ESG: EU Taxonomy Regulation - European Commission Q&As published

On 6 October, 2022, the European Commission published a document setting out its interpretation of certain aspects of the Delegated Regulation made under Article 8 of the Taxonomy Regulation.

The Delegated Regulation gave more detail to the provisions under Article 8 to specify the content, methodology and presentation of the KPIs that non-financial undertakings and asset managers are required to disclose.

The Commission’s document takes the form of a series of Q&As, covering the following issues:

General FAQs

1. To what undertakings does the reporting obligation under the Taxonomy Regulation Article 8 Delegated Act apply?
2. How is an ‘economic activity’ defined in the Disclosures Delegated Act?
3. What is a Taxonomy-eligible economic activity?
4. What are ‘enabling’ and ‘transitional’ economic activities in the context of Taxonomy-eligibility reporting?
5. How to identify and report eligibility for adaptation-related economic activities?
6. How should NACE codes be used to identify Taxonomy-eligible activities in the context of eligibility-reporting?
7. Can undertakings report voluntary information in the context of Taxonomy-eligibility reporting?

Non-financial undertakings

8. How far should undertakings assess and report Taxonomy-eligible activities in their value chain, both upstream and downstream?
9. How to identify Taxonomy-eligible activities of which activity descriptions contain qualifiers, such as ‘low carbon’, and ‘climate-related perils’?
10. Should undertakings report a breakdown of Taxonomy-eligibility per environmental objective?
11. How are turnover, CapEx and OpEx defined in the context of Taxonomy-eligibility reporting?
12. What is the scope of ‘other direct expenditures’ set out in Annex I to the Disclosures Delegated Act?
13. How should undertakings account for negative revenues in the context of Taxonomy-eligibility reporting?. .
14. Should undertakings avoid double reporting of Taxonomy-eligible activities?
15. Should an entity report Taxonomy-eligible turnover when the economic activity has not been performed by itself, but by a subcontractor?
16. How should a non-financial undertaking report on products and services that are both consumed internally and sold externally?
17. How should non-financial undertakings treat intangibles under Taxonomy-eligibility reporting?
18. Should non-financial undertakings report the Taxonomy-eligibility of their non-EU activities?
19. How should non-financial undertakings treat the turnover of eligible activities that are deconsolidated during the financial year?

Financial undertakings

20. What should financial undertakings report if underlying entities’ information is not publicly available?
21. What is the difference between covered assets and total assets in the context of Taxonomy-eligibility reporting?
22. Should cash and cash equivalent assets be considered in the context of Taxonomy-eligibility reporting?

Asset managers

23. How may asset managers weight their holdings in a portfolio to report Taxonomy-eligible assets?
24. Do mortgages qualify as eligible for an asset manager (as an investment) or only for the bank that provided the loan originally? .

Insurers

25. What activities should an insurer and a reinsurer consider when reporting their underwriting activities in the context of Taxonomy-eligibility reporting?

Credit institutions

26. Do the reporting obligations under the Disclosures Delegated Act apply to a large entity that is not a credit institution under Article 4 of the Capital Requirements Regulation but is treated as a financial undertaking under Articles 19a and 29a of the NFRD?
27. How can CapEx be associated with general purpose lending in the context of Taxonomy-eligibility reporting?
28. How should a credit institution with a Markets in Financial Instruments Directive (MiFID) investment firm license report its Taxonomy-eligible economic activities?

Debt market

29. How to assess and report the Taxonomy-eligibility of a debt asset such as a bond or a loan?
30. Does the use of all proceeds from debt products need to be independently verified if reported as Taxonomy-eligible?
31. Can green debt instruments from non-EU entities be reported as Taxonomy-eligible?
32. Can green sovereign debt be reported as Taxonomy-eligible?

Interaction with other regulations

33. How does the Disclosures Delegated Act interact with the proposed requirements on corporate sustainability reporting?