Taxonomy-aligned Activities – Contribution, Impact & Compliance

News from the AGN EMEA Accounting, Auditing & Education Committee (AAEC)

The March newsletter addressed the Procedure for Taxonomy-eligible Activities. In this newsletter, Carsten Ernst – AGN’s Expert in financial (IFRS) and sustainability (ESRS and GRI) reporting, focuses on Taxonomy-aligned Activities. Does the economic activity contribute substantially to achieving one of the six environmental objectives? Does the economic activity result in no significant harm to the environmental objectives? Are the minimum safeguards according to Article 18 of the Environmental Taxonomy Regulation complied with?

Substantial Contribution

Does the economic activity contribute substantially to achieving one of the six environmental objectives?

• The conditions under which a taxonomy-eligible economic activity substantially contributes to achieving one of the six environmental objectives are described in general terms in paragraphs 1 of Articles 10 to 15 of the Environmental Taxonomy Regulation.
  
• The Climate Taxonomy Regulation and (later) the corresponding delegated regulations for the remaining four environmental objectives contain the technical assessment criteria to supplement these – used to determine under which conditions a particular economic activity can be considered to significantly contribute to the respective environmental objective.

Do No Significant Harm

Does the economic activity result in no significant harm to the environmental objectives?

• Article 17 of the Environmental Taxonomy Regulation contains basic statements on the conditions under which an economic activity leads to significant harm to the environmental objectives.
  
• For example, the environmental objective of “climate protection” is significantly impaired if the activity leads to significant greenhouse gas emissions (Article 17(1)(a) of the Environmental Taxonomy Regulation).
  
• To complement Article 17 of the Environmental Taxonomy Regulation, the Climate Taxonomy Regulation sets out the technical assessment criteria for determining whether an economic activity significantly affects one or more environmental objectives.

Minimum Safeguards

Are the minimum safeguards according to Article 18 of the Environmental Taxonomy Regulation complied with?

• The Platform on Sustainable Finance (PSF) published its Final Report on Minimum Safeguards on 11 October 2022.
  
• These minimum safeguards are procedures (performed by companies) to ensure compliance with the following guiding principles and principles:
  – The OECD Guidelines for Multinational Enterprises.
  – The United Nations Guiding Principles on Business and Human Rights (UNGP).
  – Fundamental principles and rights from the eight core conventions set out in the International Labour Organisation (ILO) Declaration on Fundamental Principles and Rights at Work and the International Bill of Human Rights.
  
• The core of the minimum protection requirements for PSF is the implementation of the Human Rights Due Diligence (HRDD) process.

Should you ever lose track of the big picture, my colleagues and I from the AGN EMEA Accounting, Auditing & Education Committee (AAEC) will be happy to help and guide you safely through the IFRS and CSR jungle. As a member of AGN International, you can use the AGN AAEC Helpline at any time or contact me by email at carsten.ernst@wirtschaftstreuhand.de or by mobile phone at +49 173 8710322.

Happy accounting and stay sustainable,

Carsten

Carsten Ernst Managing Partner Wirtschafts Treuhand Group Stuttgart, Germany

– Expert in financial (IFRS) and sustainability (ESRS and GRI) reporting – Audit of financial and sustainability reports in accordance with ISAs – Member of the following AGN bodies: – EMEA Board of Directors (Chairman) – EMEA AAEC Accounting, Auditing and Education Committee (Member)