EU Taxonomy Regulation on criteria for assessing environmental sustainability

An EU Regulation on the establishment of a framework to facilitate sustainable investment entered into force on 12 July 2020. The Regulation sets out an EU-wide taxonomy, or set of criteria, for determining whether an economic activity qualifies as environmentally sustainable, and therefore the degree to which an investment is environmentally sustainable.

The Regulation forms part of the EU’s Action Plan on Sustainable Finance. If it is implemented in the UK following Brexit, it will, among other things, require UK listed companies to significantly enhance their disclosures in relation to the environmental sustainability of their activities. Companies will need to disclose: (i) the proportion of turnover derived from products/services associated with economic activities that qualify as environmentally sustainable; and (ii) the proportions of capital expenditure and operating expenditure related to assets or processes associated with economic activities that qualify as environmentally sustainable.

The Regulation is due to be implemented in stages. As businesses and financial market participants begin preparing for its implementation, we have published a detailed briefing on its scope and operation.