Taxonomy Regulation for Sustainable Investments Adopted

On 10 and 18 June 2020, the European Council and the European Parliament adopted the Regulation establishing a framework to facilitate sustainable investment (2018/0178/COD procedure). This so-called Taxonomy Regulation is intended to promote private investment in green and sustainable projects and thus make a significant contribution to the European Green Deal, which the EU Commission presented on 11 December 2019 (for details on the European Green Deal, see our newsletter "Outlook Corporate Social Responsibility 2020: More Sustainability, More Acts, More Risk").

In the Press Release of the European Commission of 18 June 2020, the Executive Commission Vice-President Valdis Dombrovskis, responsible for financial stability, financial services and the Capital Market Union, made the same statement:

The adoption of the Taxonomy Regulation today marks a milestone in our green agenda. It creates the world's first ever classification system of environmentally sustainable economic activities, which will give a real boost to sustainable investments. It also formally establishes the Platform on Sustainable Finance. This Platform will play a crucial role in the development of the EU Taxonomy and our sustainable finance strategy over the coming years.”

The taxonomy should enable investors to focus their investments more strongly on more sustainable technologies and businesses, thus making a decisive contribution to making the EU climate neutral by 2050. To this end, it provides an EU-wide classification system with standardised terms.

The taxonomy will be of particular relevance for financial market participants and financial advisors as well as for all businesses that are or will be obliged to provide non-financial reporting:

Importance of the Taxonomy Regulation for Financial Market Participants and Financial Advisors

Under Regulation (EU) 2019/2088 on Sustainable Finance Disclosure Regulation (SFDR), financial market participants and financial advisors will be required to disclose sustainability-related information both on the Internet and in their product documentation as from 2021/2022. In this respect, implementation is not required under national law; the SFDR is directly applicable law (for more details on the SFDR, see our newsletter "Outlook Corporate Social Responsibility 2020: More Sustainability, More Acts, More Risk" published in early February 2020). However, the SFDR authorises the three European supervisory authorities (EBA, EIOPA and ESMA, in short: ESAs) to develop so-called Regulatory Technical Standards (RTS) on the content, methodology and presentation of ESG

[Environment Social Governance] disclosures at both company and product level. To this end, the ESAs published a
Consultation Paper on 23 April 2020 in which they request contributions to the RTS they propose for the disclosure of ESG factors for financial market participants, advisors and products.

Importance of the Taxonomy Regulation for Non-Financial Reporting

In addition, the taxonomy is relevant for all companies that are required to supplement their management report with a non-financial statement in accordance with the so-called CSR Directive (Non-Financial Reporting Directive, or NFRD for short) and the German CSR Directive Implementation Act (CSR-RUG) for fiscal years starting 1 January 2017. In their non-financial reporting they will in future also have to include information on how and to what extent the activities of the company are linked to economic activities that are to be classified as environmentally sustainable economic activities pursuant to Articles 3 and 9 of the Taxonomy Regulation, cf. Art. 8 Taxonomy Regulation. In particular, non-financial businesses must indicate the following:

a) the share of their sales proceeds generated from products or services that are linked to economic activities that are to be classified as environmentally sustainable in accordance with Articles 3 and 9 of the Taxonomy Regulation; and

b) the share of their investment expenditure and, where applicable, the share of operating expenditure related to assets or processes associated with economic activities that are to be classified as environmentally sustainable in accordance with Articles 3 and 9 of the Taxonomy Regulation.

According to Article 3 of the Taxonomy Regulation, an economic activity is considered ecologically sustainable if, among other things, it makes a significant contribution to achieving one or more of the following environmental objectives set out in Article 9 of the Taxonomy Regulation:

a) climate change mitigation;

b) climate change Adaptation;

c) sustainable use and protection of water and marine resources;

d) transition to a circular economy;

e) pollution prevention and control;

f) protection and restauration of biodiversity and ecosystems.

The EU Commission will adopt delegated legal acts with specific technical evaluation criteria to supplement the principles laid down in the Taxonomy Regulation and to define which economic activities are eligible for each environmental objective. According to the above-mentioned press release, the first two criteria for climate change mitigation and adaptation should be adopted by the end of this year and the criteria for the other four environmental objectives by the end of next year.


With the Taxonomy Regulation and the SFDR, the EU Commission has implemented key elements of its 2018 Sustainable Finance Action Plan. As announced in the European Green Deal, the EU Commission has now launched the consultation on the Renewed Sustainable Finance Strategy on 8 April 2020 (see the update at the end of our Newsletter of early April 2020 "Corona vs. CSR: Does the Virus also stop Sustainability?"). The EU Commission intends to also integrate sustainability more closely into the corporate governance framework in future.

It was as well announced in the European Green Deal that the EU Commission will revise the CSR Directive on Non-Financial Reporting. With this initiative, the EU Commission wants to ensure that investors, civil society and other interested parties have access to the information they need without imposing excessive reporting obligations on companies. The intended consultation published in the Schedule at the end of January 2020 has recently been closed, and implementation by the EU Commission has been announced for the fourth quarter of 2020.

The current programme for the Trio Presidency of Germany, Slovenia and Portugal includes in addition to a coherent implementation of the UN's Guiding Principles on Business and Human Rights, the OECD Guidelines for Multinational Enterprises and the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (see our blog post "Cross-sector supply chain due diligence obligations underway"), the drawing up of a new Communication on Corporate Social Responsibility (CSR) including an EU Action Plan for Responsible Corporate Behaviour (see our blog post "The Trio Presidency Commits to More Sustainability").

The tendency towards more regulation in the area of sustainability is thus continuing.

Dr André Depping

Dr Matthias Etzel

Dr Daniel Walden

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Dr. Daniel Walden T   +49 89 35065-1379 E