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Blogs 14 dec 2022

Reporting obligations in line with EU taxonomy

Reports are playing an increasingly important role going forward under the EU Taxonomy. Our Product Manager David Parker touched upon this last year in his blog ‘Madaster, an EU Taxonomy-aligned registry to achieve a circular built environment’. In version 1.0 of the Taxonomy, Madaster’s main task is to provide Circular Economy and Climate Mitigation documentation by providing insights regarding material input/output, and full-building embodied carbon life cycle assessments (LCAs). In addition, Madaster has a role in pollution prevention and ecosystem protection documentation by recording, respectively, the use of toxic materials and the carbon sequestration of wood. What is currently the status on the EU Taxonomy? And how can we properly prepare for what is yet to come? David Parker answers frequently asked questions.  

Are we still in version 1.0 of the Taxonomy?

We’ve seen a lot of developments in the last year, but the first version of the EU Taxonomy is still yet to be finalized. When it comes to new construction and renovation projects, final requirements have been released for the environmental objectives “climate mitigation” and “climate adaptation”, and draft requirements have been released for “circular economy”. For these three environmental objectives (out of six total), “do no significant harm” (DNSH) criteria have also been released, which shine light on the likely direction of the remaining three environmental objectives. Essentially, half of the Taxonomy’s requirements have been clearly documented, and for the other half, a clear focus has been outlined.

When will the EU taxonomy apply across the whole EU?

The Sustainable Finance Disclosure Regulation (SFDR) was put into law in March of 2021, and requires certain EU businesses to disclose their portion of economic activities that substantially contribute to at least one of the six environmental objectives. At this moment, only two of the six environmental objectives (climate mitigation and climate adaptation) have been accepted by the European Commission. These two were made into law on January 1st, 2022 via the “EU Taxonomy Climate Delegated Act”. The remaining four environmental objectives will likely be made into law in 2023. Thus, the Taxonomy is already active, and now it is time for the market to respond.

To what extent will the EU taxonomy affect European companies?

The SFDR requires all companies with more than 500 employees to disclose their percentage of turnover, CapEx, and OpEx that substantially contribute to at least one of the six environmental objectives. The same applies to financial market participants, including banks, insurance companies, and investment funds. Additionally, it is likely that government agencies will begin incorporating EU Taxonomy requirements in the tender documents of publicly funded projects. What’s key to remember is that the EU Taxonomy does not require companies to meet a certain level of sustainability – the only requirement is to transparently disclose their activities. With publicly accessible disclosures stating the percentage of taxonomy-aligned activities, the market will be able to assess and compare how sustainable a company or fund truly is.

How can European companies prepare for EU taxonomy compliance?

Companies mandated to comply with the EU Taxonomy will need to review the technical screening criteria for each economic activity the company conducts. Once the various requirements are understood, companies can decide which activities to align with the Taxonomy and begin altering their processes. Lastly, companies will likely need to utilize new documentation and reporting tools to generate their Taxonomy disclosures.

How is Madaster preparing for this?

Madaster continues to closely monitor the development of the EU Taxonomy’s technical screening criteria, which sets clear and measurable requirements for new construciton, renovation, and demolition projects. Based on the published requirements, the Madaster platform has already added new functionalities which enable customers to report embodied carbon life cycle assessments, the transparency of their environmental data, and circular material inputs and outputs via the Madaster Material Passport. In 2023, the platform will develop the remaining required functionalities so that asset owners have a streamlined pathway to Taxonomy reporting and compliance. As with all new platform developments, continuous customer engagement is vital to ensure an exceptional product is delivered.

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