The Taxonomy Delegated Acts establish and maintain clear criteria for activities to define what it means to make a substantial contribution and what it means to do no significant harm.

It is a transparency tool that will introduce mandatory disclosure obligations on some companies and investors, requiring them to disclose their share of Taxonomy-aligned activities. This disclosure of the proportion of Taxonomy-aligned activities will allow for the comparison of companies and investment portfolios. In addition, it can guide market participants in their investment decisions.

The EU Taxonomy, in other words, defines and classifies which economic activities of a company can be labelled as “green”, to qualify for EU funding. It is meant for private finance disclosure requirements as a transparency tool. If anyone is willing to invest in unsustainable activities, than that is their decision to do so, if they wish.

Is your business EU Taxonomy aligned?

All large companies are required to report their taxonomy alignment from 1st January 2022.

The EU defines all large companies as companies that are not small and medium enterprises (SMEs). SMEs are companies with less than 250 employees, and with a balance sheet less than 43 million euros or a turnover less than 50 million euros. Small and medium sized companies that are listed on the stock exchange, are also required to report.

Under the EU Taxonomy directive, all large companies (>250 employees) and all listed companies (except listed micro-companies) are required to report on their sustainability performance in accordance with the taxonomy. The directive covers 70 industrial sectors. 

Small and medium sized companies can report on a voluntary basis but from 2026 will be affected by the EU’s Corporate Sustainability Reporting Directive (CSDR) which compels large companies from 2023.

Investment funds, banking and insurance institution also must report on taxonomy alignment and will be required to collect data required to assess the degree of taxonomy alignment or assess the portfolio companies themselves.

As a business owner you might consider starting to report whether your business is taxonomy-aligned as a proactive move towards your stakeholders – in particular your investors and creditors – as reporting may lower your cost of capital.

How does one report alignment with the taxonomy?

In Croatia, HANFA has last year recommended, to issuers who are obliged to publish a non-financial report and to those who voluntarily publish non-financial reports in their annual report, in part annually report (management report) within the non-financial report, to start reporting.

If the issuer discloses non-financial information in a separate non-financial report, disclosures may be published in that separate report in accordance with the rules of Capital Market Act NN 65/18, 17/20, 83/21 for publication of the prescribed information to the public (publication through the media, the website of the Zagreb Stock Exchange and the official register of prescribed information).

To issuers who publish in a separate non-financial report, it is recommended that the public release of data be at the same time as the publication of the annual report according to Article 462 of the Capital Market Act, and at the latest in accordance with the deadline according to Article 30, paragraph 5 of the Accounting Act NN 78/15, 134/15, 120/16, 116/18, 42/20, 47/20.

Take note that the tasks under Article 8, paragraphs 1, 2 and 3 of the EU Taxonomy Regulation are subject to public publication as part of a non-financial report according to Articles 21a and 24a of the Accounting Act and certainly must start reporting:

– from 1 January 2022, about the environmental objectives referred to in Article 9 (a) and (b) climate change mitigation and climate change adaptation

– from 1 January 2023 about the environmental objectives referred to in Article 9 (c) to (f) sustainable use and protection of water and marine resources, transition to a circular economy (waste prevention and recycling), pollution prevention and control, protection and restoration of biodiversity and ecosystems.

In conclusion:

If you’re a big company you must report.

If you have an investment fund as owner you should report, as the investment fund will anyhow request the relevant data from you.

If you’re a smaller firm, expect to start reporting soon.

It is expected that most companies, large, medium, and small, will assess and disclose their taxonomy alignment, mostly because it may positively impact a company’s bottom line.

It is irrefutable that the EU Taxonomy does not forbid anything. It is merely a tool to promote green economic activities.