Key takeaways
- Proposed measures to the EU taxonomy to make sustainability reporting more efficient, reducing costs and complexity for businesses and investors.
- Recommendations include streamlining 'Do No Significant Harm' (DNSH) reporting, introducing materiality thresholds, and allowing the use of estimates and proxies to bridge data gaps.
- A lighter reporting approach for SMEs ensures smaller companies can participate in sustainable finance without excessive compliance burdens, fostering broader adoption of the EU taxonomy.
Is sustainable finance at a crossroads? While the EU taxonomy has been instrumental in guiding capital toward greener investments, many companies and investors have struggled with its complexity. A new report from the Platform on Sustainable Finance seeks to change that.
By introducing key recommendations to simplify reporting and reduce the compliance burden, this initiative aims to make sustainable finance more accessible for financial institutions, corporations, and even small and medium-sized enterprises (SMEs).
For businesses and investors, navigating the EU taxonomy can be expensive, time-consuming and sometimes unclear. That is why it is necessary to strike a balance between rigorous sustainability standards and usability. We’ve recapped all the latest recommendations that the Platform of Sustainable Finance has proposed, targeting measures that maintain the taxonomy’s integrity while reducing complexity.
Key Simplifications in the EU Taxonomy Framework
1. Streamlining 'Do No Significant Harm' (DNSH) Reporting
Not all companies and investors operate under the same conditions. The report recommends a more tailored approach, adjusting DNSH reporting requirements based on:
- The type of entity (financial vs. non-financial)
- The type of activity (turnover vs. capital expenditures)
- Geographical exposure (EU vs. non-EU operations)
2. Introducing a Materiality Principle
A more risk-based approach to disclosures means that only material aspects of sustainability will require extensive reporting. Some key proposals include:
- Materiality thresholds for key performance indicators (KPIs)
- A simplified DNSH approach for turnover-based activities
- Clearer guidelines for operational expenditure (OpEx), focusing only on R&D activities
3. Clear Guidelines for the Use of Estimates and Proxies
Data gaps are a major challenge for sustainable finance. The proposal recommends:
- Allowing estimates and proxies for Green Asset Ratios (GAR) and Green Investment Ratios (GIR)
- Creating "safe harbors" to ease compliance for financial institutions
- Simplifying taxonomy assessments for retail investments
4. Easing the Burden on SMEs
Smaller companies often lack the resources for complex sustainability reporting. A voluntary, light-touch approach for SMEs would encourage participation without excessive compliance costs.
What’s Next?
These recommendations are based on real-world market practices, pilot projects, and stakeholder feedback. The goal? Make the EU taxonomy a powerful but practical tool that drives real impact without unnecessary bureaucracy.
At Datia, we help investors and financial institutions simplify sustainable finance. If you're looking to navigate the EU taxonomy effortlessly, our platform is built to make compliance seamless.
