Key Points
- An activity qualifies as taxonomy-aligned only if it passes all four tests: substantial contribution, do no significant harm, minimum safeguards, and technical screening criteria compliance.
- The Omnibus simplification delegated act (entered into force 28 January 2026) introduced a 10% materiality threshold for taxonomy-eligibility and alignment assessments.
- Taxonomy disclosures feed into the CSRD sustainability statement as mandatory KPIs: turnover, capital expenditure, operating expenditure, and (for financial institutions) the green asset ratio.
- Misclassifying an activity as taxonomy-aligned when it fails the DNSH test creates a greenwashing risk that the assurance provider must evaluate.
What is the EU Taxonomy?
The Taxonomy Regulation sets out a four-step test. Article 3 requires that an economic activity (1) makes a substantial contribution to at least one of six environmental objectives defined in Article 9, (2) does no significant harm (DNSH) to the remaining objectives, (3) complies with minimum safeguards on human rights and labour standards, and (4) meets the technical screening criteria (TSC) specified in the Commission's delegated acts.
The six environmental objectives are climate change mitigation, climate change adaptation, sustainable use of water and marine resources, transition to a circular economy, pollution prevention and control, and protection of biodiversity and ecosystems. The Climate Delegated Act (Regulation 2021/2139) and the Environmental Delegated Act (Regulation 2023/2486) set the TSC for activities contributing to each objective.
Companies in scope of the CSRD report KPIs showing the proportion of turnover, capital expenditure, operating expenditure, and (for credit institutions) the green asset ratio associated with taxonomy-aligned activities. Article 8 of the Taxonomy Regulation and its Disclosures Delegated Act (Regulation 2021/2178) prescribe the templates. The Omnibus simplification delegated act, published in the Official Journal on 8 January 2026, introduced a 10% materiality threshold: non-financial companies may exclude activities contributing less than 10% of any individual KPI (turnover, CapEx, OpEx) from the taxonomy assessment. The same act shortened reporting templates and made the OpEx KPI optional when operating expenditure is not material to the business model.
For auditors providing sustainability assurance, the taxonomy disclosures sit within the ESRS sustainability statement and fall under the limited assurance engagement scope.
Worked example: Rossi Alimentari S.p.A.
Client: Italian food production company, FY 2025, revenue EUR 67M, IFRS reporter. Rossi is a Wave 1 CSRD entity and must include taxonomy disclosures in its sustainability statement.
Step 1 — Identify taxonomy-eligible activities
Rossi reviews the Climate Delegated Act activity descriptions against its operations. The company operates a cold-chain logistics fleet and a cogeneration plant at its Emilia-Romagna production site. Both activities appear in the delegated act. Food processing itself is not listed as taxonomy-eligible.
Step 2 — Test substantial contribution
The cogeneration plant runs on biomass from certified agricultural residues and generates 12 GWh per year. The Climate Delegated Act (Activity 4.20) sets a threshold of lifecycle emissions below 100g CO2e/kWh. Rossi's engineering team calculates lifecycle emissions at 74g CO2e/kWh based on supplier certificates and combustion data. The cold-chain fleet exceeds the transport emission thresholds; it is taxonomy-eligible but not aligned.
Step 3 — Apply the DNSH test and minimum safeguards
For the cogeneration plant, Rossi assesses DNSH against the five remaining environmental objectives. The pollution prevention DNSH criterion requires compliance with EU emission limits; Rossi holds a valid integrated environmental permit. The minimum safeguards assessment confirms compliance with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights.
Step 4 — Calculate the KPIs
The cogeneration plant contributes EUR 1.8M in turnover (energy sold to the grid) and EUR 2.4M in CapEx (boiler upgrade completed in FY 2025). It also generates EUR 0.6M in taxonomy-relevant OpEx (maintenance). Rossi's total turnover is EUR 67M, total CapEx EUR 9.1M, total OpEx EUR 48M. Taxonomy-aligned proportions: turnover 2.7%, CapEx 26.4%, OpEx 1.3%. The cold-chain fleet adds to the taxonomy-eligible-but-not-aligned line.
Conclusion: Rossi reports one taxonomy-aligned activity (cogeneration) and one eligible-but-not-aligned activity (cold-chain fleet), with KPIs traceable to underlying operational and financial data and a documented DNSH assessment per activity.
Why it matters in practice
Teams frequently stop at taxonomy eligibility and report eligible percentages without completing the substantial contribution and DNSH assessments needed to determine alignment. The Disclosures Delegated Act (Regulation 2021/2178, Article 8) requires separate disclosure of eligible and aligned proportions. Reporting eligible activities as aligned overstates the entity's green credentials.
The DNSH test is often treated as a tick-box exercise with no evidence trail. Each DNSH criterion maps to specific TSC paragraphs in the delegated acts, and the entity must document compliance against each criterion for each aligned activity. Assurance providers who accept a general DNSH statement without verifying evidence against the TSC paragraphs leave a gap that inspection teams can identify.
EU Taxonomy vs. CSRD reporting
| Dimension | EU Taxonomy (Regulation 2020/852) | CSRD sustainability statement (Directive 2022/2464) |
|---|---|---|
| What it classifies | Whether specific economic activities are environmentally sustainable | Whether sustainability topics are material to the entity from impact and financial perspectives |
| Assessment unit | Individual economic activity | Entity-level sustainability matters |
| Governing criteria | Technical screening criteria in delegated acts, plus DNSH and minimum safeguards | Double materiality assessment under ESRS 1.37-58 |
| Output | Three KPIs (turnover, CapEx, OpEx aligned percentages) | Full sustainability statement covering ESRS cross-cutting and topical standards |
| Relationship | Taxonomy KPIs are a subset of the broader sustainability statement | The CSRD provides the reporting vehicle; taxonomy disclosures are embedded within it |
The taxonomy and the CSRD serve different functions but overlap in practice. The taxonomy classifies activities; the CSRD reports on the entity. An entity can have a high taxonomy-aligned CapEx ratio while disclosing material climate transition risks under ESRS E1 that affect the same activities.
Related terms
Frequently asked questions
How do I document the EU Taxonomy assessment in the audit file?
Record the eligibility screening (mapping each activity to the delegated act codes), the substantial contribution calculations with source data, the DNSH assessment per environmental objective, and the minimum safeguards evaluation. Article 8 of Regulation 2020/852 and the Disclosures Delegated Act prescribe the KPI templates. The assurance provider traces each KPI to financial records and operational data.
Does the 10% Omnibus materiality threshold mean small activities can be ignored?
Not ignored, but excluded from the detailed alignment assessment. The delegated act published 8 January 2026 allows non-financial companies to skip the alignment assessment for activities contributing less than 10% of any single KPI. The entity must still disclose the proportion excluded as non-material within the reporting template.
What happens if an activity passes the substantial contribution test but fails DNSH?
The activity is taxonomy-eligible but not taxonomy-aligned. The entity reports it in the eligible-but-not-aligned line of the KPI template. Regulation 2020/852 Article 3 requires all four conditions (substantial contribution, DNSH, minimum safeguards, TSC compliance) to be met simultaneously. Failing any one condition blocks alignment classification.