EU Taxonomy

1. What is the primary function of the module?

The primary function of the EU Taxonomy module is to classify and assess economic activities to determine their alignment with the EU Taxonomy Regulation’s environmental objectives, ensuring compliance, transparency, and reporting readiness for companies and investors.

The module is designed to:

• Automate Data Collection & Processing: It automates the collection, classification, and processing of sustainability data (Revenue, CapEx, OpEx) to align with the technical screening criteria of the EU Taxonomy.
• Enable Eligibility & Alignment Analysis: The module estimates and validates the eligibility and alignment of economic activities, providing a clear assessment of a company’s contribution to environmental objectives such as climate change mitigation, circular economy, and biodiversity.
• Facilitate Compliance Reporting: It supports compliance with regulations like CSRD and SFDR, offering templates and audit-ready outputs formatted for financial disclosures and stakeholder transparency.
• Guide Users Through Taxonomy Criteria: The module helps users explore delegated acts, sector criteria, and DNSH (Do No Significant Harm) requirements, ensuring precise identification and classification of activities.
• Support Industry-Specific Needs: It provides tailored solutions for different industries, enabling both large corporates and SMEs to meet EU sustainability requirements effectively.
  
  

In addition to its compliance and reporting capabilities, the EU Taxonomy is now a prerequisite for accessing many green financing opportunities provided by the EU, such as green bonds, loans, and investment funds. This makes the module a critical tool for companies aiming to secure sustainable finance and demonstrate their environmental commitment in the evolving market landscape.

2. How does it integrate with the other modules in the Sustain Suite?

The EU Taxonomy module integrates with other modules in the Sustain Suite by ensuring a unified and streamlined approach to sustainability compliance and reporting. This integration ensures that all regulatory frameworks and disclosure requirements are met comprehensively and efficiently:

1. Integration with Financial Reporting:

The module complements financial reporting by translating sustainability metrics into financial terms. For example, it connects taxonomy-aligned KPIs (turnover, CapEx, and OpEx percentages) with financial statements, supporting integrated reporting where ESG performance is linked to financial risks and opportunities. This integration ensures that disclosures under the EU Taxonomy are transparently reflected in annual reports and financial filings, helping stakeholders assess both financial and environmental performance side by side.

2. Integration with CSRD (Corporate Sustainability Reporting Directive):

CSRD requires companies to disclose detailed sustainability information, including their alignment with the EU Taxonomy. The EU Taxonomy module directly supports these requirements by providing the necessary data for Articles 8 and 19a of the CSRD. It ensures that the same data points—taxonomy alignment, materiality assessments, and sustainability KPIs—are automatically aligned with CSRD disclosure templates, streamlining the reporting process and ensuring full compliance with the directive’s mandatory disclosure obligations.

3. Integration with DMA (Double Materiality Assessment):

The module leverages insights from the Double Materiality Assessment to prioritize and contextualize taxonomy reporting. Since the EU Taxonomy focuses on environmental objectives, the DMA ensures that material risks and opportunities identified—especially those with environmental and social impacts—are fully considered in taxonomy disclosures. This alignment ensures that companies report not only on their sustainability impact but also on how sustainability issues impact their business, a core requirement of both CSRD and the EU Taxonomy framework.

4. Integration with VSME (Voluntary SME Sustainability Reporting):

For SMEs that voluntarily adopt EU Taxonomy-aligned reporting, the module simplifies compliance by focusing on the key KPIs relevant to smaller entities. It ensures that SME disclosures meet the simplified reporting requirements, aligning with voluntary sustainability frameworks while still referencing the EU Taxonomy’s core principles. This helps SMEs prepare for potential future regulatory requirements and align with investor expectations for transparency.

3. What problem does it solve for the end-users?

The EU Taxonomy module solves several critical problems for end-users by addressing the growing complexity of sustainability compliance, reporting demands, and transparency requirements in the EU’s evolving regulatory landscape. Here’s how it helps:

1. Simplifies Complex Regulatory Compliance:

The EU sustainability framework—particularly the EU Taxonomy, CSRD (Corporate Sustainability Reporting Directive), and SFDR (Sustainable Finance Disclosure Regulation)—requires organizations to meet strict, detailed, and science-based reporting obligations. For many companies, especially those new to these requirements, understanding the technical screening criteria (e.g., climate change mitigation, DNSH—Do No Significant Harm) and ensuring full compliance can be overwhelming. The EU Taxonomy module breaks down this complexity by guiding users step-by-step through the classification and disclosure process, ensuring they comply with the latest regulations accurately and on time.

2. Reduces the Risk of Greenwashing:

One of the key objectives of the EU Taxonomy is to prevent greenwashing—where companies overstate or misrepresent their environmental credentials. The module enforces strict validation of activities against EU Taxonomy criteria, ensuring that only genuinely sustainable activities are reported as aligned. This strengthens transparency and protects companies from reputational and legal risks related to misleading sustainability claims.

3. Streamlines Data Collection and Reporting:

For organizations, gathering the necessary data—especially across multiple departments or subsidiaries—can be time-consuming and prone to errors. The module automates much of the data collection, classification, and reporting process, allowing users to calculate and track Key Performance Indicators (KPIs) such as turnover, CapEx, and OpEx that are aligned with the EU Taxonomy. It also standardizes the output into templates that meet regulatory requirements, significantly reducing manual effort.

4. Bridges Sustainability and Financial Reporting:

The module allows users to link their sustainability performance directly with financial disclosures. Investors, stakeholders, and regulators increasingly demand integrated reporting that connects ESG metrics to financial results and risks. The EU Taxonomy module ensures that environmental alignment is reflected in key financial documents, providing a clearer picture of a company’s environmental impact and risk exposure.

5. Enables Access to Sustainable Finance:

A major benefit of EU Taxonomy alignment is access to the growing pool of green financing opportunities—including green bonds, sustainable loans, and investment funds—offered by EU-backed and private financial institutions. The module ensures that companies can demonstrate their eligibility for such financing by providing validated, taxonomy-aligned data, unlocking new funding sources for sustainable projects and growth.

6. Ensures Cross-Framework Alignment:

As sustainability regulations become more interconnected (e.g., CSRD relies on EU Taxonomy data for disclosures), companies risk duplicating work or missing key compliance aspects. The EU Taxonomy module integrates seamlessly with other reporting modules (like SFDR and CSRD), ensuring that taxonomy-aligned data flows automatically across all compliance frameworks. This not only saves time but also ensures consistency and accuracy across all reports.

7. Enhances Strategic Decision-Making:

Beyond compliance, the module provides valuable insights into which parts of the business are already aligned with sustainability standards and where gaps exist. This allows companies to make informed decisions about future investments, divestments, or operational changes needed to improve their sustainability profile and long-term resilience.

4. Are there any specific technical functionalities or processes that should be highlighted?

The EU Taxonomy module is more than a checklist tool—it’s a fully-featured compliance engine that automates eligibility assessments, ensures rigorous validation (DNSH, KPIs), synchronizes data across frameworks (CSRD, SFDR), and provides the reporting, audit, and analytical tools needed for transparent, reliable sustainability disclosures. These functionalities not only streamline reporting but also enhance strategic sustainability planning.

1. Taxonomy Classification Engine:
   At the heart of the module is an intelligent classification engine that maps a company’s economic activities to the EU Taxonomy framework. It uses NACE codes and other sector-specific identifiers to determine the eligibility of activities and assess whether they make a substantial contribution to environmental objectives (such as climate change mitigation, circular economy, biodiversity).
   
   
2. Do No Significant Harm (DNSH) Assessment:
   One of the most technically challenging aspects of the EU Taxonomy is ensuring that activities aligned with one environmental objective do not cause harm to others. The module includes built-in DNSH checks across all six environmental objectives, applying science-based screening criteria to validate that activities meet the full compliance standard—not just partial alignment.
   
   
3. KPI Calculation & Reporting:
   The module automatically calculates key performance indicators such as:
   
   

• Turnover (% of revenue taxonomy-aligned),
• Capital Expenditure (CapEx %),
• Operational Expenditure (OpEx %).
  
  These metrics are core to regulatory disclosures and are presented in standardized reporting templates (e.g., for CSRD and SFDR), reducing the need for manual calculations and ensuring data consistency.
  
  

4. Automated Cross-Framework Data Mapping:
   The module ensures that data points captured for EU Taxonomy compliance are reusable across multiple frameworks. For example, data on environmental alignment is automatically mapped to SFDR Principal Adverse Impact (PAI) indicators and CSRD disclosure fields. This avoids duplication and ensures regulatory alignment.
   
   
5. Dynamic Delegated Act & Criteria Updates:
   The EU Taxonomy is a “living framework” that evolves with new delegated acts and technical screening criteria. The module is designed to dynamically update its criteria library as soon as changes are issued by the European Commission, ensuring that users always work with the most up-to-date standards.
   
   
6. Gap Analysis & Materiality Integration:
   The module integrates with Double Materiality Assessment (DMA) tools to assess gaps between a company’s current sustainability performance and the EU Taxonomy criteria. This helps users identify areas for improvement and prioritize actions for future alignment.
   
   
7. Validation & Audit Trail:
   To meet regulatory audit-readiness requirements, the module includes robust validation protocols and full audit trails. Every data input, classification decision, and report generation step is logged and traceable, supporting both internal audits and external reviews.
   
   
8. Multi-Entity & Consolidated Reporting:
   For groups with multiple subsidiaries or legal entities, the module supports entity-level assessments and consolidated reporting, enabling companies to roll up taxonomy data for group-wide disclosures, a key requirement under CSRD and financial regulations.
   
   
9. XBRL and Regulatory Format Export:
   The module provides export capabilities in standardized regulatory formats, including XBRL tagging—critical for filing reports with EU regulators in compliance with the European Single Electronic Format (ESEF) requirements.
   
   
10. Visual Dashboards & Analytics:
    To support business decision-making, the module features real-time dashboards that visualize taxonomy alignment status across business units, track progress over time, and highlight risk or non-compliance areas.
    
    

5. How is the module used in day-to-day operations?

The EU Taxonomy module plays an ongoing role in the daily and periodic activities of sustainability, finance, and compliance teams, helping them maintain continuous compliance and transparency. Here’s how it’s typically used in day-to-day operations:

1. Data Collection and Validation:
   Teams regularly use the module to collect and update data from different departments (e.g., operations, finance, sustainability). This includes information on economic activities, environmental impacts, CapEx, OpEx, and turnover related to taxonomy-aligned activities. The module validates the data against EU Taxonomy criteria—such as substantial contribution and DNSH (Do No Significant Harm) requirements—ensuring ongoing compliance checks.
   
   
2. Continuous Activity Assessment:
   As business activities evolve (e.g., launching new projects, making capital investments), teams use the module to assess whether these activities qualify under the EU Taxonomy framework. This supports real-time decision-making about whether planned investments align with sustainability goals and financing eligibility.
   
   
3. Monitoring KPIs:
   Sustainability teams track taxonomy-aligned KPIs (Key Performance Indicators) daily or weekly, monitoring trends and progress toward sustainability goals. The module provides dashboards that display real-time metrics—like the percentage of revenue, CapEx, and OpEx aligned with taxonomy criteria—which are crucial for ongoing performance tracking.
   
   
4. Preparing Reports and Disclosures:
   On a cyclical basis (typically quarterly, bi-annually, or annually), the module is used to generate sustainability and financial disclosures that include taxonomy alignment. These reports are prepared for stakeholders such as regulators, investors, and auditors. Thanks to its built-in templates and XBRL tagging features, the module simplifies and automates much of the reporting work, ensuring consistency and audit-readiness.
   
   
5. Supporting Green Finance Applications:
   When companies seek green financing (e.g., green bonds, loans, or sustainability-linked investments), the module is used to compile and validate the required taxonomy-aligned data to demonstrate eligibility. This is critical because many EU-backed green finance instruments now require proof of taxonomy alignment as a precondition.
   
   
6. Integrating with Broader ESG and Financial Operations:
   In daily use, the module syncs with other modules—like CSRD and SFDR compliance tools, financial planning software, and risk management systems—to ensure cross-functional alignment. This allows sustainability data to be factored into broader financial risk assessments, strategic planning, and investor communications.
   
   
7. Materiality and Risk Reviews:
   The module works alongside Double Materiality Assessment (DMA) processes, helping teams identify material environmental risks and opportunities. This insight feeds into both strategic decision-making and prioritization of future sustainability initiatives.
   
   
8. Internal Training and Awareness:
   Teams may also use the module’s built-in resources (like training materials or guided workflows) to educate staff about EU Taxonomy requirements and ensure that everyone involved in data input or review understands the criteria and processes.