The European Commission published two draft FAQs on the EU Taxonomy on 19 December 2022:
- Interpretation and implementation of the Climate DA: setting out responses to FAQs on the technical screening criteria in the Climate Delegated Act
- Interpretation and implementation of certain aspects of the Article 8 DA: setting out responses to FAQs on the implementation of the Article 8 Delegated Act for non-financial undertakings. (The FAQ states that “Another Notice in the form of replies to FAQs concerning the reporting by financial undertakings under the Disclosures Delegated Act may be adopted in due course”.)
The drafts were approved in principle by the European Commission on 19 December 2022 and their formal adoption in all the official languages of the European Union will take place later as soon as the language versions are available.
FAQ on the Climate DA
The FAQ contains technical clarifications on the technical screening criteria (TSC) set out in the Climate Delegated Act (DA). It does not address questions on the choice of criteria. The FAQ is intended to clarify the provisions already contained in the legislation, to help financial and non-financial undertakings implement the relevant legal provisions. They do not extend or create new requirements.
The FAQ is divided into horizontal questions, sector-specific questions, and questions on recurring do no significant harm (DNSH) criteria.
The horizontal questions cover the following issues:
- Will the technical screening criteria set out in the Climate DA be made stricter and updated over time? The short answer is “possibly” – depending on the outcome of the Commission’s review of the climate TSC.
- How will the Taxonomy be further developed – will there be more activities contributing to climate change mitigation included in the Climate DA? The short answer is “yes” - further activities contributing to the climate objectives may be included in the Climate DA as a result of future reviews or the adoption of any future DAs containing activities contributing to the other four non-climate environmental objectives.
- What does checking the compliance with the TSC on the substantial contribution and the DNSH mean in practice?
- How should verification requirements in the TSC be understood? What documentary evidence could support the demonstration and verification of compliance with those criteria?
- Can technical consultancy services be counted as Taxonomy-eligible, and potentially Taxonomy-aligned, if they are related to an activity defined in the Taxonomy Delegated Acts?
- How should GHG emissions for TSC be calculated (scope, methodologies, etc)?
- How can an undertaking's activities that are carried out in jurisdictions outside the EU be assessed for compliance with the TSC by reference to local third-country requirements or guidelines? When criteria refer to EU/national legislation or standards, should the level of requirements be adapted for criteria to be achieved outside the EU?
- How to interpret the use of “and” and “or” in the description of economic activities (e.g. in “Construction or operation of electricity generation facilities that produce electricity from hydropower” in Section 4.5; or “Construction and operation of electricity generation installations that produce electricity exclusively from biomass, biogas or bioliquids” in Section 4.8)?
- How to deal with TSC that are not relevant to a specific activity mentioned in the description (e.g. a maintenance-only service with no construction-related waste)?
- In a number of cases of enabling activities, benchmarks compared to industry averages, peers or best available technologies are required. However, such information is not always available publicly. How should the requirement to provide these benchmarks be met?
- How does the sustainable finance framework apply to access to private funding for the defence industry?
- How about companies without any Taxonomy-aligned activities? Will they lose access to finance? The short answer is “no”.
FAQ on the Article 8 DA
The Article 8 DA specifies the disclosure obligations of undertakings under Article 8 of the Taxonomy Regulation with respect to Taxonomy-eligibility and Taxonomy-alignment. The Commission has already published three sets of guidance on the Article 8 DA.
Non-financial undertakings will have to start reporting their Taxonomy KPIs from 1 January 2023. This FAQ provides further guidance for those non-financial undertakings.
Financial undertakings will have to start reporting of their respective Green Asset Ratio (GAR) / Green Investment Ratio (GIR) from 1 January 2024. The Commission says that another set of FAQs for financial undertakings may be adopted in due course.
As is the case with the FAQ on the Climate DA, this FAQ does not extend or create new requirements - it is meant as clarification of existing requirements.
The FAQ is divided into general FAQs, FAQs on turnover KPI, FAQs on capex KPI, and FAQs on opex KPI.
The general FAQs include (among others) the following:
- What is the envisioned timeline for the application of Taxonomy-related disclosures set out in the Complementary Delegated Act relating to nuclear power and natural gas? The answer is that non-financial undertakings should disclose eligibility, non-eligibility, and alignment of nuclear energy and fossil gas related activities as of 1 January 2023, in respect of the 2022 financial year.
- What is the envisioned approach for Taxonomy-related reporting in relation to the remaining environmental objectives? The short answer is that reporting eligibility and alignment by non-financial undertakings for the remaining four environmental objectives is not expected in 2023 as the Commission has not yet published the DA with the TSC for the remaining four environmental objectives. However, the FAQ does not say when that DA will be published.
- What is the impact of the CSRD on the scope of the reporting entities under the Article 8 DA? The FAQ sets out the various milestones for the different types of organisations covered by the CSRD.
- Can a subsidiary falling within scope of the NFRD/CSRD be exempted from making Taxonomy related disclosures if its parent undertaking discloses Taxonomy-related information at consolidated level where required or on a voluntary basis? Sadly, there is no short answer to this so please refer to the FAQ for the full explanation.
- These are just a selection of the general FAQs that we have chosen to highlight in this blog post – there are 22 general FAQs in total.
For more information on the Climate DA and the Article 8 DA in general, see our previous blog posts:
- EU Taxonomy Delegated Act with details of Article 8 disclosures published in the OJ
- EU Taxonomy: Commission publishes FAQs on reporting Taxonomy-eligibility with restrictions on use of proxies and estimations
- EU Taxonomy Delegated Act with technical screening criteria for climate objectives published in OJ and next steps on other taxonomy developments
- EU Taxonomy: Commission publishes final Delegated Act with technical screening criteria for nuclear power and natural gas
- Legal challenges to the inclusion of nuclear and natural gas in the EU green taxonomy
- EU: Austria files legal challenge in CJEU against the Commission for inclusion of nuclear and natural gas in the Taxonomy
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