EU Taxonomy Alignment Report

The EU Taxonomy Regulation entered into force in July 2020 and represents the most detailed attempt by any jurisdiction to define what 'environmentally sustainable' means for economic activities. The Taxonomy's Climate Delegated Act covers two of the six environmental objectives — climate change mitigation and climate change adaptation — and lists technical screening criteria for over 100 economic activities across nine sectors, specifying exactly what a company must demonstrate to claim that each activity makes a Substantial Contribution without causing significant harm to the other five objectives.

The three mandatory KPIs — Revenue, CapEx, and OpEx ratios — must be calculated with precision and disclosed in the sustainability statement of companies subject to CSRD. The Revenue KPI is the most scrutinised: it shows the proportion of turnover derived from products or services associated with Taxonomy-aligned activities, and any activity claimed as aligned must satisfy the Substantial Contribution criteria, all six Do No Significant Harm assessments, and the Minimum Social Safeguards check simultaneously. The CapEx KPI is often higher than the Revenue KPI for companies investing in the green transition — it captures capital expenditure directed toward qualifying assets and enables companies to signal their future Taxonomy trajectory.

A common mistake is conflating Taxonomy-eligible with Taxonomy-aligned. Eligibility simply means the activity appears on the Taxonomy list; alignment requires meeting the technical screening criteria, completing DNSH assessments, and satisfying minimum social safeguards. Companies that disclosed only eligibility in their early Taxonomy reports have faced sharp criticism from investors and NGOs when the aligned percentage turned out to be significantly lower. Sustalium structures the assessment at the activity level, requiring explicit evidence for each Substantial Contribution criterion and each DNSH test, so the final KPIs are defensible in a limited assurance engagement — the level of assurance required under CSRD for Taxonomy disclosures.