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Good to know EU Taxonomy – green change in business. Is your company ready for new obligations?

EU Taxonomy – green change in business. Is your company ready for new obligations?

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​​​​​​​​​​​​​​by Honorata Zakrzewska

18 December 2024


On 12 December 2024, the President of Poland signed into law a bill implementing the CSRD1. This means that the process of adapting Polish law to the EU Taxonomy2 is nearing an end.  


TABLE OF CONTENTS
  1. CSRD – who does it apply to?
  2. ESG reporting – who are the stakeholders?
  3. EU Taxonomy – what is it?
  4. EU Taxonomy – environmental objectives
  5. Disclosures under the EU Taxonomy – new obligations for businesses
  6. Taxonomic activities
  7. Environmentally unsustainable activities – consequences
  8. Sustainability report
  9. EU Taxonomy – summary​
  10. ESG – interdyscyplinarne doradztwo


CSRD – who does it apply to?


The CSRD (Corporate Sustainability Reporting Directive) imposes a number of new sustainability reporting (ESG reporting) obligations on undertakings.

Companies will have to regularly provide data on the environmental and social aspects of their operations and corporate governance.

The new legislation applies not only to large public interest entities but also to all large enterprises as well as medium and small enterprises listed on EU regulated markets.


csrd


ESG reporting – who are the stakeholders?


ESG reporting introduces the term “stakeholder”. Stakeholders are natural or legal persons on whom the organisation has influence or who have influence on the organisation. 

Stakeholders in this sense are:

  • investors who seek information on ESG risks and opportunities to make informed investment decisions;
  • local communities with an interest in environmental and social impacts of the company's activities;
  • customers whose environmental awareness grows and who more and more often choose sustainable manufacturers;
  • suppliers and business partners who also pay more and more attention to sustainability across their supply and value chains;
  • employees who check whether their potential employer is socially and environmentally responsible.

To understand an undertaking's impact on sustainability matters and the impact of these matters on the undertaking's development, performance and situation, dialogue with stakeholders is essential.

EU Taxonomy – what is it?


The EU Taxonomy is part of the obligations that the CSRD introduces. It is intended to increase the level of environmental protection by diverting capital from environmentally damaging investments to greener alternatives. The aim of these changes is to make companies more transparent and accountable for their environmental and social impacts. The EU Taxonomy is an EU-wide system of harmonised rules, ensuring transparency and assessment of sustainable activities.


EU taxonomy


EU Taxonomy – environmental objectives


Taxonomy reporting is part of ESG reporting and identifies the following environmental objectives:

  • ​climate change mitigation: 
      1. activities already recognised as low-carbon and in line with the Paris Agreement (e.g. solar power generation, low-carbon transport); 
      2. transitional activities (best practices available in sectors that are unable to achieve zero-carbon emissions, such as the steel sector); 
      3. supporting activities (sectors that help develop zero-carbon activities, such as wind turbine manufacturing);​

​​​​​​​

  • climate change adaptation, i.e. reducing the negative impact of current or projected climate change on people, nature or business activity;
  • sustainable use and protection of water and marine resources;
  • transition to a circular economy;
  • pollution prevention and control;
  • protection and restoration of biodiversity and ecosystems.

Disclosures under the EU Taxonomy – new obligations for businesses/a>


Under the EU Taxonomy, businesses are required to make disclosures, such as:

  • quantitative disclosures:​

      1. key performance indicators related to turnover;
      2. key performance indicators related to capital expenditure (CapEx);
      3. key performance indicators related to operating expenses (OpEx);​

  • qualitative disclosures:​

      1. included in the accounting policy;
      2. assessment of compliance with Regulation (EU) 2020/852;
      3. contextual information, which is key in communicating with stakeholders; 

  • nuclear and natural gas disclosures:​

      1. quantitative information (disclosure tables); 
      2. qualitative information.

Taxonomic activities


An activity qualifies as taxonomic provided that it meets the four conditions for an activity to qualify as sustainable:

  1. it contributes substantially to one or more of the six environmental objectives mentioned above (e.g. through the development of RES);
  2. it does not significantly harm any of the environmental objectives;
  3. it is carried out in compliance with the minimum safeguards (procedures to ensure specific standards developed by the OECD or UN);
  4. it complies with technical screening criteria that have been established in delegated acts of the European Commission consisting of hundreds of pages of technical criteria.​

The minimum safeguards are meant to prevent labelling investments as sustainable if they adversely affect:

  1. human rights, including labour rights (e.g. workplace bullying prevention), consumer rights and social rights;
  2. corruption practices;
  3. non-compliance with the letter and spirit of tax laws;
  4. unfair competition.

Environmentally unsustainable activities – consequences


If an activity is not classified as environmentally sustainable:

  • access to EU funding will be significantly restricted;
  • the use of bank financing will be more difficult, if not impossible over time, due to sustainability reporting obligations imposed on the financial sector;
  • some business opportunities will be lost as business partners will also want to ensure compliance with the taxonomy across their value chain;
  • the company will not be allowed to claim that it is operating in a sustainable manner, which means that it will lose some consumers.​

Sustainability report


Sustainability reports are subject to attestation according to the same rules as financial statements:

  • attestation is done by statutory auditors authorised to audit such reports (that is, all statutory auditors as of the legislation effective date; changes will come later);
  • attestation gives limited assurance;
  • an audit firm is selected and the contract is signed;
  • the auditor is given access to all data and documents;
  • the required statements are made;
  • separate report on the attestation service is prepared;
  • audit firms will be overseen by the Polish Agency for Audit Oversight (PANA) as in the case of financial statements.

In summary, the implementation of the EU Taxonomy is a complex process that requires the involvement of many specialists and cooperation between different departments within the company. Employers need to understand and comply with complex ESG regulations and standards, which requires legal and regulatory expertise.

Companies need to conduct an in-depth analysis of their operations in terms of compliance with sustainability criteria. 

The implementation of the EU Taxonomy requires the cooperation of specialists from various fields including law, finance and accounting, HR and payroll, environmental protection and technology. The reporting process also needs to modify the existing reporting systems to consider the new requirements.

Only an integrated approach allows the effective implementation and management of practices in line with the taxonomy.​

ESG – interdisciplinary advice​​

At Rödl & Partner, we provide comprehensive ESG advice. We prepare businesses for reporting and support them at every stage of development of their sustainability report. We help them develop a sustainability strategy and meet ESG requirements, in particular in terms of environmental impact. 

Do you need ESG advice? Contact us.


Legislation:
1 Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting
2 Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment​

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