AmCham Hungary organized its online Policy Forum on the EU Taxonomy on June 22. Distinguished representatives from the Permanent Representation of Hungary to the EU, dr. Péter Staviczky, State Aid Attaché, and Szabolcs Tóth, Financial Services Attaché provided an overview of the taxonomy criteria and classification system.
The experts noted that the EU developed a comprehensive sustainable finance framework to accelerate financial flows to meet climate and environmental policy objectives in line with the 2030 targets and the EU Green Deal. The framework consists of the EU taxonomy, extensive disclosure regime, market based and EU regulated tools and as the latest addition, a framework for ESG ratings.
Taxonomy is a classification system that determines which economic activities contribute substantially to the six climate and environmental objectives, including pollution prevention and control, climate change mitigation and adaption, or transition to a circular economy. It covers various sectors such as buildings, energy sector, transport and addresses six main fields. However, the list is not finite, the work is ongoing to broaden the covered sectors.
In the meantime, to support companies that are subject to the Taxonomy, the EU published a Taxonomy User Guide, that helps identifying whether they meet the classification criteria of the Taxonomy and inform them on how to get started. The EU taxonomy compass, calculator and the European Commissions’ FAQ repository are also important sources to navigate regulations.
Although the EU Taxonomy can be an important tool for firms on its own, its importance is more significant if we consider it with the other elements of the framework, such as reporting and disclosure requirements.
Non-financial reporting already exists, and the NFRD (non-financial reporting directive) currently applies to large public-interest companies - i.e., listed companies, banks, insurance companies, and other companies designated by the national authorities as being public-interest entities - where they have over 500 employee - that must report eligibility and alignment for the previous calendar year.
Furthermore, as an important change in the reporting obligations, the EU, under the new CSRD (Corporate Sustainability Reporting Directive) will require all large companies to publish regular reports on social and environmental risks they face, as well as their impact activities. CSRD will have a broader scope of reporting and a wider scope as it will apply to nearly 49,000 companies, compared to the 11,700 affected by the NFRD.
Regarding the phasing of the reporting, the closest date is January 1, 2024, when companies already subject to the NFRD will be required to collect information according to the CSRD, but from 2025 and onwards it is planned to expand the obligations to those who had not been previously subject to NFRD.
The first standards for preparing the reports under the CSRD are finalized in the coming month.