First Year of Implementation for the Taxonomy Regulation in the European Union

As of January 1, 2022, the first delegated acts adopted to supplement European Regulation (EU) 2020/852 of June 18, 2020 (the "Taxonomy Regulation") became applicable. The Taxonomy Regulation sets out a classification system establishing a list of environmentally sustainable economic activities in order to direct investments toward activities identified as environmentally sustainable.

Commission Delegated Regulation 2021/2139 of June 4, 2021 (the "Climate Delegated Act") supplements the Taxonomy Regulation with a list of activities and applicable technical screening criteria. This delegated regulation was published on December 9, 2021. It includes two annexes listing a total of 95 activities for which technical criteria are set out to determine whether the relevant activity either "contributes substantially to climate change mitigation" (Annex I) or "contributes substantially to climate change adaptation" (Annex II). The activities currently targeted by the Climate Delegated Act include a broad variety of industries, including manufacturing activities of various products (e.g., aluminum, iron, chlorine), certain types of energy generation, as well as certain transportation modes and financial and insurance activities. 

Additional activities will be added in the future by additional climate delegated acts, together with the relevant technical criteria. In particular, on February 2, 2022, the European Commission announced it had approved a new delegated act which will cover nuclear energy and natural gas. The publication of these supplementary regulations are expected in a few months after a validation period by the European Parliament and Council.

Commission Delegated Regulation 2021/2178 of July 6, 2021 (the "Disclosures Delegated Act") was published on December 10, 2021, and specifies the content and presentation of information to be disclosed by certain undertakings subject to the taxonomy. It applies as of January 1, 2022, with transitional provisions for the first year with respect to reporting on activities undertaken in 2021. The scope of entities subject to such disclosure obligations includes financial as well as large non-financial companies, with a reference to Directive EU 2014/95 (the Non-Financial Reporting Directive, or NFRD). 

The preparation of taxonomy reports includes two main steps. First the reporting company must identify whether it has undertaken activities "eligible" under the taxonomy (i.e., activities listed in Annex I and/or Annex II of the Climate Delegated Act). Then it must establish whether such eligible activities are "aligned" (i.e., compliant) with the criteria set out by the Climate Delegated Act's annexes for such activity. 

Such reporting obligations create additional constraints on financial and non-financial entities, already subject to a number of non-financial reporting obligations, and should be carefully reviewed considering the complex and technical nature of the Taxonomy Regulation. They will also create opportunities for non-financial entities with "taxonomy aligned" sustainable activities which may benefit from favorable financing conditions. They may also reduce the risks for misleading and greenwashing claims thanks to this new comprehensive and unified reporting methodology. 

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