ESG – Commission proposes changes to Taxonomy Regulation Level 2

On 26 February 2025, to accompany its Omnibus simplification package on sustainability reporting and due diligence (see our Omnibus I and II packages client note here), the European Commission published a draft Delegated Regulation which would amend three Level 2 measures made under the Taxonomy Regulation, namely:

• the Disclosures Delegated Act
• the Climate Delegated Act and
• the Environmental Delegated Act.

What happens next?

The draft Delegated Regulation is open for consultation until 26 March 2025.

The Commission intends to adopt legislative proposals for change in Q2 2025 in light of feedback to the consultation. These will then be subject to scrutiny by the Council of the EU and the European Parliament. This will lead to an agreed text, which will be published in the Official Journal in due course.

What does the draft Delegated Regulation contain?

The Commission’s aim is to make the Level 2 measures “simpler and more cost-effective for companies”, by making certain requirements more flexible and reducing the amount of data to be provided.

General reporting templates would be made significantly shorter, while specific reporting templates relating to performance and exposures to fossil gas and nuclear activities would no longer duplicate elements already covered in the general reporting templates.

To achieve this, it proposes, among other things:

Introducing a 10% de minimis threshold

• Large companies with a large variety of activities would be exempted from assessing compliance with the TSC of non-material economic activities (where the cumulative value of activities falls below 10% of the KPIs’ denominators).
• Where activities are classed as financially material, the Commission would bring in a graduated approach to the materiality of the different classes of information to be reported.

Operational expenditure

• Non-financial undertakings would not be required to report on alignment of operational expenditure where the cumulative turnover of their eligible activities is less than 25% of their total turnover

Simplification of KPIs

• The changes would introduce one static template for summary information, as well as simplifying the ‘per activity’ information, with only one activity being reported on each row.
• To make sure that the KPIs of financial undertakings are accurate, the denominator of the applicable KPI will exclude financial institutions’ exposures to undertakings (other than large undertakings) which exceed an average number of 1,000 employees during the financial year. This will be the case until the Commission’s review of the Disclosures Delegated Act has been finalised.

Fossil fuel and nuclear activities

• The separate and duplicative templates on performance and exposure to fossil fuel and nuclear activities in the general templates would be removed.

Streamlining DNSH criteria

• The provision in Appendix C (see Annex I and II of the Climate Delegated Act and Annex I, II and IV of the Environmental Delegated Act) on substances meeting criteria in the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) Regulation could be replaced by one that would require companies to assess the use and presence of substances that have self-classified according to the Classification, Labelling and Packaging Regulation and that do not have a ‘harmonised classification’.