The EU Taxonomy sets out four main conditions for an economic activity to qualify as environmentally sustainable. One of these conditions is that the activity complies with technical screening criteria established by the European Commission.
The screening criteria are comprehensive and might seem overwhelming. However, they are effective in the EU as of 2022 and are of great importance for companies within the EU.
You can read more about the Taxonomy in our blog: EU taxonomy: Sustainability becomes a prerequisite for finance
The first two sets of screening criteria approved
On 21 April, the European Commission approved the first two sets of technical screening criteria. These criteria refer to the first two of totals of six environmental objectives stated in the Taxonomy. The six environmental objectives are:
- climate change mitigation
- climate change adaptation
- the sustainable use and protection of water and marine resources
- the transition to a circular economy
- pollution prevention and control
- the protection and restoration of biodiversity and ecosystems
Screening criteria for the first two objectives is in effect as of 1 January 2022 while the complementary criteria apply as of 1 January 2023. The screening criteria are set out in annex 1 and 2 of the delegated act and complementary delegated act. Annex 1 regulates the first objective, while annex 2 regulates the second. It was expected that the EU Commission would establish screening criteria for the remaining four objectives by the end of 2022, but it is unclear when these will be prepared.
Screening criteria for the first two objectives are covering in total 13 sectors:
- Environmental protection and restoration activities
- Water supply, sewerage, waste management and remediation
- Construction and real estate activities
- Information and communication
- Professional, scientific, and technical activities
- Financial and insurance activities
- Human health and social work activities
- Art, entertainment, and recreation
The different sectors are divided into different categories of activities. For example, is manufacture of batteries, cement, and aluminium three of total 17 activities regulated within the manufacturing sector. An example of a screening criteria applicable for manufacturing of cement is:
“The activity manufactures one of the following:
(a) grey cement clinker where the specific GHG emissions are lower than 0,722 tCO2e per tonne of grey cement clinker
(b) cement from grey clinker or alternative hydraulic binder, where the specific GHG emissions from the clinker and cement or alternative binder production are lower than 0,469 tCO2e per tonne of cement or alternative binder manufactured.”
As the above example illustrates, the screening criteria contains detailed requirements for each activity. It is also important to be aware that the EU Commission is required to review the screening criteria regularly. This means that the criteria might change, and it will be important to stay current.
Download free guide: Environmental certifications in Norway
Reporting obligations for screening criteria are mandatory for financial market participants and undertakings which are subject to the obligation to publish a non-financial statement. However, it is expected that the financial market participants will favour businesses that can document compliance with the technical screening criteria. This might include favourable access and requirements for capital and loans.
The EU taxonomy has been implemented in Norwegian law as of 1 January 2023. The complementary delegated act has not been implemented in the EEA-agreement and is, thus, not in effect in Norway.
Magnus Legal recommends
Even though the screening criteria are not effective before January 2022, we recommend starting the compliant process already.
Firstly, you should get acquainted with the screening criteria and evaluate which criteria will be applicable to your company.
Secondly, you should gather relevant data in accordance with the criteria. Compliance with the screening criteria might ensure favourable access to capital and loans.
Lastly, we recommend getting sustainability as a part of your business’ plan of action. By mapping your company´s sustainability, and establishing reporting routines at an early stage, you will be able to follow the developments in the market, and benefit from it.