What is the EU Taxonomy?
The EU Taxonomy (January 1st, 2022) is a methodology that should provide insight into the degree of sustainability of products or business operations of companies. This European legislation helps determine whether investments are green or not.
The EU Taxonomy consists of six environmental goals:
- Climate change mitigation;
- Climate adaptation;
- Protection of water and marine resources;
- Transition to a circular economy;
- Pollution prevention and control;
- Protection of biodiversity and ecosystems.
Within these six categories, criteria have been set for various economic activities. When an activity meets the set criteria, it can be classified as ‘taxonomy aligned’.
Within the framework of the EU Taxonomy, certain companies and financial institutions must report on their economic activities. At the moment, this the only the case for large and/or listed companies, but medium and small-sized companies will follow in 2024.
KEEP READING: “Circular Economy in Construction Industry: Waste = Raw Material“
Why the EU Taxonomy?
The taxonomy has been set up as a means for the EU to achieve its climate goals. The rules of the EU Taxonomy stem from the European Green Deal, which has the goal to meet the European climate goals in 2050.
The EU is working on various Green Bonds (investments with a positive impact on the environment) and other EU subsidy schemes. The condition for this is that the sustainability of the investment is quantified under the EU Taxonomy.
With the EU taxonomy, the European Union wants to distinguish “green” and “grey” money flows with the aim of a greener future through more transparency. The taxonomy defines environmental objectives for the economic activities of companies and financial institutions.
KEEP READING: “The Impact of The New Green Deal for European Construction“
What is the benefit of the EU Taxonomy?
The EU Taxonomy encourages capital to flow into truly green investments. At the same time, it also indirectly prevents greenwashing because Europe wants all major financial institutions to report on the green content of their assets.
For an investor or a company, in addition to intrinsic motivation, it can be interesting from a business economic point of view to comply with the EU Taxonomy. It allows you to qualify for green forms of financing, makes you known as a green company and/or part of a green fund/investment and it prepares you for future needs and questions in the market.
How is ESG investing related to the EU Taxonomy?
The European Green Deal is made concrete in the “Sustainable Finance Action Plan”, which contains a set of regulations to direct more capital to green investments.
One of the European regulations resulting from this action plan is the “Sustainable Finance Disclosure Regulation” (SFDR). This regulation has been in force since 2021 and requires financial market participants to provide their end investors information about the effects of their investment policies and decisions based on environmental, social and governance (ESG) criteria.
How does the EU Taxonomy affect construction and real estate companies?
Currently, the EU Taxonomy focuses on sectors with the most significant environmental impact. The building sector involves the construction of new buildings, the renovation of existing buildings, the demolition of buildings and the installation and management of energy-saving and energy-performance measures in buildings.
A substantial part of these activities is included in the taxonomy, as this sector has significant potential to contribute to climate goals.
Initially, the EU Taxonomy affects the investors who need to report; insurers, pension funds, institutional investors, banks and other mortgage providers. But they make investment choices that affect the entire sector. It also concerns everyone within the real estate sector in economic activities that the Taxonomy defines, for example, as investments in ‘new construction’, ‘renovation’ or ‘buying and selling of buildings’ – such as project developers.
The EU Taxonomy plays an increasingly important role in green finance, especially in construction projects where companies with a reporting obligation depend on their partners in the chain. Almost all financial institutions will be required to report, so they will likely set more and more requirements for their project and company financing in line with the EU Taxonomy.
Investors might ask project developers if the building meets the technical criteria from the EU Taxonomy after completion (of new construction or renovation) and must provide evidence to a bank when applying for green financing.
For construction companies, it is important to closely look into the regulations and start reporting on the impact of their activities, as they can miss out on more favourable financing and risk being labelled unsustainable.
Their clients will also likely require them to report per the EU Taxonomy. For example, an investor who falls under the reporting obligation and wants to purchase a new building must submit sustainability requirements to the builder to comply with the economic green rules of the EU Taxonomy.
Some large and/or listed construction companies already have to report on the impact of their activities on people and the environment under the existing “Non-Financial Reporting Directive” (NFRD).
Medium-sized construction companies will have to report from 2024 under the “Corporate Sustainable Reporting Directive” (CSRD). Other (smaller) construction companies and related construction companies must indirectly contribute as a subcontractor or suppliers to make their sustainable business processes transparent.
BUILDING MATERIAL SUPPLIERS
A contractor or (building material) supplier with a sustainable orientation is a more attractive cooperation partner for parties that want or need to comply with the EU Taxonomy. Mapping out the operational management and the construction process is thus becoming more important.
For example, a principal contractor may ask his subcontractor or supplier to provide evidence of the building materials used.
EU Taxonomy – Get Help From StoneCycling!
With the EU Taxonomy, The European Commission aims to change behaviour in companies and organisations by carrying out their economic activities in a sustainable, future-proof manner.
As a company with a mission to advance the development, use and reuse of planet-friendly aesthetic building materials, we can only applaud this. We don’t see the EU Taxonomy as more rules from above but rather the clarification and concrete implementation of the outlined European policy that the sector needs.
For Europe to reduce CO₂ emissions by at least 55% before 2030 and to be fully climate neutral in 2050, we need legislation like the EU Taxonomy to make these ambitious goals a reality!
While StoneCycling, as a building materials supplier, is not (yet) subject to a reporting obligation, we are a cooperation partner in the construction and real estate chain – on which reporting parties depend. That is why we can help developers with detailed information on our products so you can be sure they comply with the EU Taxonomy.
Together Towards a Circular Built Environment
We can answer all your questions about our Waste-Based and Bio-Based building materials. In line with the ‘Do No Significant Harm’ (DNSH) principle of the Delegated Act, our products help in the transition to a circular economy through:
(a) reuse and use of secondary raw materials and reused components in products manufactured;
(b) design for high durability, recyclability, easy disassembly and adaptability of products manufactured;
(c) waste management that prioritises recycling over disposal in the manufacturing process;
(d) information on and traceability of substances of concern throughout the life cycle of the manufactured products.
Visit our Download Center for detailed product datasheets.
More and more shareholders, investors and regulators are asking about the ESG policies of investors and companies. By complying with the EU Taxonomy, you can distinguish yourself as a company in the market. And StoneCycling would love to be your partner in this process. Make sure to reach out for an introduction.
- EU Taxonomie: groene en grijze geldstromen [bouwendnederland.nl]
- EU taxonomy for sustainable activities [finance.ec.europa.eu]
- Implementing and delegated acts – Taxonomy Regulation [finance.ec.europa.eu]
- A user guide to navigate the EU Taxonomy for Sustainable Activities [ec.europa.eu]
- ANNEX 1, June 2021 [ec.europa.eu]