European Commission Planning to Amend the EU Taxonomy on Climate Issues
While the EU Taxonomy Regulation's primary objective is to redirect capital flows toward business activities operated in a more sustainable way as well as avoid greenwashing, it has, from a practical standpoint, created reporting constraints which can prove burdensome for financial institutions and non-financial companies with activities "eligible" under the Taxonomy. As part of the Omnibus Sustainability Package, the European Commission has prepared a draft Delegated Act amending the Climate Delegated Act adopted in 2021 to enhance the clarity, coherence, and practical applicability of the technical screening criteria associated with climate change mitigation or climate change adaptation, while preserving the existing level of environmental ambition (the "draft Amended Climate Delegated Act"). A parallel draft Delegated Act amending the Environmental Delegated Act forms part of this broader review. The amended provisions are intended to apply beginning January 1, 2027.
Rationale for the Review
The European Commission has received consistent feedback indicating that the existing technical criteria to determine if activities are operated in a sustainable manner present excessive complexity. Also, it was reported to the Commission that the documentation requirements impose a disproportionate administrative burden compared to companies who have no activities eligible under the Taxonomy and therefore are not subject to reporting requirements. Finally, some disclosure obligations are considered unduly granular. As a consequence, a significant number of companies—including those that have taken substantive steps toward environmental sustainability—have been unable to demonstrate full compliance, resulting in a material under-reporting of Taxonomy-aligned activities. Based on such feedback, the amendments proposed to the Climate Delegated Act are directed at streamlining the assessment of alignment with the technical criteria.
Principal Amendments
Removal of proprietary standards references. As a cross-cutting simplification measure, the draft Amended Climate Delegated Act removes references to proprietary or paid-for standards. Only open-source standards and those adopted by recognized European standardization bodies (CEN, CENELEC, ETSI) will be referenced in the technical screening criteria, thereby relieving undertakings of the cost of procuring third-party standards for the purposes of demonstrating compliance.
The draft Amended Climate Delegated Act also updates technical criteria for various activities, based on feedback regarding the relevance of such criteria as well as new developments in applicable technologies, demonstrating that the Taxonomy is meant to adapt and adjust to such scientific and technological changes. Such modifications apply in particular to the following activities:
- Low carbon manufacturing. The technical screening criteria for low-carbon manufacturing and related activities—which include, in particular, renewable energy technologies, hydrogen equipment, batteries, and electrical equipment—are revised to ensure greater alignment with recent EU legislation, notably the Net-Zero Industry Act (Regulation (EU) 2024/1735) and the Batteries Regulation (Regulation (EU) 2023/1542), with a view to reducing duplicative compliance obligations.
- Plastics manufacturing. The scope of the plastics manufacturing activity is expanded to encompass compounding activities. The revised criteria accommodate a broader range of recycling technologies and refine the treatment of renewable feedstocks, with a view to strengthening the incentivization of recycled input consistent with the EU's circular economy objectives.
- Water, waste, and remediation. The screening criteria applicable to such activities are updated to reflect the recast Urban Wastewater Treatment Directive (Directive (EU) 2024/3019) and recent scientific and technological developments. The activity descriptions for water supply and wastewater treatment are harmonized to improve consistency, and the criteria for anaerobic digestion and composting activities are broadened to permit the production of products and chemicals beyond fertilizers, soil improvers, or biogas.
The amendments represent a usability-focused reform rather than a substantive policy shift. For companies currently subject to Taxonomy reporting obligations, the revisions are expected to simplify compliance processes and may broaden the scope of activities eligible for reporting as Taxonomy-aligned. Reporting companies are advised to review the revised criteria in advance of the January 1, 2027, effective date in order to assess the impact on their Taxonomy alignment disclosures and, where relevant, to identify activities that may newly qualify or alternatively, elude reporting on non-material activities.
