EU Taxonomy Regulation
EU Taxonomy Regulation
Introduction
The EU Taxonomy Regulation (EU) 2020/852 is a central element of the EU’s sustainable finance framework. It establishes a common classification system for determining when an economic activity can be considered environmentally sustainable. It supports alignment with six EU environmental objectives and promotes transparency in sustainable investment. The Regulation entered into force on July 12, 2020, with the first reporting obligations applying from January 1, 2022.
The Regulation operates through three layers of delegated acts. The Climate and Environmental Delegated Acts set the technical criteria for each activity – the thresholds a company must meet to qualify as Taxonomy-aligned. The Disclosures Delegated Act sets the reporting rules – how companies present their Taxonomy key performance indicators (KPIs) (turnover, CapEx, OpEx). All three have been progressively updated to improve clarity and usability for companies and financial institutions. The European Commission's EU Taxonomy Compass maps the requirements activity by activity.
Latest simplification: Delegated Regulation (EU) 2026/73
On January 8, 2026, Commission Delegated Regulation (EU) 2026/73 was published in the Official Journal, entering into force on January 28, 2026. The Delegated Regulation amends the Taxonomy Disclosures, Climate, and Environmental Delegated Acts and introduces significant simplifications to reporting requirements and technical screening criteria.
Key changes include:
Streamlined reporting templates: data points per activity reduced by approximately 64% for non-financial companies (from 78 to 28) and by up to 89% for financial institutions. A new summary template focuses on the information needed to calculate KPIs.
A new 10% materiality threshold: companies do not need to assess Taxonomy eligibility and alignment for economic activities that cumulatively represent less than 10% of turnover, CapEx, or OpEx. The assessment is performed independently for each KPI. Non-material activities must still be reported in summary form. Companies may also exclude OpEx reporting entirely if the OpEx KPI is not material to their business model. The threshold also applies to financial institutions for exposures where the use of proceeds is known.
DNSH adjustments: the Do No Significant Harm (DNSH) criteria for pollution prevention and control have been refined. Companies no longer need to assess a large number of self-classified substances. The focus is now on substances classified by the European Chemicals Agency as substances of very high concern and subject to authorisation. References have been aligned with updated EU chemicals legislation, and relevant RoHS II Directive exemptions can now be applied explicitly.
Financial institutions opt-out: financial companies may defer detailed Taxonomy KPI reporting until December 31, 2027. This applies only where they do not claim Taxonomy alignment.
Application and transitional arrangements
Although the Delegated Regulation entered into force on January 28, 2026, it applies retroactively from January 1, 2026 for reports covering the 2025 financial year. For the 2025 reporting cycle, companies may choose to apply either the updated rules or those which were in place until December 31, 2025. They must disclose which set they used.
The new rules become mandatory for reporting on the 2026 financial year. On December 17, 2025, the Commission published draft practical guidance on the application of the new rules. Topics covered include the materiality threshold, comparative data, and the financial institutions opt-out.
Link to Omnibus I and CSRD scope
The Taxonomy Regulation applies to all companies in scope of the Corporate Sustainability Reporting Directive (CSRD). Following the Omnibus I simplification, which entered into force on March 18, 2026, the CSRD now applies only to companies with more than 1,000 employees and €450 million net turnover. This directly narrows the number of companies subject to Taxonomy reporting obligations.
What comes next
On March 17, 2026, the Commission published draft amendments to the Climate and Environmental Delegated Acts as part of a broader usability review. The revisions aim to further simplify technical screening criteria, clarify how to demonstrate compliance, and align criteria with updated EU legislative developments. The changes cover most activities under both delegated acts, including forestry, manufacturing, energy, transport, construction, and all generic DNSH appendices. The draft was open for public consultation until April 14, 2026. The Commission aims to adopt the amendments later in 2026. Parliament and Council then have up to six months to review them. Once in force, companies will need to apply the revised criteria when reporting on FY 2026. No additional transition period is currently planned.
In parallel, the Commission has proposed a review of the Sustainable Finance Disclosure Regulation (SFDR). Under the latest proposals, firms can use taxonomy alignment to meet certain requirements under the new categories. This signals a continued move towards stronger alignment between sustainability disclosures and the Taxonomy framework.
On March 5, 2026, the Commission issued a call for technical advice to the European Supervisory Authorities on the Disclosures Delegated Act. The advice will focus on specific KPIs, including the OpEx KPI for non-financial companies and the trading book and underwriting KPIs for financial institutions. Final advice is due by October 2026. The Commission aims to complete the review by Q1 2027, with new measures entering into force before the end of 2027.
How we can help
Our global Sustainability and ESG team advises on Taxonomy eligibility, alignment assessments, and DNSH compliance. We also advise on the interaction between Taxonomy reporting and CSRD/ESRS obligations, and the impact of ongoing simplification measures. Our lawyers help clients achieve compliance with sustainability reporting requirements across the jurisdictions in which they operate.
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