What is the definition of an EU Taxonomy-aligned investment?
Article 3 of the Taxonomy Regulation 2020/852 (TR) gives the criteria for a Taxonomy- aligned investment. An investment qualifies as environmentally sustainable if the following conditions are met:
It contributes substantially to one or more of the environmental objectives set out in Article 9 TR in accordance with Articles 10 to 16 TR (Substantial Contribution = SCC);
It complies with technical screening criteria that have been established by the Commission in accordance with Article 10 (3), 11(3), 12(2), 13(2), 14(2) or 15(2);
It does not significantly harm any of the environmental objectives set out in Article 9 TR in accordance with Article 17 TR (DNSH);
It is carried out in compliance with the minimum safeguards laid down in Article 18 TR.
What are the Environmental Objectives according to Article 9?
Climate Change Mitigation (Technical Screening Criteria published);
Climate Change Adaptation (Technical Screening Criteria published);
The Sustainable Use and Protection of Water and Marine Resources;
The Transition to a Circular Economy;
Pollution Prevention and Control;
The Protection and Restoration of Biodiversity and Ecosystems.
What is an example of an activity that meets the technical screening criteria, but not the do no significant harm criteria?
An example here would be a company that manufactures solar PV panels. They meet the technical screening criteria by manufacturing and putting up these panels (that is the only requirement here), but they have not set up a Biodiversity Environmental Impact assessment to check whether putting up the panels i.e., on roofs harms birds in protected areas. Hence, their DNSH on Biodiversity is not met and they are not Taxonomy-aligned.
What is an example of a Taxonomy-aligned investment for Climate Change Mitigation?
A company that has a wind farms and generated energy from wind power (= SCC criterion met)
They have also done a climate risk assessment to find out whether the farm might be exposed to climate risks such as flooding or earthquakes. If a serious risk is found, they incorporated mitigation measures to lessen the risks (= DNSH Climate Change Adaptation met).
If their wind farm is offshore, they have taken measures to mitigate noise so as not to harm sea life (= DNSH Water met).
They use equipment and components of high durability and recyclability and that are easy to dismantle and refurbish (= DNSH Circular Economy met).
For this activity, there are no DNSH criteria that need to be considered for Pollution Prevention.
They have done a biodiversity environmental impact assessment to find out whether they harm biodiversity in their operations and then mitigate this (= DNSH Biodiversity met).
They meet the minimum safeguards as explained in Article 18 TR.
Result: All wind farms that comply with these criteria are Taxonomy-aligned. If they e.g., generate 70% of their revenue with these farms, they are 70% Taxonomy-aligned.
What is an example of a Taxonomy-aligned investment for Climate Change Adaptation?
A company that operates bio-composting facilities.
They have also done a climate risk assessment to find out whether any of their facilities might be exposed to climate risks such as flooding or earthquakes. If a serious risk is found, they incorporated mitigation measures to lessen the risks. They make sure that the mitigation measures do not harm other people and nature and are constantly monitored (= SCC criterion met).
For this activity, there are no DNSH criteria for the objectives Climate Change Mitigation, Water, and Circular Economy.
They need to make sure that their emissions fall within a range that is prescribed by the EU, that they have a system in place to prevent leachate reaching groundwater, and that they meet national rules on fertilisers (= DNSH Pollution Prevention met).
They have done a biodiversity environmental impact assessment to find out whether they harm biodiversity in their operations and then mitigate potential harm (= DNSH biodiversity met).
They meet the minimum safeguards as explained in Article 18 TR.
๏ They spend 30% of their Operational costs (OpEx) to screen all facilities that they have for the Risk assessment.. All facilities also meet the DNSH criteria. Hence, they are 30% Taxonomy-aligned.