EU Taxonomy: Definition

The EU taxonomy is a rulebook that defines which economic activities count as environmentally sustainable. It was created by the EU Taxonomy Regulation (2020) to stop “green” meaning different things to different investors.

The six environmental objectives

An activity is taxonomy-aligned if it makes a substantial contribution to at least one of six objectives, does no significant harm to the others, and meets minimum social safeguards:

1. Climate change mitigation
2. Climate change adaptation
3. Sustainable use and protection of water and marine resources
4. Transition to a circular economy
5. Pollution prevention and control
6. Protection and restoration of biodiversity and ecosystems

Technical screening criteria set the thresholds for each activity, for example an emissions intensity limit for electricity generation.

Who uses it

Companies in scope of CSRD disclose the share of their turnover, capital expenditure and operating expenditure that is taxonomy-aligned. Financial firms use it to label funds and report the green share of their portfolios.

Australia’s equivalent

Australia is developing its own sustainable finance taxonomy, led by the Australian Sustainable Finance Institute with government support. It follows the same logic, defining green and transition activities, but with criteria for Australian sectors such as mining and agriculture. If you already map activities for the EU taxonomy, much of that work carries over.