EU proposes to reduce Taxonomy reporting burden by one third

Expert Group Platform on Sustainable Finance (PSF), mandated by the European Commission to advise on sustainable finance policy, has just published a new report offer simplifying the EU Taxonomy system.

📌 Reporting Background

• The EU is stepping up Reduce administrative and reporting burden for business, with Taxonomy is one of the first regulations considered in the upcoming “Omnibus” reform package.
• According to PSF, the recommendations in the report could help reduce more than one-third of the reporting burden of Taxonomy for Business and greatly simplified compliance processes for financial institutions.

📌 What is EU Taxonomy?

• This is part of EU Sustainable Finance Action Plan, help classification of economic activities have made important contributions to one of the six environmental goals, at the same time no significant harm (DNSH) to the remaining targets.
• The six environmental goals include:
  1. Mitigating climate change
  2. Adapting to climate change
  3. Sustainable use and protection of water and marine resources
  4. Transition to a circular economy
  5. Pollution prevention and control
  6. Protect and restore biodiversity and ecosystems
• Taxonomy comes into effect on year 2022 with reporting requirements on the first two objectives. The remaining four targets take effect from 2024..

📌 Proposal to simplify Taxonomy
🔹 Four core proposals:

1. Reduce reporting burden by one-third for Business
2. Simplifying the Green Asset Index (GAR) to encourage green financing and transition financing
3. Adjusting the "No Significant Harm" (DNSH) Criteria
4. Supporting small and medium enterprises (SMEs) to access sustainable finance

🔹 Important recommendations:
✔ Reduced DNSH compliance assessment requirements, apply temporary "comply or explain" process for revenue KPIs
✔ Allows the use of data estimates and representations in the report on GAR and green investment ratio (GIR)
✔ Set materiality threshold for KPIs such as revenue, operating expenses (opex), capital expenditures (capex)
✔ Build clear instructions on how to use estimates in the Taxonomy system
✔ Adopt a simple and voluntary process for banks and investors in evaluating unlisted SMEs
✔ Simplifying Taxonomy for Listed SMEs

🗣 Helena Vines Fiestas, Chairman of PSF, said:
“When we took on the mandate, the European Commission asked us to assess how to simplify Taxonomy, improve its inefficiencies and ensure its practicality. This report delivers just that – practical, evidence-based proposals for building an effective but simpler legal framework.” 🌿📊