ESG: the Platform responds to proposed Taxonomy Level 2 changes

On 26 March 2025, the Platform on Sustainable Finance (the Platform) published its response to the European Commission's consultation on a draft delegated regulation to amend three Level 2 measures (the Disclosures Delegated Act, the Climate Delegated Act and the Environmental Delegated Act) made under the Taxonomy Regulation.

As we reported at the time, in February, 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.

The draft proposal was open for feedback from 26 February to 26 March 2025 and the Commission intends to adopt legislative proposals for change in Q2 2025 in light of feedback received.

Admittedly, the Platform's response will be only one of a number the Commission will likely receive. Even so, it's noteworthy, not just because the status of the Platform as a formal advisory body to the Commission, established under the Taxonomy Regulation, but also because its recent reports have demonstrated that it is pushing for a significant change of direction to both the Taxonomy and to the SFDR (see our notes here and here).

What does the Platform's response say?

The Platform is "broadly supportive" of the Commission's goal of simplification and notes that several of the recommendations made in its own report have been retained in the Commission's proposal.

It does, though, have concerns relating to the Commission's wish (see our summary of its Omnibus proposals here) to reduce the scope of the taxonomy. In the Platform's view, the potential loss of taxonomy data which could be caused by a combination of

• narrowing the scope of the Corporate Sustainable Reporting Directive (CSRD) and

• limiting the Taxonomy's reach by the introduction of a third category for companies (which would report under the CSRD but would opt into Taxonomy reporting)

would weaken the overall effectiveness of the taxonomy and create inconsistencies between the different pieces of legislation. This would add unnecessary complexity to the reporting framework, pose risks for financial market participants and increase the risk of greenwashing - thereby undermining the overall aim of the framework to mobilise capital towards sustainable investments.

More specifically, the Platform's key recommendations are

1. To introduce a mechanism for all companies to report partial alignment - this would allow disclosure of activities that meet either the substantial contribution or Do No Significant Harm (DNSH) criteria.

2. To clarify the materiality threshold and ensure it applies to cumulative exposure, rather than individual economic activities. This would reflect how companies assess materiality in their financial reporting.

   The Platform's preference would be to align the materiality threshold for Taxonomy reporting with existing financial reporting standards (such as IFRS 8), in order to ensure consistency and reduce reporting burdens, with clear guidance given requiring companies to explain non-disclosure decisions, provide minimum disclosures for under-threshold activities and "invest in capacity-building to promote transparency and prevent greenwashing".

3. To simplify OpEx - the 10% materiality threshold for OpEx should be aligned with Turnover and CapEx thresholds, making OpEx mandatory reporting exclusively for R&D to incentivise research and innovation.

4. To gradually integrate exposures into the Green Asset Ration based on the ability of credit institutions to build internal capabilities and access information, while maintaining symmetry between the numerator and the denominator; and addressing usability issues, particularly on retail and non-corporate exposures.

5. To postponing application of the Trading Book and Fees and Commission KPIs for banks to 2027 - the Platform supports a review of their decision-usefulness in reflecting sustainability efforts.

6. To provide clear guidance and to invest in capacity-building efforts to support reporting, particularly in sectors with complex business models.

7. To pause (rather than exclude) reasonable assurance for CSRD reporting, including the EU Taxonomy entity-level reporting.

8. To support the Commission's second option (as proposed in the draft regulation) for revising the generic DNSH for Portfolio and Project Companies.

In addition, the Platform continues to advocate for

• enhanced capacity building within the market to support regulatory implementation and a practical rollout of the revised rules introduced, ensuring sufficient predictability for all users and

• the establishment of a mechanism to provide timely responses to questions related to the Taxonomy, ensuring expert guidance and clarity on these matters.

Next steps

The consultation period for the Commission's draft delegated regulation is now closed - the Commission intends to adopt legislative proposals for change in Q2 2025 in light of feedback received.

We will be following - and reporting on - relevant developments in this area as this work continues.