The EU’s climate taxonomy – new legal act concerning technical review criteria

On 21 April this year, the EU Commission adopted an action package containing several delegated legal acts with the purpose of supplementing the EU’s taxonomy regulation, i.e. the EU’s classification system for environmentally sustainable operations. One of these legal acts determines technical review criteria which shall clarify which operations contribute a majority of the EU’s environmental goals. The purpose is to increase the amount of green investments and to counteract so-called “greenwashing” – i.e. that businesses claim to be more sustainable than they actually are.

The technical review criteria will have consequences for businesses which want to perform environmentally sustainable investments, as well as those that want to attract investors who think green. It also follows from the new criteria that the EU and the member states’ national public authorities must use the new criteria in those cases where requirements are imposed in order to be entitled to refer to corporate bonds and financial products as “environmentally sustainable” in marketing material. In addition, some financial market actors have a sanctioned disclosure obligation concerning how large a share of a financial product which is environmentally sustainable in relation to the review criteria.

The EU’s climate taxonomy

The Taxonomy Regulation (2020/852) constitutes a common classification system for environmentally sustainable financial operations, i.e. a “green list”, which will help investors to identify and compare environmentally sustainable investments.

In order for a financial operation to be classified as environmentally sustainable it must:

  • contribute substantially to one or more of the environmental objectives which the Regulation determines;
  • not cause significant harm to any of the other environmental objectives;
  • be performed in compliance with certain minimum safeguards regarding social sustainability; and
  • conform to so-called technical review criteria which the EU Commission will determine through delegated legal acts (such as the one which is now adopted).

The Taxonomy Regulation requires that some larger operations of so-called public interest, which are included in the EU’s Accounting Directive (2013/34), submit reports regarding to what extent their operations are environmentally sustainable according to the Taxonomy Regulation. In addition, financial market actors who are covered by the EU’s Regulation 2019/2088 (on sustainability‐related disclosures in the financial services sector) in conjunction with sales of financial products, are obliged to provide information concerning how large a share of the underlying investment which is environmentally sustainable. In the event of failure to comply with this disclosure obligation, sanctions may be imposed. In Sweden, the Financial Supervisory Authority will monitor compliance with the disclosure obligation.

The technical review criteria

The new delegated legal act lists a number of financial operations within sectors which are responsible for a large part of the EU’s greenhouse gas emissions such as energy, transportation, forestry, manufacture and building construction. Technical review criteria are provided for each operation which determine whether the operation can be regarded as contributing substantially to two of the environmental objectives which have been determined in the Taxonomy Regulation, i.e. adaptation to climate changes and limitation of climate changes, as well as whether the operation causes significant harm to any of the other given environmental objectives. In the future, additional delegated legal acts will be adopted for the remaining environmental objectives and sectors.

The technical review criteria are many and detailed. For example, operations which encompass afforestation are required to have one plan for the planting and management and one analysis of its positive impact on the climate, whereas for the production and provision of electricity, requirements are imposed, inter alia, relating to the fact that emissions which occur in conjunction therewith do not exceed certain threshold values and that there is a plan for the recycling of waste.

The fulfilment of the technical review criteria will impact affected operations both administratively and financially. It is worth noting, however, that the criteria do not constitute requirements which must be fulfilled, but primarily are tools in order to classify whether a financial operation is environmentally sustainable. Thus, it is optional to fulfil the criteria.

At the same time, the operations which are covered by the Taxonomy Regulation are obliged, in different situations, to make public to what degree their own operation or financial product is environmentally sustainable in relation to the review criteria. According to the government, the reporting requirement is also expected to affect smaller undertakings which fall outside the scope of the Taxonomy Regulation. These smaller undertakings will probably be interested in showing that their operations are environmentally sustainable, notwithstanding that they are not obliged to make public any information pertaining thereto.

The EU Commission has also presented a delegated legal act which includes instructions governing which information which must be made public, as well as how the reporting shall take place.

It should further be noted that if the EU and/or the member states impose environmental requirements in order for a financial product or corporate bond to be permitted to be marketed as “environmentally sustainable”, such requirements must accord with the Taxonomy Regulation’s technical review criteria.


The delegated legal act regarding technical review criteria was formally adopted by the EU Commission at the end of May, beginning of June 2021. Following this, the European Parliament and the Council have a period of four months to review the legal act, a period which can be extended by two months. In the event the European Parliament and the Council do not have any objections, the delegated legal act will be applicable from and including 1 January 2022.

The Taxonomy Regulation itself will also be applicable from 1 January 2022, in relation to the two environmental objectives to which the delegated legal act concerning technical review criteria refers. For remaining environmental objectives, the Regulation does not begin to apply until 1 January 2023.

A link to the Commission’s draft delegated legal act regarding technical review criteria is available  here.