Understanding the EU Taxonomy
The EU Taxonomy for sustainable activities, established July 2020, is a cornerstone of the EU’s sustainable finance framework and an important market transparency tool. It is a classification system for sustainable economic activities, essential for companies aiming to align with the EU sustainability standards and access funding from European value chains. Therefore, it helps direct investments to the economic activities most needed for the transition, in line with the European Green Deal objectives. In other words, the EU Taxonomy calls for financial institutions and corporates to screen, assess and report on the extent to which their investments and undertakings are environmentally sustainable and aligned with the regulation.
What is the EU Taxonomy?
The EU Taxonomy is a regulatory framework established by the EU to define which economic activities are considered environmentally sustainable and aligned with a net zero trajectory by 2050 and the broader environmental goals other than climate. The EU Taxonomy allows financial and non-financial companies to share a common definition of economic activities that can be considered environmentally sustainable. In this way, it plays an important role in helping the EU scale up sustainable investment, by creating security for investors, protecting private investors from greenwashing, helping companies become more climate-friendly and mitigating market fragmentation.
Why should Macedonian companies care about the EU Taxonomy?
Particularly for larger corporates, aligning your business operations with the EU Taxonomy can provide significant benefits and strategic advantages:
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Access to European markets
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Adhering to the EU Taxonomy standards can open doors to new business opportunities within the EU. Many European companies are prioritising sustainability and demand their suppliers to meet these standards. By aligning with the EU Taxonomy, the company can become a preferred partner for EU-based companies, thus integrating into EU value chains.
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Enhanced competitiveness and market position
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Demonstrating commitment to sustainable practices can improve your business’s reputation and competitive edge. Customers, both in the EU and globally, are increasingly valuing sustainability. Aligning with the EU Taxonomy does not only meet current market expectations but potentially positions the company as a leader in sustainability within North Macedonia and beyond.
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Unlock sustainable finance flows from EU entities
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The EU is an important financial market for Macedonian enterprises. For EU financial market players to provide a complete and transparent EU Taxonomy screening, they will reach out to their non-EU undertakings to collect evidence that economic activities meet the sustainability requirements outlined in the EU Taxonomy.
Macedonian credit institutions that receive funding from EIB adhere to EIB's green criteria, which highly overlap with the criteria of the EU Taxonomy. Hence, aligning with the sustainability requirements of the EU Taxonomy can enable access to green debt financing through Macedonian financial institutions.
Non-EU investors or financial advisors offering products in Europe are already subject to the Sustainable Finance Disclosure Regulation (SFDR), which mandates sustainability disclosures for financial market participants.
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Contribute to and accelerate the transition to a low-carbon economy
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North Macedonia is committed to aligning with EU standards as part of its EU accession process and has increased its ambition in the revised NDC, submitted in April 2021, by adopting a net GHG emissions reduction target of 82% by 2030 and net zero emissions by 2050. By adhering to the EU Taxonomy, companies contribute to national efforts to reduce emissions and promote sustainable development, supporting the country’s transition to a green economy. This alignment can also provide access to national incentives and support for companies that adopt sustainable practices.
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Become an ‘early mover’ – prepare for taxonomies
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The EU is progressively tightening its environmental regulations. By proactively starting to align with the EU Taxonomy step by step, companies can stay ahead of these regulatory changes, ensuring smooth operations and avoiding potential future compliance costs. This forward-thinking approach can make businesses more resilient and adaptable to future regulations.
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Increase the resilience of businesses and operations
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Implementing sustainable practices - whether in line with the EU Taxonomy or not - can enhance the resilience of companies. Sustainable practices often lead to greater efficiency, reduced resource dependency, and better preparation for environmental risks. This resilience helps companies manage economic, environmental, and regulatory shifts more effectively.
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Mitigate ‘greenwashing’
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By aligning with the EU Taxonomy criteria, companies can ensure that its sustainability claims are credible and verifiable, thereby mitigating risks related to greenwashing. This transparency is crucial for building trust with investors, customers, and regulators.
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How to align with the EU Taxonomy
Aligning with the EU Taxonomy can be challenging, even for countries within the EU. However, despites the difficulties, there are several benefits to investments in more sustainable practices. Striving to meet the EU Taxonomy criteria as closely as possible is crucial for future preparedness. Nonetheless, companies should not be discouraged if they are unable to meet all the criteria yet.
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Identify relevant activities: Review your business operations and identify activities that can be classified under the six objectives.
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Evaluate sustainability performance: Assess and document how your activities meet the sustainability criteria laid out in the EU Taxonomy.
- Report and disclose: Transparent reporting on your sustainability performance is crucial. Prepare to disclose how your activities align with the EU Taxonomy’s criteria.
Resources and tools
EU Taxonomy Navigator: An online tool to help you navigate the EU Taxonomy framework, including:
- EU Taxonomy compass – a visual representation of sectors, activities and criteria included in the EU Taxonomy
- EU Taxonomy calculator – a step-by-step guide on reporting obligations
- FAQs repository – an overview of questions and answers on the EU Taxonomy and its delegated acts
- EU Taxonomy user guide – a simple guide on the EU Taxonomy for non-experts
- NACE classification mapping
