The EU Taxonomy is a classification system that defines which economic activities qualify as environmentally sustainable. Established by the EU Taxonomy Regulation (2020/852), it provides a common language for companies, investors, and policymakers when talking about "green" investments and operations.
The Six Environmental Objectives
The Taxonomy evaluates activities against six environmental objectives. To qualify as "taxonomy-aligned," an activity must make a substantial contribution to at least one objective without significantly harming any of the others (the DNSH principle — Do No Significant Harm).
- Climate change mitigation
- Climate change adaptation
- 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
Eligibility vs Alignment
Two concepts that cause the most confusion:
| Concept | What it means | Example |
|---|---|---|
| Taxonomy-eligible | Your activity is listed in the Taxonomy delegated acts | A construction company builds buildings — construction is listed |
| Taxonomy-aligned | Your eligible activity also meets the technical screening criteria AND DNSH AND minimum social safeguards | The same company builds near-zero-energy buildings meeting the specific thresholds |
Being eligible does not mean you are aligned. Many companies have high eligibility but low alignment percentages because their activities don't yet meet the strict technical thresholds.
Why SMEs Should Care
SMEs are not directly required to report taxonomy alignment under CSRD. However, the Taxonomy affects them through three channels:
- Banks (SFDR/CRR): Financial institutions must report the proportion of taxonomy-aligned activities in their lending portfolios. They will ask SME borrowers for taxonomy data when evaluating green loans.
- Supply chains: Large CSRD-reporting companies may request taxonomy alignment data from suppliers as part of their own CapEx/OpEx disclosures.
- Green financing: Access to sustainability-linked loans, green bonds, and EU funding programs increasingly requires taxonomy alignment evidence.
Practical Steps for SMEs
- Check if your primary economic activities appear in the Taxonomy delegated acts (use the EU Taxonomy Compass tool)
- If eligible, review the technical screening criteria for your sector
- Collect data on energy consumption, emissions, waste, and water — you will need these metrics
- Use the VSME Basic Module as a foundation — its KPIs overlap significantly with Taxonomy data requirements
- Start with eligibility disclosure even if full alignment assessment is not yet possible
Our VSME questionnaire collects the core environmental metrics (energy, GHG, waste, water) that form the basis of taxonomy alignment evidence. Complete your VSME report first, then layer on taxonomy-specific assessments.