The EU Taxonomy Regulation: Regulation (EU) 2020/852
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The Taxonomy Regulation sets the EU test for when a business activity counts as environmentally sustainable. For funds it adds a layer to SFDR. Article 9 funds investing in environmental activities, and Article 8 funds promoting environmental characteristics, must state how much of the portfolio passes the test. A product outside SFDR Articles 8(1) and 9 carries a fixed statement that it does not take the EU criteria into account (Art. 7). The detailed criteria sit in Commission delegated acts, which change more often than the regulation.
Scope and the core mechanism
Under Article 1(2) the regulation reaches three groups. The first is EU and national measures that set requirements for products sold as environmentally sustainable. The second is financial market participants that make financial products available. The third is companies that must publish a non-financial statement under the Accounting Directive. Article 2 takes the terms "financial market participant" and "financial product" straight from SFDR, so the fund perimeter is the SFDR perimeter.
The test is applied to an activity, not to an issuer. Under Article 3 an activity qualifies only if it meets four conditions together. It makes a substantial contribution to at least one of six objectives. It does no significant harm (DNSH) to any other. It meets minimum safeguards. It also meets the technical screening criteria the Commission sets by delegated act. Article 9 lists the six objectives:
| Objective | Defined in | Criteria in |
|---|---|---|
| Climate change mitigation. | Art. 10 | 2021/2139. |
| Climate change adaptation. | Art. 11 | 2021/2139. |
| Water and marine resources. | Art. 12 | 2023/2486. |
| Circular economy. | Art. 13 | 2023/2486. |
| Pollution prevention and control. | Art. 14 | 2023/2486. |
| Biodiversity and ecosystems. | Art. 15 | 2023/2486. |
The fund disclosures were phased in. Under Article 27(2), Articles 5 to 7 applied from 1 January 2022 for the two climate objectives and from 1 January 2023 for the other four.
In practice: the fund figure is a weighted sum set by Article 17 of Delegated Regulation 2022/1288, and the route depends on the holding. For company debt and equity, it uses the aligned share that investee companies disclose under Article 8. Where a company does not disclose, the manager may use equivalent information from the company or a data provider. Direct real estate, infrastructure, use-of-proceeds bonds and EU green bonds count at their aligned market value. For non-financial companies the default measure is turnover; CapEx or OpEx may replace it where that gives a more representative figure. The SFDR periodic-disclosure guide works through the formula.
Key provisions
| Provision | What it says | The practical point |
|---|---|---|
| Article 9 funds (Art. 5) | An SFDR Article 9 product that invests in an activity contributing to an environmental objective names the Taxonomy objectives served. It says how far its investments are in aligned activities. | This can reach an Article 9 fund with a social objective that also makes such investments. The aligned share is a percentage of all investments, with enabling and transitional activities shown apart. |
| Article 8 funds (Art. 6) | An SFDR Article 8 fund that promotes environmental characteristics follows Article 5 too. It adds a set statement that DNSH applies only to the investments that use the EU criteria. | The wording is fixed in the article. It also says the rest of the fund does not use the EU criteria. |
| All other funds (Art. 7) | A product not subject to SFDR Article 8(1) or Article 9(1) to (3) states that its investments do not take the EU criteria into account. | An Article 8 fund promoting only social characteristics carries neither this statement nor the Article 6 one. The statement goes in the documents listed in SFDR Article 6(3) and Article 11(2). |
| Transitional and enabling activities (Art. 10(2), Art. 16) | A transitional activity has no feasible low-carbon alternative and supports a transition consistent with the 1.5°C pathway. Its emissions match the best in its sector, and it neither hampers low-carbon alternatives nor locks in carbon-intensive assets. | An enabling activity directly enables others to make a substantial contribution. It must not lock in assets that undermine long-term environmental goals, and it must have a substantial positive impact over its life cycle. |
| Do no significant harm (Art. 17) | Defines harm for each of the six objectives, such as large greenhouse gas emissions or damage to the good status of water bodies. The life cycle of the products counts. | The pass mark for each activity is set by the DNSH criteria in the delegated acts. It is a different test from DNSH under SFDR Article 2(17). |
| Minimum safeguards (Art. 18) | The company doing the activity has procedures to align with the OECD Guidelines for Multinational Enterprises. They also align with the UN Guiding Principles on Business and Human Rights. | The procedures also cover the eight core ILO conventions and the International Bill of Human Rights. Article 18(2) ties them to SFDR's DNSH principle. |
| Penalties (Art. 22) | Member states set the measures and penalties for breaches of Articles 5, 6 and 7. | Enforcement sits with the national authority that supervises the fund's SFDR disclosures (Art. 21). |
| Delegated acts (Art. 23) | The Commission's power to adopt the screening criteria runs for an indeterminate period from 12 July 2020. Parliament or Council can object within four months, extendable by two. | The criteria a fund reports against are therefore set and amended by Commission act, outside the Level 1 text. |
Amendment and delegated-act history
| Date | Instrument | What changed |
|---|---|---|
| 18 Jun 2020 | Regulation (EU) 2020/852 | The original regulation, in force from 12 July 2020. Article 25 amended SFDR, inserting Article 2a and adding Taxonomy disclosures to SFDR Articles 8 and 9. |
| 4 Jun 2021 | Delegated Regulation (EU) 2021/2139 | Criteria for the two climate objectives. Applies from 1 January 2022. |
| 6 Jul 2021 | Delegated Regulation (EU) 2021/2178 | Content and method of the Article 8 company reports. The key figures phased in from 1 January 2023 for non-financial firms and 1 January 2024 for financial firms. |
| 9 Mar 2022 | Delegated Regulation (EU) 2022/1214 | Added certain fossil gas and nuclear energy activities to 2021/2139, with matching disclosures in 2021/2178. Applies from 1 January 2023. |
| 27 Jun 2023 | Delegated Regulation (EU) 2023/2485 | Added further climate criteria to 2021/2139, applying from 1 January 2024, with two points from 1 January 2025. |
| 27 Jun 2023 | Delegated Regulation (EU) 2023/2486 | Criteria for the other four objectives. Applies from 1 January 2024. |
| 4 Jul 2025 | Delegated Regulation (EU) 2026/73 | Simplified the 2021/2178 disclosures and certain DNSH criteria in 2021/2139 and 2023/2486. Published 8 January 2026 and applies from 1 January 2026. For a financial year starting in 2025, companies may apply the three acts as they stood on 31 December 2025 (Art. 4). |
What it works with
The Taxonomy Regulation does not create a fund document of its own. Its Articles 5 to 7 feed the product disclosures required by SFDR. The templates sit in Delegated Regulation (EU) 2022/1288, whose Article 17 sets the alignment formula. The SFDR periodic-disclosure guide works through that calculation, and its DNSH section separates the two DNSH tests. Filing dates are on SFDR and Taxonomy disclosure deadlines. Names are a separate rule. ESMA's guidelines on funds' names using ESG or sustainability-related terms of 21 August 2024 apply to UCITS management companies, AIFMs and MMF managers, among others. They are summarised on the ESG fund-names page.
The fund wrapper is governed separately. A UCITS sits under the UCITS Directive and an AIF under AIFMD. A UCITS management company places the Taxonomy disclosures in the prospectus and the annual report (SFDR Art. 6(3)(g), Art. 11(2)(g)). An AIFM places them in its Article 23 investor disclosures and its Article 22 annual report (Art. 6(3)(a), Art. 11(2)(a)).
In practice: where reliable alignment data cannot be obtained, the Commission's answer is that the figure "must indicate zero". Complementary assessments and estimates are allowed only in exceptional cases, and must be prudent and explained (Commission answer, consolidated SFDR Q&A VII.1). A zero figure does not remove the Article 6 statement for an Article 8 environmental fund. Company data for financial years starting in 2025 may still follow the pre-2026 criteria, under Article 4 of Delegated Regulation 2026/73.
To verify
- SFDR proposal: whether COM(2025) 841 would change the links from SFDR to Taxonomy Articles 5 to 7.
- Article 26 review: the Commission's three-yearly reports on the regulation's application due under Article 26(1), and what they recommend.
- National penalties: the Irish and Luxembourg provisions that implement Article 22, from each country's statute book.
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