EU Taxonomy: Practical Checklist and Guide for Companies

The EU Taxonomy is the European Union's classification system for environmentally sustainable economic activities, and for many companies, it remains one of the most technically demanding regulatory frameworks to navigate. Which activities actually qualify? What do technical screening criteria require in practice? How does the Do No Significant Harm principle translate into a concrete assessment? And what has actually changed with the 2025 Omnibus Package? This guide answers exactly those questions: with a structured list of taxonomy-eligible activities, a practical DNSH checklist, sector-specific examples, and a step-by-step introduction to the EU Taxonomy COMPASS tool.

What the EU Taxonomy Actually Classifies

The EU Taxonomy Regulation (EU) 2020/852 establishes a common language for sustainability in finance and corporate reporting. It defines which economic activities can be considered environmentally sustainable, not at the company level, but at the level of individual activities within a business. A manufacturing company may run several activities, only some of which qualify as taxonomy-eligible. A renewable energy project may contribute to climate mitigation but still fail taxonomy alignment if it causes significant harm to local biodiversity.

This distinction matters. The taxonomy is not a label for sustainable companies, it is a classification system for sustainable activities. And that makes the assessment considerably more granular than most ESG frameworks.

For financial market participants, taxonomy alignment shapes fund classifications under SFDR, including the critical difference between Article 8 and Article 9 funds. For companies subject to CSRD, it determines mandatory KPI disclosures. Understanding the taxonomy in operational terms, not just as a regulatory concept, is therefore a strategic priority. If you are positioning a climate tech startup for institutional investors, our guide on how to position for Article 9 VC funds covers the investor-side implications in detail.

EU Taxonomy Activities List: Sectors, Objectives, and Coverage

The EU Taxonomy currently covers activities across all six environmental objectives, though coverage varies significantly by objective. Here is a structured overview:

Climate Change Mitigation (CCM)

First published in December 2021. Covers 94 activities across 9 sectors, expanded with 7 additional activities in November 2023.

• Energy (renewable electricity generation, hydrogen, nuclear under specific conditions)
• Forestry
• Manufacturing (low-carbon technologies, batteries, mobility components for zero-emission vehicles)
• Water supply, sewerage, and waste management
• Transport (rail, electric vehicles, sustainable aviation fuels)
• Construction and real estate (nearly zero-energy buildings, renovation)
• Information and communication technology (data centres, software-enabled efficiency)
• Professional, scientific, and technical activities
• Financial and insurance activities

Climate Change Adaptation (CCA)

Also published in December 2021. Covers 101 activities across 13 sectors, expanded with 4 additional activities in 2023.

• Agriculture, forestry, and fishing
• Energy infrastructure
• Water and coastal infrastructure
• Buildings adaptation measures
• Research and development for climate resilience

Four Non-Climate Environmental Objectives

Technical screening criteria for the remaining four objectives were published on 21 November 2023 and apply from 1 January 2024. Coverage is narrower but expanding:

• Sustainable use and protection of water and marine resources: 6 activities added
• Transition to a circular economy: 21 activities added (the largest expansion)
• Pollution prevention and control: 6 activities added
• Protection and restoration of biodiversity and ecosystems: 2 activities added

Practically speaking: if your core business activity does not appear in any of these categories, it is currently non-eligible, meaning it falls outside the taxonomy's scope entirely. Non-eligible activities still need to be reported (as a share of turnover, CapEx, and OpEx), but they do not require a full alignment assessment. The 2025 Omnibus Package simplifies this further, more on that below.

For companies with significant water-intensive operations, the taxonomy's water objective connects directly to broader water risk exposure. Our dedicated water risk assessment guide provides a useful complementary framework.

Technical Screening Criteria: The Core of Taxonomy Alignment

Once an activity is identified as taxonomy-eligible, alignment is determined by four cumulative conditions:

1. Substantial contribution to at least one of the six environmental objectives
2. Do No Significant Harm (DNSH) to any of the remaining objectives
3. Minimum social safeguards compliance
4. Technical Screening Criteria (TSC) compliance, the specific performance thresholds and requirements defined for each activity

Technical Screening Criteria define exactly what "substantial contribution" means for each activity. They range from quantitative emission thresholds (for example, lifetime greenhouse gas emission limits below 100g CO₂e/kWh for electricity generation) to site-specific requirements (such as not locating solar installations in biodiversity-sensitive areas) and process requirements (such as environmental management plans for construction activities).

TSC vary considerably in complexity. Some can be assessed through internal data; others require independent third-party verification. The regulation explicitly acknowledges this: where TSC rely on elements of considerable technical complexity, the European Commission recommends third-party assurance. NACE codes are referenced throughout the delegated acts, but they are indicative only, the specific activity description in the legal text takes precedence.

How this plays out in practice: ESRS Simplification 2026: Seven Critical Weaknesses.

In practice, one of the most common implementation errors we observe is companies mapping their activities to NACE codes first and then checking the TSC, when the legally correct approach is the reverse. The activity description defines scope; the NACE code is a navigation aid.

The technical screening criteria also distinguish between two special activity types:

• Enabling activities (marked "E" in the COMPASS tool): activities that enable other activities to meet the TSC, without themselves directly contributing to an environmental objective, for example, manufacturing of wind turbines
• Transitional activities (marked "T"): activities for which low-carbon alternatives do not yet exist at scale, but which represent the best available performance, for example, certain cement production processes

Understanding these distinctions is particularly relevant for companies in ClimateTech or industrial manufacturing that position themselves as solution providers to other sectors. Our broader overview of ESG implementation strategy covers how taxonomy alignment fits into a wider ESG roadmap.

The EU Taxonomy COMPASS Tool: How to Use It

The EU Taxonomy Navigator at ec.europa.eu/sustainable-finance-taxonomy is the Commission's official entry point to the framework and, in practice, the starting point for any eligibility and alignment assessment. It bundles four separate tools, and the most common way to lose time here is expecting one of them to do the job of another.

The Four Official Tools Compared

What the Official Tools Do Not Calculate

This is worth stating plainly, because the naming misleads: the EU Taxonomy Calculator does not calculate taxonomy alignment. It walks you through which disclosure obligations apply to your organisation. There is no official Commission tool that takes your revenue lines, matches them to activities and returns an aligned share.

That calculation stays with you, and it is a spreadsheet exercise before it is anything else: allocate every revenue, CapEx and OpEx line to an activity, mark each activity eligible or non-eligible, mark each eligible activity aligned or not aligned on your TSC, DNSH and safeguards evidence, then divide by the respective total. The Compass supplies the criteria, your financial system supplies the numerators and denominators, and nothing bridges the two automatically.

Step-by-Step: Using the Compass for Your Assessment

1. Navigate to the "Activities by sector" tab, this is the most practical entry point for companies. Select your sector and browse eligible activities. This approach works well when you already know your sector; use the matrix view if you want to scan across objectives.
2. Identify your activity, read the activity description carefully. Do not rely solely on the NACE code match. The COMPASS displays the full legal description from the delegated act.
3. Check the "E" or "T" marker, this indicates whether the activity is enabling or transitional, which affects how it is reported and categorised.
4. Review the TSC for substantial contribution, the COMPASS displays the specific performance thresholds and conditions required for each objective.
5. Review the DNSH criteria, the COMPASS shows which of the remaining five objectives have associated DNSH criteria and what they require. Note: not all activities carry DNSH requirements for all five remaining objectives.
6. Cross-reference with the legal delegated act, the COMPASS is a navigation aid. Any ambiguity must be resolved against the original legal text, not the COMPASS display.

One practical limitation: the COMPASS is updated when delegated acts are amended, but there can be a lag. When working with activities added under the 2023 delegated regulations (especially circular economy and biodiversity activities), always verify against the published Official Journal versions directly.

The voluntariness of VSME is an illusion. SMEs in the supply chain of a CSRD-mandated corporation, or those seeking credit renewal, have no real choice. "Voluntary" means only "no state penalty," it does not eliminate the social and economic pressure. Treating VSME as PR rather than as the data foundation for follow-on analyses (electricity cost, climate risk, supplier evaluation) leaves strategic value on the table.

DNSH Checklist: A Structured Assessment Framework

The Do No Significant Harm principle is arguably the most complex component of taxonomy alignment, and the one most likely to be either oversimplified or avoided altogether. The following checklist provides a structured two-part assessment framework based on the Commission's guidance and current practice.

Part 1: Filter, Which Objectives Require Assessment?

Not every activity requires a substantive DNSH assessment against all five remaining objectives. The first step is identifying which objectives are materially relevant given the nature of the activity:

• Could the activity lead to significant greenhouse gas emissions? (Relevant to: climate change mitigation)
• Will the activity amplify adverse effects of climate change on people, nature, or assets? (Relevant to: climate change adaptation)
• Could the activity damage the water quality or status of water bodies, or lead to water stress? (Relevant to: water and marine resources)
• Could the activity generate significant waste, or involve substances harmful to circular economy goals? (Relevant to: circular economy)
• Could the activity increase air, water, or soil pollutant emissions? (Relevant to: pollution prevention)
• Could the activity harm biodiversity-sensitive areas, affect land use, or reduce ecosystem services? (Relevant to: biodiversity and ecosystems)

Part 2: Substantive Assessment, Evidence and Documentation

For each objective identified as requiring assessment in Part 1, the following evidence framework applies:

A critical finding from recent European assessments: currently only a small percentage of activities that meet the substantial contribution criteria also pass all applicable DNSH requirements. The DNSH step is genuinely filtering, it is not a formality. Challenges are particularly acute around data availability, with 60% of surveyed financial institutions citing data inconsistencies as a major obstacle (AFME, 2024).

For companies integrating climate physical risk assessment as part of their DNSH analysis, our guide on navigating climate risk assessment covers the methodological foundations, including RCP and SSP scenario use.

DNSH Criteria in Practice: Sector-Specific Examples

Abstract DNSH principles become substantially clearer with sector-specific illustrations. The following examples draw on published delegated act requirements and corporate reporting practice.

Renewable Energy: Solar Photovoltaic (Activity 4.1)

Solar PV generation intrinsically contributes to climate change mitigation. DNSH requirements include: not locating installations in biodiversity-sensitive areas (including Natura 2000 sites); demonstrating responsible end-of-life panel management (circular economy); and, following the 2025 Omnibus simplifications, the chemicals-related DNSH criteria for PV manufacturers have been streamlined to reduce reporting burden. Biodiversity impact assessments remain required for utility-scale installations.

Building Renovation

Renovation activities contributing to climate mitigation must demonstrate DNSH to: climate adaptation (the renovated building must be designed to withstand current and projected climate conditions); water (installations must not increase water consumption beyond regulated thresholds); and pollution (materials used must not contain substances of very high concern listed under REACH in concentrations above applicable thresholds).

Manufacturing: Battery Production

Battery manufacturing can contribute to climate mitigation as an enabling activity (enabling electric transport). DNSH requirements span all five remaining objectives, one of the more demanding profiles. This includes: climate adaptation (facility resilience); water (cooling water management); circular economy (recyclability design requirements); pollution (hazardous substance controls); and biodiversity (site location). Given the biodiversity dimension, our guide on TNFD integration for nature-related financial risks is directly relevant for companies in this space.

Circular Economy Activities: Waste Treatment and Recycling

Under the circular economy objective, activities must assess the availability and use of equipment components of high durability and recyclability. DNSH to pollution prevention requires that waste treatment processes do not generate pollutant emissions exceeding applicable EU emission standards. This is a sector where the intersection of circular economy and pollution criteria creates compound assessment requirements.

An Important Nuance

DNSH criteria do not automatically apply to all five remaining objectives for every activity. Some activities, for example, creative, arts, or entertainment activities contributing to climate adaptation, carry no DNSH criteria at all. The delegated act text for each specific activity defines which DNSH criteria apply. This makes the COMPASS tool's activity-level display essential: it shows precisely which DNSH assessments are required for each activity, rather than defaulting to a five-objective assessment in all cases.

Minimum Social Safeguards

Beyond environmental criteria, taxonomy-aligned activities must comply with minimum social safeguards. These are defined by reference to:

• OECD Guidelines for Multinational Enterprises
• UN Guiding Principles on Business and Human Rights
• Core ILO Conventions (including freedom of association, collective bargaining, prohibition of forced and child labour, and non-discrimination)

In practice, the minimum safeguards assessment connects taxonomy compliance to the broader human rights due diligence requirements emerging under the Corporate Sustainability Due Diligence Directive. For companies already implementing ESG integration aligned with CSRD requirements, most minimum safeguards will already be addressed through existing governance processes. The key documentation requirement is demonstrating that a due diligence process exists, not that violations have never occurred.

If you want to go deeper: EUDR Compliance System: How Precise Geodata Secures Market Access and Reduces Supply Chain Risks.

More on this point: EU ESG Reporting 2026: Which CSRD Rules Apply to Your Company? [Free Checklist].

KPI Reporting: Turnover, CapEx, and OpEx Alignment

Companies subject to taxonomy reporting disclose three financial KPIs, each expressed as a percentage of total:

A note from the underlying data, drawn from 1,401 public 2024 and 2025 sustainability reports by European listed companies: 69 percent contain complete Scope 1, 2 and 3 data. 13 percent publish no extractable Scope data at all. And 8 percent of the reports that do carry a Scope 3 figure show Scope 3 smaller than Scope 1 or 2, which is a methodological red flag, because Scope 3 is typically five to ten times larger.

• Taxonomy-aligned turnover: the share of revenue generated by taxonomy-aligned activities
• Taxonomy-aligned CapEx: the share of capital expenditure directed at taxonomy-aligned activities or CapEx plans to achieve alignment
• Taxonomy-aligned OpEx: the share of operating expenditure related to taxonomy-aligned activities

In the 2024 reporting cycle, 22.7% of reporting companies' capital investments were aligned with the EU Taxonomy, a meaningful but still minority share. The utilities sector leads significantly, with electricity providers reporting 44% taxonomy-aligned CapEx. German companies reported the highest absolute taxonomy-aligned investments (€80bn), followed by France (€51bn), Italy (€36bn), and Spain (€29bn).

Importantly, companies must also disclose taxonomy-eligible but non-aligned activities, those that fall within the taxonomy's scope but do not yet meet TSC or DNSH requirements. This creates a structured transition pathway: eligible but not yet aligned activities can be supported by CapEx plans with defined timelines and milestones.

For financial institutions and VC funds, taxonomy KPI reporting intersects with financed emissions accounting. Our practical guide on measuring and reporting financed emissions addresses how portfolio-level taxonomy data feeds into broader Scope 3 disclosures. For VCs navigating fund-level ESG obligations, our guide on ESG value for startups and venture capital covers SFDR Article 8 and 9 classification requirements in practical terms.

2025 Omnibus Package: What Has Actually Changed

The Omnibus Directive was published in the Official Journal of the European Union on 26 February 2026, following Council adoption on 24 February 2026, and is the outcome of negotiations concluded in December 2025. It represents the most significant structural adjustment to the EU's sustainable finance reporting architecture since the original CSRD adoption.

Scope Changes

The reporting threshold has been adjusted to companies exceeding 1,750 employees and €450 million revenue. This removes approximately 80% of previously in-scope companies from mandatory taxonomy and CSRD disclosure obligations. Voluntary reporting pathways remain available, and, critically, supply chain data demands from large in-scope companies mean that many smaller businesses will face indirect pressure to report regardless.

The experience from CSRD implementation shows this pattern consistently: formal exemption from mandatory reporting does not eliminate commercial pressure to provide ESG data when major customers or investors require it. Our complete guide to ESRS standards covers the detailed reporting requirements for companies that remain in scope.

DNSH Simplifications

The new reporting template removes certain datapoints, including detailed information on non-eligible activities and some DNSH criteria disclosures. The chemicals-related DNSH criteria, particularly relevant for manufacturers of solar PV panels and batteries, have been simplified.

Quantitatively: the Omnibus changes reduce required datapoints for non-financial companies by 64%, and by up to 89% for credit institutions. This is a substantive reduction in administrative burden. However, and this is the critical strategic consideration, the underlying environmental performance requirements remain unchanged. What is simplified is the reporting of DNSH compliance, not the obligation to achieve it.

Materiality Assessment Introduction

Companies may now apply materiality assessments when determining which eligible activities require detailed taxonomy alignment analysis. This brings taxonomy assessment methodology closer to the double materiality approach established under CSRD. Our guide on ESRS and CSRD disclosure requirements explains how materiality assessment functions within the broader reporting framework.

A Note on Data Gaps

The significant reduction in companies required to report creates a genuine risk: critical climate and biodiversity data points that were previously captured through mandatory disclosure may no longer be systematically available. For financial market participants relying on taxonomy data for investment decisions, portfolio risk management, and LP reporting, data quality and comparability concerns are likely to increase in the near term. Maintaining robust voluntary disclosure, even where mandatory requirements are relaxed, is therefore both a risk management measure and a competitive signal to informed capital.

Practical Implementation Roadmap

Drawing on project experience across manufacturing, energy, FinTech, and impact investment contexts, the following sequence consistently delivers the most efficient taxonomy assessment process:

Step 1: Activity Mapping (2 to 4 weeks)

Map all revenue streams to the COMPASS activities list. Use the "Activities by sector" tab as your primary navigation. Document the legal activity description (not just the NACE code) for each potentially eligible activity. Flag enabling and transitional activities separately.

Step 2: Eligibility Determination

Calculate the share of turnover, CapEx, and OpEx attributable to eligible vs. non-eligible activities. This step does not require DNSH assessment, it establishes the scope boundary for the full alignment assessment.

Step 3: TSC Assessment

For each eligible activity, review the applicable TSC for substantial contribution. Identify data gaps: which performance metrics do you currently track, and which require new data collection? Activities requiring third-party verification should be flagged early.

Step 4: DNSH Assessment

Apply the two-part DNSH framework described above. Use Part 1 to filter which objectives require substantive assessment for each activity. Collect supporting documentation. Where data is unavailable, particularly for biodiversity and water assessments, consider commissioning targeted assessments such as a biodiversity impact assessment or water stress analysis.

Step 5: Minimum Safeguards Verification

Document existing human rights and labour standards due diligence processes. Map these against the specific OECD and UN framework requirements.

Step 6: KPI Calculation and Disclosure

Calculate taxonomy-aligned shares for turnover, CapEx, and OpEx. Prepare the required reporting templates, simplified under Omnibus for many companies, and integrate disclosures into your sustainability report.

For companies producing their first comprehensive sustainability report, our guide on how to create a sustainability report covers the broader disclosure architecture into which taxonomy KPIs fit. For companies using life cycle assessment methodology to underpin their TSC and DNSH documentation, the methodological connection is explored in our LCA methodology guide.

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