EU taxonomy: simplification in sight? - What the new omnibus package means

The EU Taxonomy Regulation has created the first EU-wide framework for the comparability and transparency of sustainable economic activities. At the heart of the regulation is a standardized classification system for environmentally sustainable activities. The aim of the regulation is to provide investors and the public with well-founded, comparable information on the environmental performance of companies. This is intended to promote sustainable capital flows in a targeted manner and prevent greenwashing through objective assessment criteria.

There are plans to increase the thresholds for the CSRD reporting obligation. Companies would only be required to report if they have more than 1,000 employees and either a net annual turnover of at least EUR 50 million or a balance sheet total of at least EUR 25 mil-lion. These size criteria also form the basis for the EU taxonomy in the first step. However, the proposal contains a special provision in the newly inserted Article 19b (or 29aa for parent companies) of the draft CSRD amending directive, which allows voluntary application of the EU taxonomy. This “opt-in” rule applies to companies with more than 1,000 employees and a net annual turnover of less than 450 million euros. As a result, only companies with more than 1,000 employees and a net annual turnover of more than EUR 450 million would fall under the EU taxonomy reporting obligation. This asymmetrical structure would lead to an inconsistency between the two regulations, as not all companies subject to CSRD would automatically be subject to the taxonomy.

In order to make reporting under the EU taxonomy more practical, two materiality thresholds are to apply to non-financial companies in future. 

On the one hand, a 10% de minimis threshold is to be introduced for the turnover, CapEx and OpEx indicators. This 10% threshold should apply to the cumulative share of the respective KPI denominator from the identified taxonomy-eligible economic activities, i.e. for example, the cumulative turnover of the identified activities should be less than 10% of the net annual turnover. An assessment of taxonomy conformity may be waived for these eco-nomic activities. However, the share of revenue, CapEx and OpEx identified as immaterial must be reported accordingly as immaterial and thus disclosed. This is intended to significantly reduce the effort for companies that have few taxonomy-compliant activities by (partially) eliminating the compliance check.  

On the other hand, the introduction of a further threshold value is also planned for the OpEx KPI. According to this, companies that identify taxonomy-eligible economic activities whose cumulative turnover accounts for less than 25% of the turnover KPI will in future be able to waive the reporting obligation for the OpEx KPI in connection with these activities.

An adaptation of the DNSH criteria with regard to the environmental objective of preventing and reducing environmental pollution in connection with the use or presence of chemicals is also planned as part of the amendment.

The DNSH criteria are decisive for whether an economic activity can be classified as taxonomy-compliant or not. In principle, an economic activity can only be considered taxonomy-compliant if it not only makes a significant contribution to one of the defined environmental objectives and fulfills the corresponding technical assessment criteria, but at the same time does not significantly impair any of the other environmental objectives. The DNSH criteria are intended to ensure precisely this.

The wording of the DNSH criteria in relation to the environmental objective of pollution prevention and control in connection with the use or presence of chemicals has so far offered scope for different interpretations, which has led to considerable uncertainty in practice. In order to eliminate these ambiguities, the language of the relevant criteria is now to be revised and made more specific. This adjustment concerns the so-called Annex C, which contains the requirements for testing the DNSH criteria in this context.

Two different proposals are currently under discussion for adapting the last paragraph in Annex C, which contains a ban on the manufacture, presence in the final product or output or the placing on the market of certain substances. On the one hand, a deletion of this paragraph in Annex C is being considered (alternative 1) or a modified wording of this very paragraph (alternative 2). Alternative 2 is intended to specify how substances subject to authorization restrictions that correspond to a hazard class or category in accordance with Article 57 of the REACH Regulation (Regulation (EC) 1907/2006) are to be identified. Previously, only general reference had been made to the criteria of the CLP Regulation (Regulation (EC) 1272/2008), without further specification. According to the new wording proposal, the substances are to be identified on the basis of Part 3 in Annex VI of the CLP Regulation, which contains a specific list of hazardous substances. Consequently, the classification of this list can be used without having to check further criteria. In addition, the condition of using the substances concerned only under “controlled conditions” is to be waived in the absence of alternative substances on the market.

The EU Taxonomy Regulation provides for the disclosure of key figures in mandatory reporting forms. These reporting forms are to be adapted and, in particular, simplified in future. The planned simplification of the reporting forms limits duplication and focuses on data points that are particularly relevant for investors and other stakeholders. Among other things, it is planned that in future the reporting forms will no longer contain information on DNSH criteria and minimum safeguards for taxonomy-compliant activities. By simplifying the templates, the reporting forms will in future only contain 27 instead of 78 data points, which corresponds to a reduction of 66%, making them significantly less extensive and therefore clearer. However, these changes only affect the presentation of the results and do not lead directly to a change in the KPI survey.

It remains to be seen what the final form of the changes will take. It is advisable for companies to keep an eye on developments in the process at EU level so that they can deal with any necessary adjustments to the data collection and reporting process at an early stage.​