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What is the EU-TAXONOMY?

Taxonomie ohne Text

The EU Taxonomy is a classification system developed by the European Union to determine which economic activities can be classified as environmentally sustainable.
The aim of the EU taxonomy is to provide investors, companies and political decision-makers with a uniform and transparent understanding of what constitutes a sustainable investment.
This is intended to promote the flow of capital into sustainable projects and activities and support the implementation of the EU’s climate targets.
The EU Taxonomy is a key part of the EU’s strategy to promote sustainable finance and achieve the climate goals of the Paris Agreement.

The ENVIRONMENTAL OBJECTIVES of the EU taxonomy

Companies and financial market participants must disclose what proportion of their activities and investments they classify as taxonomy-compliant.
This includes quantitative and qualitative reports to ensure transparency and comparability.
You must disclose which of the following 6 environmental objectives are affected by your activities.

01

Climate protection

Activities that contribute to the avoidance or reduction of greenhouse gas emissions.
Measures to increase energy efficiency or the use of renewable energies.

02

Adaptation to climate changeActivities that increase resilience to the effects of climate change. – Measures that reduce the risks and damage caused by climate change.

03

Sustainable use and protection of water and marine resourcesActivities that contribute to sustainable water management. – Measures to improve water quality and the ecological status of water bodies.

04

Transition to a circular economyActivities that increase resource efficiency and reduce waste. – Measures to reuse, repair, refurbish and recycle materials.

05

Prevention and reduction of environmental pollutionActivities that prevent or reduce the release of pollutants into the air, water and soil. – Measures to improve air quality and reduce noise and harmful chemicals.

06

Protection and restoration of biodiversity and ecosystemsActivities that promote the conservation and restoration of natural habitats and biodiversity. – Measures for sustainable land use and forest management.

Main criteria of the EU TAXONOMY

The EU taxonomy sets out clear criteria to determine which economic activities are considered environmentally sustainable.
These criteria are designed to ensure that an activity makes a significant contribution to at least one of the six defined environmental objectives, does not cause significant harm to the other environmental objectives and complies with certain minimum safeguards.
The six environmental objectives and the corresponding criteria are as follows:

1

Substantial contribution

 

The activity must demonstrably make a significant contribution to one or more of the six environmental objectives.
This is defined by specific technical criteria that are defined for each activity.

2

Do No Significant Harm (DNSH)


The activity must not cause significant harm to any of the other environmental objectives.
This requires a comprehensive assessment and compliance with the DNSH criteria for each environmental objective.

3

Minimum protection

 

The activity must comply with basic social and governance standards.
These include compliance with labor rights, human rights and ethical business practices.

Who is OBLIGED?

In their non-financial reports (sustainability reports), these companies must provide information on the extent to which their economic activities meet the criteria of the EU taxonomy.
The Non-Financial Reporting Directive (NFRD) has been extended by the Corporate Sustainability Reporting Directive (CSRD), meaning that more companies are affected by the reporting obligation.

Large companies with more than 500 employees   – Companies, that are subject to the Non-Financial Reporting Directive (NFRD) – Companies that are listed on a regulated market within the EU.
– Companies that exceed certain thresholds in terms of turnover and balance sheet total.

Companies with more than 250 employees  – Uompanies that are subject to the Corporate Sustainability Reporting Directive (CSRD) are companies that fulfill at least two of the following three criteria: – More than 250 employees.
– More than 50 million euros turnover.
– More than 25 million euros in total assets.
– All listed companies, with the exception of micro-enterprises

Smaller suppliers to industry  – Smaller companies SMEs are indirectly affected as suppliers to industry – industry must also request certain data (Product Carbon Footprint PCF) from suppliers – those who cannot disclose as suppliers to industry will be delisted in future

Large companies and financial market participants are mainly obliged to comply with the EU Taxonomy.
The obligation includes the disclosure of how sustainable their economic activities and financial products are, based on the criteria of the EU Taxonomy.
This serves to create transparency and promote the transition to a more sustainable economy.

The biggest PROBLEMS of the EU TAXONOMY

The implementation of the EU taxonomy poses various challenges for companies.
These difficulties relate to the organizational as well as the technical and content-related aspects of implementation.
Here are some of the main challenges:

01

Data procurement and management

Data availability: Compilation of extensive and detailed data on activities, emissions and other sustainability aspects
Data quality: Ensuring the accuracy and completeness of the collected data Integration of data: Bringing together heterogeneous data from different sources and departments

02

Complexity and understanding of the criteriaInterpretation of the criteria: The EU taxonomy contains specific criteria that companies need to understand thoroughly to ensure that they apply them correctly. –Technical criteria: The taxonomy requires compliance with technical standards and thresholds, which are often complex and industry-specific.

03

Reporting and transparencyIncreased reporting effort: The EU taxonomy requires detailed reports that require additional resources.
Companies must develop new reporting structures and adapt existing reporting processes. –Transparency requirements: Companies must present their sustainability performance and targets in a transparent and comprehensible manner.

04

Adjustments to business models

Strategic adjustments: Companies need to rethink their business models and strategies to promote taxonomy-compliant activities and reduce non-compliant activities.
Innovation and investment: It may be necessary to invest in new technologies and processes in order to meet the ecological criteria of the taxonomy.

05

Cultural change and trainingOrganizational culture: The implementation of the EU taxonomy often requires a cultural change in order to anchor sustainability in the corporate strategy. –Employee training: Further training is necessary to ensure that all relevant employees understand and can implement the taxonomy requirements.

06

Regulatory uncertainties and adjustmentsRegulatory changes: The EU taxonomy is a dynamic set of rules that can evolve.
Companies must be flexible in order to be able to react quickly to changes. –Differences in national implementation: The individual member states can implement the EU taxonomy differently, which increases the complexity for international companies.

SOLUTION of the EU-TAXONOMY in SOLUTION4

Implementing the EU taxonomy is a complex task that requires companies to make extensive adjustments and make significant investments in data management, reporting and internal processes.
Despite the challenges, the taxonomy also offers opportunities by helping companies to become more sustainable and remain more competitive in the long term.

The taxonomy reporting process with AEP Solution4 starts with the identification of your company’s economic activities using NACE codes that are already stored in the system.
AEP Solution4 uses internal AI algorithms to automatically assign products and services to an appropriate NACE code.
The assignment takes place automatically when the data is imported from the ERP article master.
The NACE codes are then assigned to economic activities and environmental objectives.
These links are already integrated in Solution4 and make it easier to assess the taxonomy conformity of products and services.
Solution4 analyzes your products and their turnover in order to determine the proportion of taxonomy-compliant turnover.
The sustainability management tasks are visualized and processed in the “Green Controlling” module.
The “Sales” taxonomy report and the “Capex” taxonomy report (for investments) can be generated and exported directly from the system.

01

Data procurement and management
Flexible interfaces and a central data hub for connecting all internal upstream systems and data sources (via REST API, SQL) ensure that the latest data is always available.
Possible upstream systems include ERP, ERP, accounting, HR, BMS and energy management systems.

02

Complexity and understanding of the criteriaPreconfigured data points and processes that comply with current reporting standards and are constantly updated to ensure audit-proof and transparent reporting at all times.

03

Reporting and transparency
Central “Green Data Warehouse” that prepares all data points and KPIs in a standardized and comprehensible way and generates dashboards, graphics and reports.
Transparent preparation of all ecological KPIs at individual data level (articles) is also available.

04

Adjustments to business models
Automated allocation of economic activities based on sales products.
Resolution and analysis of resource lists and a system-supported NACE code determination for the mapping of economic activities to environmental targets.

05

Cultural change and training All-in-one software solution with a complete range of consulting and training services for developing, structuring and supporting CSRD compliance helps you to anchor acceptance among your employees.

06

Regulatory uncertainties and adjustments
Our system solution is constantly being further developed and adapted to the requirements of the guidelines.
At the time of installation, you receive the currently tested version, which can be easily adapted and updated.

Watch the video to find out about the possibilities offered by the taxonomy module.
We will guide you through all components of the module and show you the steps for creating a taxonomy report that meets all requirements.