EU: Platform on Sustainable Finance details proposals for simplification of the EU taxonomy

In response to its 2023 mandate from the European Commission, on 5 February 2025, the Platform on Sustainable Finance (PSF) published a report presenting a set of evidence‑based recommendations to simplify taxonomy reporting and enhance its effectiveness.  

The report is published at a time when the Commission is itself pulling together its “Omnibus” package (more on this here and here), its proposals on which are expected to be published on 26 February 2025.  Whilst the PSF’s report focuses only on the taxonomy, and the Omnibus package contemplates a wider lens, contemplating for example, the “triangle of the EU Taxonomy Regulation, the CSRD and the CSDDD”, no doubt the PSF’s proposals will form part of the discussion on how these proposals develop. 

Both financial and non-financial companies will be watching closely to see the eventual approach the Commission chooses to take. Of course nothing in the PSF’s document binds the Commission to any specific policy outcome.

In a nutshell

The proposals aim to significantly reduce the burden of reporting (by over a third for non-financial companies, and the proposals would have the effect of “rapidly and significantly reducing” the reporting burden for financial companies, through the use of estimates, proxies, combined with a streamlined DNSH assessment approach).  

The PSF also hope that both financial and non-financial companies would benefit from the introduction of a materiality approach (through proportionality and efficiency gains). 

Finally there is a focus on the need for interoperability between the approach taken by the EU, and other taxonomies being developed in other jurisdictions.

What are the PSF’s key recommendations?

The report proposes 4 main measures to simplify taxonomy reporting:

A practical approach to DNSH criteria: 

• The PSF recommends that all DNSH criteria should be reviewed as part of the scheduled reviews of various delegated acts, prioritising their usability and practicality for financial and non financial companies.
• Introducing a "comply or explain" approach for DNSH assessment of the Turnover KPI, as a temporary measure until the review has been conducted. 
• Introducing a lighter compliance assessment process (regarding evidence of compliance, documentation and/or on EU regulations). This includes, for financial companies (i) clarifying which DNSH criteria are set on par with legislation and relieving the requirement on financial companies to verify compliance and (ii) allowing for estimates and proxies in DNSH criteria for exposures to entities not in scope of CSRD

 A more than 1/3 reduction in corporate reporting burden through:

• Adjusting the OpEx KPI to make it mandatory only for R&D costs (and voluntary in other cases) (already the case for financial institutions)
• Introducing a materiality threshold for reporting the KPIs in non-financial corporate reporting and the combined KPIs of financial undertakings, in line with the Accounting Directive. 
• Enhancing the alignment with financial reporting. 
• Simplifying reporting templates, with a clear reduction of data points to limit the reporting to information that is relevant for making business decisions.

A simplified Green Assets Ratio (GAR) that encourages green and transition lending: 

• Ensuring a symmetrical GAR with similar numerator and denominator composition (by excluding assets that cannot be measured against the Taxonomy from the denominator)
• Given the lack of data, and difficulty for credit institutions of interpreting and assessing Taxonomy criteria, simplifying retail exposure reporting, focusing on substantial contribution.
• Allowing for estimates and proxies for reporting subject to guidance and criteria, in conjunction with safe harbours to protect against greenwashing allegations. 

Helping SMEs access sustainable finance:  

Given the key role of SMEs in Europe’s sustainability ambitions (with 99% of European businesses falling within this category) the recommendation is for a streamlined approach to be adopted for classifying the financing provided to SMEs:

• Adopting a streamlined and voluntary approach for banks and investors’ exposures to unlisted SMEs.
• Adopting a simplified approach to the Taxonomy for listed SMEs.

Resources

You can find a full copy of the PSF’s report here.

The PSF will present the report in a webinar on 14 February from 14:00 to 15:00 CET. Follow the link here to register for the PSF’s event.

For more information on the EU Taxonomy and the EU’s wider sustainable finance package, see:

• UK & EU: Sustainable Finance Sources - survival guide
• Sustainable Finance in Europe: Regulatory State of Play updated Linklaters / AFME report December 2024