An activity is aligned with the EU Taxonomy when it makes a substantial contribution to an environmental objective, does no significant harm to the others, meets minimum safeguards and satisfies the technical screening criteria. You test each activity in that order, then report the aligned share of your turnover, CapEx and OpEx.
This article reflects the position as of November 2026. The Taxonomy reporting rules were simplified in 2025 and 2026, and some of the details below come from law-firm summaries, so check the Commission's current guidance before you report.
What the Taxonomy is
The EU Taxonomy, set out in Regulation (EU) 2020/852, is a classification system for sustainable economic activities. It defines six environmental objectives: climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, the transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems.
The four conditions
An activity is aligned only when it meets all four conditions in the Regulation. It makes a substantial contribution to at least one of the six objectives. It does no significant harm to the other five. It complies with minimum safeguards, which refer to international standards on human and labour rights. And it meets the technical screening criteria set in the delegated acts.
Eligible and aligned are different things. An activity is eligible when the delegated acts describe it. It is aligned only when it also passes all four conditions.
The steps
Step one is to list your economic activities. Step two is to check which are eligible, by matching them to the descriptions in the delegated acts. Step three is to test the substantial contribution of each eligible activity against its technical screening criteria. Step four is to test that it does no significant harm to the other objectives. Step five is to check minimum safeguards at company level. Step six is to calculate your key performance indicators.
This sequence is our own way of organising the work. It follows the order of the conditions rather than a prescribed procedure.
The three KPIs
The Taxonomy KPIs are the shares of turnover, capital expenditure (CapEx) and operating expenditure (OpEx) that come from aligned activities. For each KPI you need to be able to trace figures back to specific activities, so keep the activity mapping alongside your accounts.
What changed in 2025 and 2026
On 4 July 2025 the Commission adopted a delegated act that simplifies the Disclosures, Climate and Environmental Delegated Acts. According to law-firm summaries, it was published in the Official Journal in January 2026 and applies from 1 January 2026, covering reporting on the 2025 financial year.
The same summaries describe several changes. Non-financial companies can treat activities as immaterial below a materiality threshold, and must disclose what they excluded. They may skip the OpEx assessment if it is immaterial to their business model, and say why. Reporting templates were cut back, and some criteria on pollution prevention were simplified. Financial undertakings that do not claim alignment may opt out of Taxonomy reporting until 31 December 2027. We have not stated the threshold here, because sources differ on how it is worded. Check the Commission's FAQ notice.
On 17 March 2026 the Commission also opened a call for feedback on revising the criteria.
Who has to report
Taxonomy reporting follows the CSRD scope, so it applies to companies within CSRD scope. Our article on CSRD and VSME explains how that scope has narrowed. We have not confirmed the amended legal text, so check it for your own case.
What it means for an SME
SMEs are generally not required to report Taxonomy KPIs themselves. That said, banks and large customers that do report may ask for Taxonomy-related data from borrowers and suppliers. This is a reasoned expectation rather than a rule.
aida ESG from Carbon Happy World is ESG reporting software covering CSRD, ISSB and the EU Taxonomy, among other frameworks.