European Commission simplifies taxonomy and continues work on environmental claims directive

The European Commission has approved a delegated act simplifying mandatory sustainability reporting under the EU Taxonomy. The changes respond to criticism from European businesses, which argued that the original taxonomy was too complicated and imposed disproportionate costs on companies. The news was reported by ESG News.

The key change will be the introduction of a materiality threshold. Non-financial companies will not have to include in their taxonomy reporting activities that account for less than 10% of their revenue, investments or operating expenditure. For banks, for example, the same limit will apply to loan assets where it is clear what the loan is intended for. In practice, this will mean fewer tables, shorter audits and lower fees for advisers.

As for the Taxonomy Regulation, the Commission has reduced the number of reported data points by 64% for industrial companies and by 89% for the financial sector. Banks will be able to use a simpler methodology to calculate their green asset ratio. Non-financial companies will also no longer need to provide a detailed breakdown of operating expenditure if it is not considered material.

The changes have been formalised in a delegated act amending the delegated acts on taxonomy, climate and environmental disclosures. After a four-month scrutiny period by the European Parliament and the Council, which can be extended by a further two months, the updated rules will apply from 1 January 2026 and cover the 2025 financial year. The rules will also allow companies to defer implementation until the 2026 financial year if they prefer.

The simplification—and what some see as a weakening—of the directive is in line with the current Commission’s efforts to reduce the burden on European businesses in order to boost competitiveness. For example, some sources in Brussels indicated at the end of June that the Commission planned to withdraw the key directive on environmental claims, but the European executive ultimately denied this.

In response to reports that it planned to withdraw the directive, the Commission said that the proposed Green Claims Directive would not be withdrawn and that it remained committed to tackling so-called greenwashing. Presented in March 2023 as part of the Green Deal, the directive aims to combat misleading marketing: it requires scientific evidence for voluntary environmental claims and independent verification, and will also limit the number of eco-labels.

Confusion was caused by a Commission spokesperson’s statement that the proposal would be withdrawn if it remained unchanged in scope. The European Parliament’s largest political group, the EPP, is calling for micro-enterprises—which account for 96% of European companies—to be exempted to avoid a disproportionate administrative burden. Following criticism from MEPs and member states, the Commission confirmed that the legislative process would continue and urged the Council to reach a swift agreement on the scope of the exemption.