Environmentally sustainable economic activities are defined in Article 3 of the Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (Taxonomy Regulation). 




By defining environmentally sustainable economic activities, not undertakings, the taxonomy enables undertakings to transition by gradually increasing their share of environmentally sustainable activities (European Commission Recommendation (EU) 2023/1425 of 27 June 2023 on transition finance, C(2023) 3844).

According to the said Article 3 of the Taxonomy Regulation  such activities must:

a. make a substantial contribution to one or more of the six taxonomy environmental objectives

b. do no significant harm (DNSH) to the other environmental objectives (with further definitions of harm provided for each environmental objective defined in Article 17); and 

c. meet taxonomy minimum safeguards; and
d. comply with technical screening criteria (TSC) established by the European Commission in delegated acts.

Activities fulfilling the above criteria are denoted as taxonomy-aligned economic activities, hence, when it comes to terminology, investments in environmentally sustainable economic activities are investments in taxonomy-aligned activities,

According to Article 4 of the Taxonomy Regulation (Use of the criteria for environmentally sustainable economic activities in public measures, in standards and in labels) Member States and the European Union is required to apply the aforementioned criteria to determine whether an economic activity qualifies as environmentally sustainable for the purposes of any measure setting out requirements for financial market participants or issuers in respect of financial products or corporate bonds that are made available as environmentally sustainable.

It is noteworthy, taxonomy requires ‘substantial contribution’ to environmental objectives for activities to be included.

The document titled: “FAQs, Commission Technical Expert Group on Sustainable Finance", published on the European Commission’s website, explains (p. 6):

“Activities that are not a part of the taxonomy are not necessarily ‘polluting’: There are plenty of economic activities with very limited negative environmental impact or with only incremental contribution to environmental objectives. The taxonomy will require ‘substantial contribution’ to environmental objectives for activities to be included. Therefore, activities that do not qualify under the taxonomy are not necessarily polluting. They will simply not be categorised.” 

The technical screening criteria address both how economic activities can be considered to make a substantial contribution to the environmental objectives and how to respect the DNSH criterion. 

The taxonomy also includes two sub-categories of activities, i.e.:

There is an obligation to disclose for each financial product the proportion invested in those sub-categories.

The SFDR Regulatory Technical Standard (RTS) of 6 April 2022 recognises environmentally sustainable economic activities (Taxonomy Regulation) as a subset of the SFDR Article 8 (light green) as well as Article 9 (dark green) products. Hence, investments into environmentally sustainable activities can be a subset of both these products.

Although this an almost inevitable consequence of the present status of the Level 1 legislation, it will have as unfortunate consequence to increase the complexity to the end investors.

As regards light green products the detailed rules for the calculation of the degree to which investments are in environmentally sustainable economic activities are stipulated in Article 17 of Commission Delegated Regulation od 6 April 2022 supplementing Regulation (EU) 2019/2088 of the European Parliament and of the Council with regard to regulatory technical standards specifying the details of the content and presentation of the information in relation to the principle of ‘do no significant harm’, specifying the content, methodologies and presentation of information in relation to sustainability indicators and adverse sustainability impacts, and the content and presentation of the information in relation to the promotion of environmental or social characteristics and sustainable investment objectives in pre-contractual documents, on websites and in periodic reports.

In general, this degree is to be calculated according with the following formula:

market value of all investments of the financial product in environmentally sustainable economic activities / market value of all investments of the financial product.

European Commission published Notice of 13 June 2023 on the interpretation and implementation of certain legal provisions of the EU Taxonomy Regulation and links to the Sustainable Finance Disclosure Regulation (2023/C 211/01), where the Commission clarified that investments in ‘environmentally sustainable economic activities' within the meaning of the EU Taxonomy can be qualified as a ‘sustainable investment' within the meaning of the SFDR

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