Draft Commission Notice regarding EU Taxonomy delegated acts published

On 29 November 2024, the European Commission approved in principle a Draft Commission Notice on the interpretation and implementation of certain legal provisions of the Environmental Delegated Act, the EU Taxonomy Climate Delegated Act and EU Taxonomy Disclosures Delegated Act (the FAQs).  

The FAQs contain additional technical guidance regarding how to apply the technical screening criteria for economic activities relating to the non-climate environmental objectives, which are contained in the Taxonomy Disclosures Delegated Act. The Commission have also answered other questions relating to the Do No Significant Harm criteria, interoperability and third-party verification.   Formal adoption of the draft Notice will happen after all official language translations are available.

Draft approved in principle by the European Commission and will be formally adopted in all of the official languages of then EU later when available.

The FAQs help interpretation of the Environmental Delegated Act, the EU Taxonomy Climate Delegated Act and EU Taxonomy Disclosures Delegated Act

There are 155 FAQs containing technical clarifications on the TSC as per the following: 

• General questions – Section I;
• the Taxonomy Climate Delegated Act[1] (including amendments to it adding more economic activities for the objectives of climate change mitigation and climate change adaptation) – Sections II and III;
• the Taxonomy Environmental Delegated Act[2] – Sections IV (water and marine resources), V (transition to a circular economy), VI (pollution prevention and control) and VII (biodiversity and ecosystems); and 
• generic DNSH for climate change adaptation, pollution prevention and control and protection and restoration of biodiversity and ecosystems – Section VIII; and 
• the disclosure obligations for non-climate environmental objectives in the amendments to the Taxonomy Disclosures Delegated Act[3] – Section IX.

 Below we set out some of the general clarifications applying to entities reporting: 

• Q3 – when the TSC refer to specific requirements in EU environmental law these should be considered on a case by case basis but ultimately when the TSC are worded in a way that does not allow for the use of exemptions, those exemptions are not applicable.
• Q5 – compliance with thematic standards of the ESRS is not sufficient to demonstrate compliance with the DNSH but the data used in the reporting of the ESRS may be useful in making an assessment of compliance with the DNSH criteria (and the substantial contribution criteria).
• Q9 – as a baseline a company should perform an assessment of compliance with TSC each year for the purposes of reporting.  But the FAQs clarify that, if (i) internal monitoring and compliance systems indicate that there has been no material change in the environmental impacts from the economic activities and (ii) there are no changes in legal requirements applicable to those activities which would affect the outcome of the assessment of Taxonomy-alignment then the entity can rely on the assessment of Taxonomy-alignment from the previous year.

The Commission has helpfully provided much needed clarification on technical aspects of the TSC as they relate to specific economic activities in manufacturing, energy, transport, construction and real estate, information and communication, water supply, sewerage, waste management and remediation, disaster risk management, services, environmental protection and restoration and accommodation. The FAQs do not purport to extend or introduce additional requirements for undertakings.

Despite the large number of helpful clarifications in the FAQs, the French authority AMF has said acknowledges the complexity of compliance with the EU Taxonomy due to the granularity of the data required by financial companies and its reliability.  And it recognises the significant need for further regulatory clarifications on the EU Taxonomy.  In this inaugural review of Taxonomy alignment reporting, using a sample of banks and insurers, the AMF found the quality and format of the disclosure dense and difficult to understand, particularly for non-experts.  

Next Steps

The FAQs have been approved in principle by the Commission and will be formally adopted when it has been published in all required EU languages. But the publication by the AMF indicates that further guidance and FAQs are likely in relation to entities reporting in alignment with the EU Taxonomy as they get to grips with demonstrating transparency and dealing with the reliability and availability of data.

 The introduction to the FAQs sets out that the Commission desires to facilitate reporting and reduce costs for undertakings, including digital solutions for reporting, working on possible adjustments to improve useability of certain TSC (including DNSH criteria) and aiding national authorities to implement TSC and reduce the reporting burden on companies.  So we expect to see more developments around these topics in 2025.

Our global Sustainable Finance & Investment group brings together a multidisciplinary global team that provides clients with best-in-market support.  We are following supervisory matters in relation to the EU Taxonomy, SFDR and CSRD very closely so please get in touch if you would like to discuss.

This note is intended to be a general guide and covers questions of law and practice. It does not constitute legal advice.

Authored by Emily Julier and Rita Hunter.