- Category: Taxonomy
Enabling economic activities are a sub-category of environmentally sustainable economic activities under the Taxonomy Regulation, which do not substantially contribute to climate change mitigation through their own performance.
6 November 2023
Use cases of enabling activities added according to the EU Taxonomy User Guide of June 2023
Such activities play a crucial role in the decarbonisation of the economy by directly enabling other activities to be carried out at a low carbon level of environmental performance (Recital 12 of the Commission Delegated Regulation (EU) 2021/2139 of 4 June 2021).
Enabling activities directly enable other activities to make a substantial contribution to an environmental objective (ESA’s Final report of 22 October 2021 on taxonomy-related product disclosure RTS with regard to the content and presentation of disclosures pursuant to Article 8(4), 9(6) and 11(5) of Regulation (EU) 2019/2088, JC 2021 50, p. 38).
As was noted in the said Final report of 22 October 2021, the taxonomy is based on three categories, i.e. enabling, transitional and “green”, but, by defining only two of these categories, the third category will not be visible to the customer.
It was doubted that it would be feasible for products committing to a certain share of sustainable investments in line with the taxonomy to specify minimum proportions of transitional and enabling activities in the pre-contractual documents. The commitment to a minimum share of taxonomy-aligned investments that would need to be met and monitored on a continuous basis was considered a challenge in itself and only a few products were believed to be able to make commitments on a more granular level.
Therefore, it was expected that it would be possible to disclose a zero minimum share of transitional and enabling activities in the pre-contractual documents and to explain to investors that this is due to the lack of feasibility to make binding commitments, but that the actual share of investments in transitional and enabling activities would be disclosed in the periodic report.
Enabling activities are defined in Article 16 of the Taxonomy Regulation. According to this provision an economic activity shall qualify as contributing substantially to one or more of the environmental objectives set out in Article 9 by directly enabling other activities to make a substantial contribution to one or more of those objectives, provided that such economic activity:
(b) has a substantial positive environmental impact, on the basis of life-cycle considerations.
Potential practical use cases regarding enabling activities have been described in the document prepared for the European Commission in June 2023: "The EU Taxonomy User Guide" (p. 23, 24) - see extract below.
Use Case 4: Helping others to adapt to impacts of climate change
How does your company benefit from the EU Taxonomy if it conducts activities that enable others to adapt to impacts of climate change?
As an entity that falls under the scope of the NFRD/CSRD, you will need to disclose information on how and to what extent your activities are aligned with the EU Taxonomy.
If your company conducts activities that enable others to adapt to the impacts of climate change, the associated revenues and capital expenditures and operational expenditures may be taxonomy-aligned. Reporting them can enhance your reputation and improve your access to capital.
Proposed approach to address your challenge
Step 1 - Check which of your activities, services or solutions that are enabling others to adapt are covered in the EU Taxonomy. Which exact activities are eligible is defined in the "description of the activity" sections in Annex Il of the Climate Delegated Act. To date, business operations in the following areas are eligible as 'enabling' activities for climate change adaptation:
For example, an engineering company that plans a system of drinking water fountains for a municipality can identify this activity as being eligible under the EU Taxonomy's adaptation enabling activity "Engineering activities and related technical consultancy dedicated to adaptation to climate change".
In addition, activities in the following sectors are eligible as adapted-enabling activities.
That is, they qualify as adapted activities where they meet the first four technical screening criteria for substantial contribution, and as enabling activities where they meet the fifth technical screening criterion for substantial contribution (and therefore can claim their revenue as Taxonomy-aligned in addition to their CapEx and OpEx):
Step 2 - Ensure that the activity fulfils the "technical screening criteria" (see Use Cases 2 for more information).
In general, your activity, service or solution qualifies as enabling if you show that it can directly help others (people, nature, cultural heritage, assets, or other economic activities) to adapt to climate change impacts.
Step 3 - Show how you can enable adaptation, assess current and future climate risks for your targeted field of action, client or customer.
For example, the engineering company that develops drinking water fountains needs to show how heat risks in its client municipality are significantly exacerbated by climate change.
The assessment needs to touch on the possible uncertainties in climate projections and be based on robust data. Climate data for such an assessment can for example be accessed through the Copernicus services managed by the European Commission (for more information on climate risk assessments see Use Case 5). Maybe you can also refer to a climate risk assessment conducted by your client or related to your activity.
Taking the example of the engineering company that develops drinking water fountains, heat risks have probably been already identified for their activity locations in a national or local climate risk or vulnerability assessment.
Step 4 - Demonstrate that the primary obiective of your activity is to provide or promote the use of a technology, product, service, information or practice that (1) either increases the level of resilience to physical climate risks, or (2) contributes to adaptation efforts.
For example, drinking water fountains when installed in heat stressed areas especially when aligned with an adaptation strategy in the company's area of action are to be seen as having the primary objective described above. By referring to this strategy, the company could show that it is contributing to adaptation.
Source: The EU Taxonomy User Guide, Document prepared for the European Commission, June 2023, p. 23, 24