The EU Taxonomy aims to help scale up sustainable investments as a key step to achieving carbon neutrality by 2050. With this goal in mind, the Taxonomy developed and implemented a classification system through which a common ground on what is understood as “sustainable” is achieved.

According to the Taxonomy regulation, a “sustainable economic activity” is defined as one that “makes a substantial contribution to at least one of the EU’s climate and environmental objectives, while at the same time not significantly harming any of these objectives and meeting minimum social safeguards”. Because of this, the Taxonomy alignment assessment can be divided into two main steps; the first one requires defining if the assessed economic activity is listed in the Climate delegated act, which as of the writing of this document includes the following sectors:
• Forestry
• Environmental protection and restoration activities
• Manufacturing
• Energy
• Water supply, sewerage, waste management and remediation
• Transport
• Construction and real estate activities
• Information and communication
• Professional, scientific, and technical activities

Once the activity has been identified as “Taxonomy eligible” or listed by the regulation the second step starts, where the activity is evaluated under specific criteria to define if it is taxonomy aligned. For this to happen, the following must be achieved:
• The activity must make a substantial contribution to at least one of the six environmental objectives:
1- Climate change mitigation
2- Climate change adaptation
3- Sustainable use and protection of water and marine resources
4- Transition to a circular economy
5- Pollution prevention and control
6- Protection and restoration of biodiversity and ecosystems
• Prove that through its execution of the economic activity complies with the Do No Significant Harm (DNSH) principle to any of the other five objectives.
• Fulfils the minimum social safeguards standard.

Once the eligibility and alignment are properly identified it is necessary for companies with more than 500 employees to further disclose the proportion of income derived from activities deemed as taxonomy eligible, along with the proportion of capital expenditure (CapEx), and operational expenditure (OpEx) related with economic activities falling under the scope of the Taxonomy criteria and thus obtaining the Green Asset Ratio (GAR) of their economic activity, used by banks, investors, insurers and policymakers as a set of relevant indicators for decision making and investment processes.