EU Taxonomy

EU Taxonomy - The Second Delegated Act is Here!

Continuous development and improvement is critical to achieving global sustainability objectives. The EC is putting this concept into action with further improvements to the EU Taxonomy.

EU Taxonomy - The Second Delegated Act is Here!

One of the most important success factors in achieving the ambitious, but critical global sustainability objectives is continuous improvement. The EU again set an example by publishing the second delegated act for the EU Taxonomy this week, as expected.  

‘Today's Delegated Act specifies the content, methodology and presentation of information to be disclosed by large financial and non-financial companies on the share of their business, investments or lending activities that are aligned with the EU Taxonomy.’

European Commission, Press Release

This continuous and consistent evolution of requirements by the EC is highly beneficial as it provides further clarity to questions and uncertainty around sustainability disclosure and compliance requirements. The second delegated act of the EU Taxonomy, focusing on Article 8 (of the first Delegated Act), provides further clarification of the content, methodology and KPIs which companies and financial institutions are required to disclose. There are also some modifications of compliance deadlines, primarily for financial institutions.  

Companies that are required to disclose their Taxonomy alignment for FY 2021 by January 2022, as defined by NFRD, are ‘large listed companies’ which meet at least 2 of the following 3 criteria: 

  • More than 500 Employees
  • More than 20M€ Balance Sheet
  • More than 40M€ Turnover

This will expand to include both listed and non-listed companies with more than 250 employees in 2023 when the NFRD is expected to be replaced by the Corporate Sustainability Reporting Directive (CSRD). 

We have outlined the key points, including new details on requirements or changes to previously communicated information in this article.

Changes to the Draft Delegated Act:

  • The DA is subject to a 4 month scrutiny period (extendable by a further 2 months)

Non-financial corporates

  • Disclose the proportion of their activities that are taxonomy eligible and non-eligible for FY 2021 by January 2022
  • The maximum time frame for CapEx plans for inclusion in Taxonomy eligible alignment is 5 years with the possibility to extend CapEx plans to 10 years for justifiable CapEx spending (e.g. infrastructure projects).  This extension was raised from 7 to 10 years.
  • The DA has made official the standardised templates for disclosures.

Financial corporates 

  • Have been granted an extension, from January 2023 to January 2024 (FY2023) for reporting full taxonomy alignment. They will still need to report the taxonomy eligible and non-eligible proportion of their assets for FY 2021 and FY 2022.
  • Specifically for credit institutions, their taxonomy alignment disclosure of their trading book and fees & commissions has been pushed back to January 2026 (FY 2025). They will still need to disclose the banking book and off-balance sheet exposure GARs from January 2024 (FY 2023). As well as report the taxonomy eligible and non-eligible proportion for all assets for FY 2021 as of January 2022.

Clarification & validation made available by the Delegated Act: 

  • The CapEx plan should only be disclosed at economic activity-aggregated level, not at the level of individual projects (geographic location, individual facilities etc.) to avoid disclosing commercially sensitive information.

Financial Corporates 

A. The following types of companies and financial instruments remain excluded from the numerator of the Taxonomy KPIs on taxonomy alignment

  • Derivatives
  • EU Companies outside the scope of the NFRD
  • Non-EU companies

B. Sovereign and Central Bank exposures (with the addition of supranational issuers) remain excluded from Taxonomy KPIs and cannot be included in the numerator or the denominator of a financial institution’s taxonomy alignment.

C. Specific KPI definitions and calculation methodologies for

  • Asset managers  - Green Investment Ratio
  • Credit institutions – Green Asset Ratio (GAR)
  • Balance Sheet assets related to financing activities
  • Off-Balance Sheet activities
  • Commissions and Fees on services other than lending and asset management [from 2026]
  • Trading portfolios [from 2026]
  • Insurers & reinsurers
  • KPI related to investments
  • KPI related to underwriting activities

D. Specific details to be disclosed in regulatory reporting:

  • Credit Institutions:
  • Aggregate GAR for all on balance sheet assets including
  • Taxonomy objectives pursued by environmentally sustainable assets
  • Counterparty type
  • Proportion of Transitional activities
  • Proportion of enabling activities
  • Investment firms:
  • Separate KPIs for aggregate proprietary portfolios and aggregate client portfolios
  • All financial firms:
  • The proportion of Taxonomy aligned exposures based on estimates, as a separate disclosure from the standard KPIs
  • Action taken and time spent to achieve compliance with Article 3(b)

Additional elements of clarification:

  • Use of Proceeds alignment from debt issued by a portfolio investee must be included in the numerator of KPIs to the extent of which their proceeds finance sustainable activities (article 7(4)).
  • Mitigation of double counting the impact of a company’s aggregate alignment and the impact of sustainable debt issued by the company when the company is held in an investment portfolio.
  • For special purpose loans which may contribute to more than one Taxonomy Environmental Objective, credit institutions will have to choose the most relevant to the loan to avoid double counting.
  • For exposures to and undertakings in entities in non-EU countries, and therefore not required to comply with NFRD, estimates are allowed (starting from 2024) for DNSH criteria (Taxonomy Article 7(6)) but must still comply with providing significant contribution data (taxonomy Article 3) and Minimum social safeguards. This alignment shall be reported separately from the main KPIs

Important points to consider

Financial institutions need to start now 

Although financial services companies have been granted an extension for disclosing the taxonomy alignment of their assets until January 2024 when they will be required to report FY 2023 KPIs, they will still need to report their ratio of taxonomy eligible assets to non-eligible assets in January 2022 for FY 2021. It is therefore important that these institutions get started now to begin putting a process in place to interact with their clients as well as the issuers of the assets they hold in proprietary and customer investment portfolios.  

The first step is to gather the information required to differentiate between eligible and non-eligible assets, directly from each constituent. This will lead to the second step of ensuring that each constituent will be able to provide the taxonomy alignment related to their financial instruments held by the financial institution in time for compliance by 2023. This will also enable the financial institution to ensure they will be able to access that data once it is created by their constituents in order to achieve their own compliance by January 2024. It will take a significant amount of time and resources for financial institutions to develop the process and digital tools needed to capture this data from all individual constituents in order to calculate their own Taxonomy KPIs by 2023.  

Regulatory disclosure vs. competitive advantage

Financial institutions need to consider the difference between regulatory disclosure and commercial disclosure and plan to incorporate both aspects into their sustainability disclosure objectives.  Institutions that only consider the regulatory disclosure perspective will be left at a competitive disadvantage and open to reputational risk compared to institutions that proactively disclose sustainability data not required by regulation.

More specifically, SMEs and non-EU corporates are outside the scope of NFRD and therefore are not required to disclose their taxonomy alignment. But they may chose to do so voluntarily. From a regulatory perspective, financial institutions that invest in or lend to these ‘non-NFRD’ companies are not allowed to include these companies alignments in the numerator of their KPIs but must include these assets in the denominator of their KPIs.  This will lead to a lower alignment KPI by default.  

As a result of regulatory requirements and control, although a financial institution’s asset alignment ratio could be higher if voluntary disclosures were included in the KPI’s numerator, this is not allowed, leading to a lower KPI alignment score being disclosed for regulatory purposes.  Therefore, in order to benefit from the voluntary data that may be available to a financial institution from a commercial and competitive perspective, it would be advantageous to provide ‘augmented’ reporting, in addition to the regulatory reporting, of which includes audited, voluntary alignment data in the numerator. This will give the market and stakeholders a deeper perspective of the financial institution’s true sustainability alignment. Taking this one step further, financial institutions that proactively enable their non-NFRD clients to provide taxonomy alignment details will gain a competitive and reputational advantage over their competitors who only disclose their regulatory allowed taxonomy alignment.


Find all the official announcements and legislation here:


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