Term · ESG & Sustainability
EU Taxonomy
In briefThe EU Taxonomy is a classification system for which economic activities count as environmentally sustainable. Companies report which share of revenue, capital expenditure and operating expenditure is taxonomy-aligned. A low ratio does not necessarily mean poor sustainability, but often merely a lack of coverage.
Definition
The EU Taxonomy is a classification system that determines which economic activities are considered environmentally sustainable. Companies report which share of their revenue, investments and operating expenditure is taxonomy-aligned. An activity must make a substantial contribution to an environmental objective without significantly harming other objectives, and must meet minimum safeguards.
How it is calculated
Formula. Taxonomy ratio = taxonomy-aligned revenue ÷ total revenue
Why it matters for small caps
For smaller companies subject to reporting, the taxonomy metrics can affect access to sustainability-oriented capital. The reported ratios also provide a structured view of the activity portfolio.
Common misreadings
- A low taxonomy ratio is often read as a poor ESG verdict, even though many activities are simply not (yet) covered by the taxonomy.
In the process
Frequently asked
Which metrics does a company report for the taxonomy?
Usually the taxonomy-aligned share of revenue, capital expenditure (capex) and operating expenditure (opex), each as a ratio of the total value.
What does taxonomy-eligible mean versus taxonomy-aligned?
Taxonomy-eligible is an activity that in principle falls under the taxonomy. It is only taxonomy-aligned once it additionally meets the technical criteria and safeguards.
Is the taxonomy related to the CSRD?
Yes. The taxonomy disclosures are part of sustainability reporting, which is governed by the CSRD and the ESRS.
Related terms
Sources
Primary
EUR-Lex – Taxonomie-Verordnung (Verordnung (EU) 2020/852)
https://eur-lex.europa.eu/legal-content/DE/TXT/?uri=CELEX:32020R0852
https://eur-lex.europa.eu/legal-content/DE/TXT/?uri=CELEX:32020R0852
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.