A guide to the EU

Taxonomy for your

company

A guide to the EU
Taxonomy for your
company

Background for the EU Taxonomy

Who is behind the taxonomy?

How does the EU Taxonomy work?

What does the EU Taxonomy mean for my company?

How will the EU Taxonomy impact small companies?

4 benefits of EU Taxonomy reporting for companies

How to report?

What are the KPIs I should report on?

The social side of the EU Taxonomy - Minimum Social Safeguards

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Why use Celsia?

Background for the EU Taxonomy

In 2019, the European Union presented the Green Deal, a set of policy initiatives aimed at several environmental

targets, including a climate-neutral Europe by 2050. To tackle the challenges of greenwashing, with no common

definition of sustainable investment and the lack of sustainability considerations in investment decisions, the EU put

forward the Action Plan on Sustainable Finance. The plan included ten measures within three categories:

Redirecting capital flows towards sustainable activities

Sustainability as part of risk assessment

Sustainability included in company reporting

As part of redirecting capital flows towards sustainable activities, the EU has decided to implement a classification
system, a “ taxonomy ”, of sustainable activities, with criteria for when they may be defined as sustainable. If your

business activity is listed in the taxonomy, then that activity is eligible and the associated turnover, capital

expenditures (CapEx), and operational expenses (OpEx) are considered “ taxonomy-eligible”. If you fulfill all technical

screening criteria for the activity, the associated turnover, capital expenditures (CapEx) and operational expenses

(OPEX) for that activity are considered "taxonomy aligned".

The EU Taxonomy has six environmental

objectives, where an activity has to:

Substantially contribute to at least one objective

Do no significant harm to the five other objectives

Comply with minimum social safeguards

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Who is behind the taxonomy?

The taxonomy is an initiative from the European Union. Its framework is set out in Regulation 2020/852 from the

European Commission. Whereas the technical screening criteria and additional rules are set out indelegated acts.

The taxonomy is a part of the Green Deal, and it is designed to help the EU meet key 2030 and 2050 climate goals.

The Platform on Sustainable Finance is a permanent expert group of the European Commission set up as a

part of the taxonomy regulation. The Platform comprises world-leading sustainability and industry experts

representing a range of stakeholders. This includes financial market participants, industry, civil society, and

academia.

The Commission consults the Platform before adopting delegated acts on technical screening criteria. The

Platform plays an essential role in providing advice and developing technical screening criteria by providing

technical and scientific input to the Commission.

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How does the EU Taxonomy work?

The EU developed the taxonomy to provide well-defined, harmonized criteria for when economic activities can be considered

sustainable. It sets out robust, science-based technical screening criteria that activities need to comply with to be seen as green.

The primary objective of the taxonomy is to redirect capital flows towards more sustainable business activities. The EU initiated it after

seeing a general lack of sustainability considerations in investment decisions and the need for a common standard for assessing the

sustainability of investments.

By providing this common standard, the taxonomy aims to create security for investors, prevent greenwashing, help companies to become

more climate-friendly, mitigate market fragmentation, and help investors compare investments across the Member States. This will help

guide investments where they are most needed. By directing investments towards sustainable projects and activities across the EU, the

taxonomy should help to meet the EU's 2030 and 2050 climate and energy targets.

The framework of the EU Taxonomy is set out in EU Regulation (2020/852) that will apply to all EU Member States and is in the process of

being adopted into the EEA Agreement. Regulation 2020/852 sets out the main objectives of the taxonomy and how it will work in

practice.

The taxonomy also has several delegated acts that set out more detailed rules on certain areas. For example, the Climate Delegated Act

lists economic activities that are eligible for the taxonomy's climate change mitigation and adaptation objectives. This includes

technical criteria that must be met for an activity to be considered sustainable.

Companies will be required to assess how their activities perform against the taxonomy criteria and disclose these results publicly.

What does the EU Taxonomy mean for my company?

From January 1st 2023, all large, publicly listed companies are required to report their taxonomy alignment, along with relevant information that
may help investors assess their ESG performance. In this regard, the EU defines all large companies as companies that are not SMEs (SMEs are

companies with less than 500 employees, and with a balance sheet less than 43 million euros or a turnover less than 50 million euros).
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Small and medium sized companies can report on a voluntary basis, and will first be required to take action under the EU’s upcoming Corporate

Sustainability Reporting Directive (CSRD). Under the CSRD, all large companies (>250 employees) and all listed companies (except listed micro-

companies) will be required to report on their sustainability performance in accordance with the taxonomy.

How will the EU Taxonomy impact small companies?

By 2024, we expect many companies, large and small, to be assessing and disclosing their taxonomy alignment, partly because it may positively impact a company's bottom line.

Following the EU Directive on sustainability-related disclosures in the financial sector, in effect from 2021, banks are required to assess their debtors’ sustainability performance. This may force many
smaller companies not directly hit by the requirements to have to assess their alignment with the EU Taxonomy.

With the new proposed Corporate Sustainability Reporting Directive, the EU is also proposing the development of separate, proportionate standards for SMEs. All publicly listed SMEs (excluding

micro-companies) will be required to report under the CSRD, and therefore are expected to also report on the EU taxonomy. The EU Commission is expecting many non-listed SMEs to report

voluntarily under the CSRD.

4 benefits of EU Taxonomy reporting

01 Preparation for mandatory taxonomy-alignment reporting 02 Reputation and risk management

EU Taxonomy reporting will be required for many businesses in the future. That is why, The EU Taxonomy is anticipated to be widely used inside and outside Europe, where it will
reporting voluntarily should serve to help companies prepare for mandatory taxonomy- help to combat "greenwashing”. Companies will have to provide thorough information on
alignment reporting. By starting to work on EU Taxonomy reporting now, you can know how the actual environmental effect and sustainable performance of their economic activities
your company performs in accordance with the new gold standard and improve before once they start reporting how they perform against the technical screening criteria.
mandatory reporting comes into effect.

The EU Taxonomy will be increasingly integrated with other European initiatives such asthe

Sustainable Finance Disclosure Regulation (SFDR) and the CSRD. Additionally, the
Minimum Social Safeguards will tie in with the proposed Corporate Due Diligence Directive.

04 Future-proof and operating license 03 Assessing environmental impact

Aligning with the low-carbon and sustainable transition through the EU Taxonomy will Benchmarking is made possible by the common language, best practices provided by the
companies to operate, grow, and allow for earned competitive advantage as the taxonomy EU Taxonomy and the score itself. Companies will better know how their actions influence
the environment and learn what changes need to be made. This will increase a company's
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becomes the mainstream vocabulary in defining sustainability. It will make a business

ready for the future. ability to adapt their sustainability efforts and provide insight into its contribution to the
low-carbon transition.

How to report?
To report the degree of alignment with the EU Taxonomy, you should:

01 02 03

Match each reporting unit with

Structure your company in appropriate economic activities as Assess compliance with the technical
reporting units defined in the EU Taxonomy’s screening criteria for each activity
Delegated Acts

04 05

Determine associated turnover, Identify, locate and gather

operational expenditures (OpEx) documentation (if you will use the
and capital expenditures (CapEx) results externally and not only for
for each activity per reporting unit an internal gap analysis)

As a company, the requirement is to disclose information 'to the extent necessary to understand the
development, performance, position, and impact of the company's activities’, according to the regulation. This

means that a company's activities are disclosed with a level of detail that breaks down and shows specifically

where the company is achieving sustainability targets, where shortfalls may be occurring, and where the

company can make potential improvements.

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What are the KPIs I should report on?

Companies must disclose the proportion of their turnover, operational expenditures (OpEx) and capital expenditures

(CapEx) that meet the EU Taxonomy criteria. Investors and financial institutions can use clear, comparable data to guide
their investment and financing decisions thanks to the translation of environmental performance into financial variables

(turnover, CapEx and OpEx KPIs).

The proportion of taxonomy-eligible and taxonomy-aligned turnover, CapEx, and OpEx are calculated using a numerator and

denominator. The denominator is the total of turnover, CapEx, or OpEx (with some exclusions), and the numerator is the

turnover, CapEx, or OpEx associated with taxonomy-aligned activities. The proportion of aligned KPIs is then calculated using

this data by dividing the numerator by the denominator to find a percentage of taxonomy-aligned turnover, CapEx, and OpEx.

The Disclosures Delegated Act provides guidance on which turnover, CapEx, and OpEx should be included in the denominator and

numerator.

The following are the key KPIs for non-financial companies:

The aligned turnover KPI represents the proportion of the net turnover derived from products or services that are taxonomy-

aligned. The turnover KPI gives a static view of a company’s contribution to sustainability objectives.

The proportion of aligned turnover is calculated as the part of the net turnover associated with taxonomy-aligned economic

activities (numerator) divided by the net turnover (denominator).

The numerator of the CapEx KPI represents the proportion of the capital expenditure of an activity that is either already

taxonomy-aligned or is part of a credible plan to extend or reach taxonomy alignment. CapEx provides a dynamic and

forward-looking view of companies’ plans to transform their business activities.

The OpEx KPI numerator represents the proportion of the operating expenditure associated with taxonomy-aligned activities

or the CapEx plan. The operating expenditure covers direct non-capitalised costs relating to research and development,

renovation measures, short-term lease, maintenance and other direct expenditures relating to the day-to-day servicing of
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assets of property, plant and equipment that are necessary to ensure the continued and effective use of such assets.

The plan that accompanies both the CapEx and OpEx KPIs shall be disclosed at
the economic activity aggregated level and meet the following conditions:
It shall aim to extend the scope of taxonomy-aligned economic activities or it shall aim for economic activities to become

taxonomy-aligned within a period of maximum 10 years

It shall be approved by the management board of non-financial undertakings or another body which has been delegated

this task

A credible strategy is a requirement to ensure that businesses are beginning down a path toward making their economic
activities taxonomy-aligned. A credible strategy should reduce the risks to a company's reputation, support its environmental

goals, and help it make strategic and visionary business decisions.

Companies should also include a breakdown of the KPIs according to the economic activity pursued, including enabling and

transitional activities, as well as the environmental goal accomplished.

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The social side of the EU Taxonomy -

COMMUNCATE

HOW IMPACTS
identif y & assess

Minimum Socia Safeguard l s ARE ADDRESSED adverse impacts

in operations s , upply chains

5 2 & business relationships

To align with the EU Taxonomy, an activity must make a substantial contribution to one of the six environmental

objectives, do no significant harm (DNSH) to the other environmental objectives, and comply with minimum 1
social safeguards.
Embed

Responsible

The aim of minimum social safeguards is that aligned projects from an environmental/climate point of view must 6 provide for or

Business conduct
cooperate
not adversely impact people. If they do, they cannot be considered sustainable. The taxonomy does not require Into policies &
In remediation

that companies document each step of the due diligence. Where you need a third-party certification or management systems
when appropriate

verification, documentation is, however, crucial.

The minimum social safeguards require that you apply a methodology enshrined in the OECD Guidelines for 4 3
Multinational Companies and the UN Guiding Principles for Business and Human Rights. The methodology

involves a “due diligence process” where risks for violating human rights in the value chain are mapped, TRACK
CEASE, PREVENT OR MITIGATE
IMPLEMENTATION

identified, and handled. ADVERSE IMPACTS

AND RESULTS
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Why use Celsia for EU Taxonomy scoring?

Overview Buisness units Reports Team members Settings

1 4
Mea sure, manage and improve

your EU Taxonomy score

Climate change mitigation

1 4

Pollution prevention & control

Assess your performance following what’s called the 'gold standard' of sustainability
scoring. Get your status across all sustainability goals, use it as a starting point for

Location your improvement efforts, and achieve a score you can be proud to report.

Rosendal plant

Manufacturing
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Key benefits

Calculate taxonomy Report score in a compliant Minimize the maintenance and

alignment scores way update time

Celsia makes assessments for taxonomy alignment Celsia automatically generates PDF reports for sharing You should disclose your updated EU Taxonomy scores
simple, fast, and reduces the chance of errors. Most of with stakeholders and in the EU-required format. We together with financial reporting, which means once a

our customers spend 70% less time on the process when aggregate the KPIs you need to report on and instruct year or a quarter for most companies. Celsia can

using Celsia than when doing it manually.

you on how to do it .
integrate with your financial data system to make

updates entirely automated.

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Ca se Study

01 02 03

What? How? Impact!

Quantafuel is a chemical recycling With Celsia, Quantafuel was able to Quantafuel saved time conducting the

company that aims to help solve the conduct an initial EU taxonomy assessment and avoided monitoring

global plastic problem. Publicly assessment in line with best practice. the EU taxonomy for updates. The

traded on Euronext Growth Oslo and Celsia helps Quantafuel manage the structuring of the data helped

having regularly raised capital, many stakeholders involved in the Quantafuel conduct an efficient third-
investor attractiveness and favorable process, and to keep track of and party verification of its score by the

borrowing conditions are essential to structure collected data and consulting firm Norconsult.

Quantafuel. Realizing the importance documentation across their plants.

of the EU taxonomy, Quantafuel

already in mid-2021 became a

development client of Celsia.

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“ The Celsia tool is simple and intuitive to use and gives a good overview

quickly. It has been a pleasure to work with Petter and the Celsia team. They
are friendly, service-minded, and quick to get their heads around new

challenges.

Erlend Grøner Krogstad

Sustainability Manager, Quantafuel
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Get a demo http://www.celsia.io