The plain-English explainer
The EU Taxonomy explained
The EU Taxonomy is a classification system that defines which economic activities count as environmentally sustainable. The part everyone trips over is eligibility versus alignment: being on the list is not the same as meeting the bar. This page nails that distinction, plus DNSH, minimum safeguards and the three KPIs. Regulation (EU) 2020/852
TL;DR
- What: Regulation (EU) 2020/852, a list of which activities are environmentally sustainable.
- Six objectives: mitigation, adaptation, water, circular economy, pollution, biodiversity.
- Eligible vs aligned: eligible = on the list; aligned = meets the criteria, DNSH and safeguards.
- Three KPIs: share of turnover, capex and opex that is eligible and aligned.
- CSRD link: reported inside the sustainability statement; simplified by the Omnibus.
What the EU Taxonomy is, and what it is for
The EU Taxonomy is a classification system that defines which economic activities count as environmentally sustainable. It exists to channel capital toward the green transition and to give investors a common, science-based language, preventing greenwashing. It is the green dictionary that sits alongside CSRD (corporate disclosure) and SFDR (financial product disclosure). European Commission
The six environmental objectives
The Taxonomy is built around six environmental objectives. To count, an activity must substantially contribute to at least one of them, while not undermining the others. Art. 9, Reg. (EU) 2020/852
- 1. Climate change mitigation
- 2. Climate change adaptation
- 3. Water and marine resources
- 4. Transition to a circular economy
- 5. Pollution prevention and control
- 6. Biodiversity and ecosystems
Eligibility vs alignment (the bit everyone confuses)
This is the single most misunderstood part of the Taxonomy, so be precise. Eligibility means the activity is described in the Taxonomy delegated acts and has technical screening criteria. It says nothing about performance, only that the activity is the kind of thing the Taxonomy covers. Alignment means the activity actually meets the bar. European Commission
Eligible
The activity is on the list: it is described in the delegated acts and has technical screening criteria. Being eligible does not mean it is green; it just means it can be assessed for alignment.
Aligned
The activity meets the bar. It must substantially contribute to at least one objective, do no significant harm to the other five, and comply with minimum safeguards. Only aligned activities count as environmentally sustainable.
To be aligned, an activity must clear three tests together:
- Substantial contribution: meet the Technical Screening Criteria for at least one of the six objectives.
- Do No Significant Harm (DNSH): not significantly harm any of the other five objectives.
- Minimum safeguards: comply with social due-diligence standards.
DNSH and minimum safeguards
Do No Significant Harm ensures a green activity does not damage other objectives: a wind farm that contributes to climate mitigation must not significantly harm biodiversity, for example. Minimum safeguards add a social floor, requiring due-diligence processes on human rights, labour, anti-corruption and bribery, taxation, and fair competition, aligned with the OECD Guidelines and the UN Guiding Principles. Art. 18, Reg. (EU) 2020/852
The three KPIs: turnover, capex and opex
In-scope companies report the proportion of their turnover, capital expenditure (capex) and operating expenditure (opex) associated with Taxonomy-eligible and Taxonomy-aligned activities. The hard operational part is mapping revenue and spend to specific economic activities, which is why this work usually lands on finance teams. European Commission
Turnover
The share of net revenue from products and services tied to Taxonomy-aligned activities.
CapEx
The share of investment in assets or processes linked to aligned activities, including plans to become aligned.
OpEx
The share of direct non-capitalised operating costs tied to aligned activities (for example maintenance and R and D).
How the Taxonomy links to CSRD
Taxonomy reporting is embedded in the CSRD: companies in CSRD scope disclose their Taxonomy KPIs as part of their sustainability statement, and ESRS E1 cross-references it (the original Article 8 obligation under the Taxonomy Regulation). One data architecture, two outputs. See how the wider landscape connects on our sustainability reporting hub. ESRS E1, Delegated Reg. (EU) 2023/2772
The Omnibus is simplifying Taxonomy reporting
By the numbers
The EU Taxonomy in figures
Environmental objectives an activity can substantially contribute to.
Tests for alignment: contribution, DNSH, minimum safeguards.
KPIs reported: turnover, capex and opex.
The EU Taxonomy Regulation that defines it all.
FAQ
People also ask
What is the EU Taxonomy?
The EU Taxonomy is a classification system, set out in Regulation (EU) 2020/852, that defines which economic activities count as environmentally sustainable. It gives investors and companies a common, science-based language to channel capital toward the green transition and to prevent greenwashing. In-scope companies report what share of their turnover, capex and opex is Taxonomy-aligned.
What are the six environmental objectives?
The EU Taxonomy has six environmental objectives: climate change mitigation; climate change adaptation; sustainable use and protection of water and marine resources; transition to a circular economy; pollution prevention and control; and protection and restoration of biodiversity and ecosystems. An activity must substantially contribute to at least one of these.
What is the difference between eligible and aligned?
Eligible means the activity is described in the Taxonomy delegated acts and has technical screening criteria; it says nothing about performance, only that the activity is on the list. Aligned means the activity actually meets the bar: it substantially contributes to an objective, does no significant harm to the other five, and complies with minimum safeguards.
What is DNSH?
DNSH stands for Do No Significant Harm. To be Taxonomy-aligned, an activity that substantially contributes to one environmental objective must not significantly harm any of the other five. For example, a wind farm that substantially contributes to climate mitigation must not significantly harm biodiversity.
What are minimum safeguards?
Minimum safeguards require companies to run due-diligence processes on human rights, labour, anti-corruption and bribery, taxation, and fair competition, aligned with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights. They are the social floor an activity must meet to be Taxonomy-aligned.
What are the turnover, capex and opex KPIs?
In-scope companies report the proportion of their turnover, capital expenditure (capex) and operating expenditure (opex) associated with Taxonomy-eligible and Taxonomy-aligned activities. Mapping revenue and spend to specific economic activities is the hardest operational part, and falls largely on finance teams.
How does the Taxonomy relate to CSRD?
EU Taxonomy reporting is embedded in CSRD: companies in CSRD scope disclose their Taxonomy KPIs as part of their sustainability statement, and ESRS E1 cross-references it. The Omnibus simplifies Taxonomy reporting, raising thresholds, reducing templates, and making it voluntary for some companies below thresholds.
This is guidance, not legal advice
Sources
- [1]Regulation (EU) 2020/852 (EU Taxonomy Regulation), EUR-Lexretrieved 8 Jun 2026
- [2]European Commission: EU taxonomy for sustainable activitiesretrieved 8 Jun 2026
- [3]Council of the EU: sign-off of the Omnibus simplification (24 Feb 2026)retrieved 8 Jun 2026
- [4]Delegated Regulation (EU) 2023/2772 (ESRS Set 1, incl. ESRS E1)retrieved 8 Jun 2026
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