a regulatory instrument. It offers companies the opportunity to position themselves in a growing market for sustainable investments and to further develop their sustainability strategy. By implementing the taxonomy, companies can not only meet legal requirements, but also realize and benefit from economic and environmental advantages in the long term.

Cubemos offers the ideal tool to make this topic easy to implement with its new EU taxonomy module. Take the opportunity to integrate sustainable practices into your reporting and business strategy!

Sources:

• EU Technical Expert Group on Sustainable Finance: Technic Report – Taxonomy: Final report of the Technical Expert Group on Sustainable Finance
• ELS Europe: Do No Significant Harm Handbook
• Europäische Kommission: EU Taxonomy Navigator
• BMWK: Sustainable Finance-Taxonomie
• EU Taxonomy Info: EU Taxonomie Grundlagen
• Wirtschaftsprüferkammer: EU Taxonomie-Verordnung