EU Taxonomy Reporting for Companies

EU taxonomy reporting: the short answer

The EU taxonomy, established by Regulation (EU) 2020/852, is a classification system that defines which economic activities are environmentally sustainable. Under Article 8 of the Regulation, companies subject to sustainability reporting under the Accounting Directive must disclose the share of their turnover, capital expenditure (CapEx) and operating expenditure (OpEx) associated with taxonomy-aligned activities. After Omnibus I, this obligation follows the reduced CSRD scope: only undertakings with more than 1,000 employees and net turnover above EUR 450 million report. Delegated Regulation (EU) 2026/73, published on 8 January 2026 and applicable from 1 January 2026, simplified the reporting templates and introduced a 10 per cent materiality threshold.

For German companies, EU taxonomy reporting matters beyond formal disclosure duties. Banks use taxonomy data for their green asset ratios, green bond frameworks rely on it, and investors compare taxonomy KPIs across sectors. This article explains eligibility and alignment, the 2026 simplifications, assurance and practical steps for reporting companies and their suppliers.

How the EU taxonomy works

The Taxonomy Regulation sets out six environmental objectives: climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems. Under Article 3, an economic activity is environmentally sustainable if it:

1. contributes substantially to one or more of the objectives;
2. does not significantly harm (DNSH) any of the other objectives;
3. is carried out in compliance with minimum safeguards on human rights, labour, bribery, taxation and fair competition; and
4. complies with the technical screening criteria set out in delegated acts.

The technical screening criteria are contained in the Climate Delegated Act (EU) 2021/2139 and the Environmental Delegated Act (EU) 2023/2486. They list activities in sectors such as manufacturing, energy, transport, construction and real estate, water supply, and information and communication, together with the quantitative and qualitative criteria for substantial contribution and DNSH.

Eligibility versus alignment

EU taxonomy reporting distinguishes two levels. An activity is taxonomy-eligible if it is described in one of the delegated acts, irrespective of whether it meets the technical screening criteria. An activity is taxonomy-aligned if it meets all four conditions of Article 3. Reporting companies must disclose both eligibility and alignment ratios for each KPI.

The disclosure rules are set out in the Disclosures Delegated Act (EU) 2021/2178, which prescribes templates for non-financial undertakings, asset managers, credit institutions, investment firms and insurers.

The 2026 simplification of EU taxonomy reporting

As part of the Omnibus simplification agenda, Delegated Regulation (EU) 2026/73 amended the Disclosures Delegated Act and the technical screening criteria. The main changes for non-financial undertakings are:

• Materiality thresholds. Companies may omit assessing whether activities are taxonomy-eligible or aligned where the cumulative turnover, or cumulative CapEx, of those activities is below 10 per cent of the respective KPI denominator. They must disclose which sectors they treated as non-material and explain why.
• OpEx exemption. Where OpEx is not material for the business model, companies may omit the OpEx eligibility and alignment assessment altogether, provided they disclose the total OpEx denominator and explain why it is not material. Where it is material, a 10 per cent threshold applies.
• Simplified templates. The reporting templates were replaced with streamlined versions, reducing the number of data points.
• DNSH for pollution. DNSH criteria related to pollution prevention and control for the use and presence of chemicals were simplified.
• Financial undertakings. Banks and other financial undertakings received transitional relief, including deferral of trading book and fees and commission KPIs until 2028.

The Delegated Regulation applies from 1 January 2026. Companies could choose to apply the previous rules for financial years starting in 2025 or the new rules already for 2025 reports.

Who must report after Omnibus I

Article 8(1) of the Taxonomy Regulation applies to undertakings that must publish non-financial or sustainability information under the Accounting Directive. Omnibus I, Directive (EU) 2026/470, raised the CSRD thresholds to more than 1,000 employees and net turnover above EUR 450 million. Companies below these thresholds are therefore no longer required to publish EU taxonomy KPIs once the amendments are transposed, although they may report voluntarily.

In Germany, where the CSRD has not yet been transposed, large capital-market-oriented companies with more than 500 employees that must publish a non-financial statement under § 289b of the Commercial Code (Handelsgesetzbuch, HGB) currently report under Article 8 of the Taxonomy Regulation, which applies directly. The German CSRD implementation act will determine the future set of reporting companies in line with Omnibus I.

Practical steps for EU taxonomy reporting

1. Map activities. Break down turnover, CapEx and OpEx by economic activity and match them to activity descriptions in the delegated acts, using NACE codes as an aid but not as the decisive test.
2. Apply the materiality thresholds. Identify activities below 10 per cent and document their exclusion.
3. Test substantial contribution. Apply the technical screening criteria for each eligible activity, for example emissions thresholds for manufacturing or energy performance criteria for buildings.
4. Test DNSH. Assess climate risks for the adaptation objective, water, circular economy, pollution and biodiversity criteria, often site by site.
5. Check minimum safeguards. Confirm processes for human rights due diligence, anti-corruption, tax and competition compliance, which overlap with LkSG and compliance systems.
6. Avoid double counting. Allocate revenue and expenditure to only one activity and one objective where they would otherwise be counted twice.
7. Prepare for assurance. Taxonomy disclosures are part of the sustainability statement subject to limited assurance.

Common pitfalls

Responsibilities should be clear from the start. Finance teams own the denominators, operations and engineering teams provide the technical evidence, sustainability teams coordinate the analysis and legal teams assess minimum safeguards and disclosure risk. A short internal manual that explains the methodology helps to keep reporting consistent from year to year when staff or auditors change.

Typical errors include treating eligibility as alignment, using NACE codes without checking activity descriptions, including CapEx without a credible CapEx plan, neglecting DNSH for climate adaptation, and failing to explain methodology changes from year to year. Consistency with financial statements is crucial because the denominators come from audited figures.

Minimum safeguards and DNSH in practice

Two parts of the alignment test cause particular difficulty in practice. The minimum safeguards in Article 18 of the Taxonomy Regulation require procedures to ensure alignment with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, including the core labour conventions and the International Bill of Human Rights. In practice, assessments look at four areas: human rights due diligence, anti-bribery and corruption, taxation and fair competition. A company that has been convicted of corruption or is subject to final findings of serious human rights violations will struggle to report any aligned activity until it has addressed the issue.

For German companies, existing systems help: LkSG risk management covers much of the human rights element, and compliance management systems for anti-corruption and antitrust provide evidence for the other areas. Tax governance, including a tax compliance management system, can show that tax is treated as part of good governance. Documentation should tie these systems explicitly to the taxonomy criteria, because auditors look for the link.

The DNSH criterion for climate change adaptation requires a climate risk and vulnerability assessment for the relevant activities and sites, using climate projections, and an adaptation plan for material physical risks. For companies with many sites, this is often the most labour-intensive part. Other DNSH criteria, such as water protection, pollution and biodiversity, frequently refer to compliance with EU environmental law and permits, which German companies can document through permits under the Federal Immission Control Act and water law.

Financial undertakings and the green asset ratio

Banks, investment firms, asset managers and insurers have their own KPIs under the Disclosures Delegated Act. For credit institutions, the green asset ratio expresses the proportion of taxonomy-aligned exposures in relevant balance sheet assets. Because banks depend on data from their counterparties, they frequently ask corporate borrowers for taxonomy information in loan documentation and annual information requests. The 2026 Delegated Regulation gave financial undertakings options to simplify their disclosures and deferred certain KPIs until 2028, recognising that counterparty data remain incomplete.

For borrowers, this means that taxonomy reporting can influence financing terms even if the borrower is not subject to Article 8 itself. Information covenants should be reviewed so that the company only commits to providing data it can actually produce, and does not inadvertently warrant alignment it has not assessed.

Why EU taxonomy data matters beyond reporting

Even companies outside the reporting scope may need taxonomy information. Banks calculate their green asset ratio based on counterparties' taxonomy data, and green or sustainability-linked loans may reference taxonomy alignment. Issuers using the European Green Bond Standard under Regulation (EU) 2023/2631 must allocate proceeds to taxonomy-aligned activities. Public funding programmes and investors may also use taxonomy criteria. For many Mittelstand companies, the main driver for EU taxonomy assessments is therefore financing rather than regulation.

Illustration: a hypothetical German manufacturer of heat pumps with 2,000 employees and EUR 600 million turnover remains in the reporting scope after Omnibus I. Its core product line is eligible under the activity for manufacture of renewable energy technologies, and it demonstrates alignment by meeting the technical screening criteria, DNSH requirements and minimum safeguards. Its small trading activity in spare parts falls below the 10 per cent threshold and is excluded with a documented explanation.

How TRW & Co helps with EU taxonomy reporting

We advise companies, banks and investors on the legal aspects of EU taxonomy reporting. We help interpret activity descriptions and technical screening criteria, assess minimum safeguards, review disclosures and methodology documentation, and advise on the impact of Omnibus I and the 2026 Delegated Regulation. We also advise on taxonomy-linked financing, green bonds and the legal risks of sustainability claims based on taxonomy data. Our work connects with our sustainability reporting and capital markets practices. See also CSRD after Omnibus I and green bonds and the EU Green Bond Standard. To discuss your reporting, contact us.