Contents of the Package

  1. The EU Taxonomy Climate Delegated Act will classify which activities contribute to climate change mitigation and adaption for the purposes of the Taxonomy Regulation.
  2. Six amending Delegated Acts will provide that financial firms, such as investment advisers, asset managers or insurers, include sustainability in their procedures and their investment advice to clients.
  3. The new Corporate Sustainability Reporting Directive (CSRD) revisits the rules introduced by the Non- Financial Reporting Directive (NFRD) and aims to ensure companies provide consistent and comparable sustainability information to investors and the wider market.

Taxonomy Delegated Act

As readers will be aware, the EU taxonomy is a flagship project of the EU aiming to provide a unified classification system for “green” and “sustainable” economic activities. It is a key part of the package of measures designed to deliver on the EU’s sustainability objectives, including reorientating capital flows towards a sustainable economy. The taxonomy aims to support sustainable investment by making it clearer which economic activities contribute to meeting the EU’s environmental objectives i.e. setting out a classification system which investors and businesses can use to determine whether an economic activity is sustainable.

Disclosure obligations are defined in the Taxonomy Regulation itself and the Delegated Acts are intended to set out criteria to help market participants determine what can be considered as “taxonomy-aligned” for the purposes of these disclosures i.e. can an activity be considered to (i) make a substantial contribution to climate change mitigation and climate change adaptation, and (ii) do no significant harm to other environmental objectives?

The taxonomy cannot apply in practice until the technical screening criteria for the relevant objectives have been adopted; the Delegated Act published in April presents a first set of technical screening criteria that financial institutions and companies will have to follow for climate-related objectives while preparing their taxonomy-related disclosures. The first set of technical screening criteria define which activities contribute substantially to two of the six environmental objectives under the Taxonomy Regulation: climate change adaptation and climate change mitigation (the other four objectives being the sustainable use and protection of water and marine resources, the transition to a circular economy, pollution prevention and control, and the protection and restoration of biodiversity and ecosystems).

The taxonomy will continue to develop over time to take into account developments and technological progress. The criteria will be subject to regular review to ensure that new sectors and activities, (including transitional and enabling activities) can be added.

Taxonomy controversy

The European Commission has spent over three years working on this classification system so far. This timeline has been extended by controversy. For example:

  • countries reliant on fossil fuels for their energy needs want natural gas to be “taxonomy-aligned” as they plan to use natural gas to transition away from using dirtier fossil fuels such as coal;
  • nuclear energy backers maintain that excluding nuclear power from the taxonomy is not science-based (and Article 19 of the Taxonomy Regulation specifically says that the technical screening criteria must be based on conclusive scientific evidence); and
  • climate campaigners say energy industry interests has led to a counterproductive decision to relax taxonomy rules for forestry and bioenergy (e.g. wood burning energy production).

For the time being, neither nuclear energy nor natural gas have been included and the agricultural sector will be included in the next delegated act rather than this one. The delay to covering gas and nuclear technologies has prompted criticism from stakeholders; for example in its Statement on European Commission sustainable finance package, Finance Watch quoted its head of research and advocacy, Thierry Philipponnat: “Economic and political interests have diluted the criteria, conjuring them outside the science-based approach followed by the Technical Expert Group (TEG) and required by the regulation.”


The Taxonomy Delegated Act will now progress through the EU adoption and scrutiny process. Assuming this process completes as planned within the next four to six months, then the technical screening criteria in the Taxonomy Delegated Act will apply from 1 January 2022.

Amending Delegated Acts

The April Package’s Amending Delegated Acts make changes to the existing Delegated Acts under the Collective Investment in Transferable Securities (UCITS) Directive, Alternative Investment Fund Managers (AIFM) Directive, Markets in Financial Instruments Directive (MiFID), Insurance Distribution Directive (IDD) and Solvency II.

Under existing rules, advisers obtain information about a client’s investment knowledge and experience, financial situation, ability to bear losses, investment objectives and risk tolerance (a “suitability assessment”). The amended Delegated Acts mean that advisers will also have to obtain information about their clients’ sustainability preferences as part of the suitability assessment.

In addition, the amendments to the Delegated Acts set out obligations for financial firms when assessing their own sustainability risks and include updates to rules on investment and insurance product governance requiring that firms consider sustainability factors when designing products.


Subject to the completion of the scrutiny process by the European Parliament and the EU Council, it is expected that the amended versions of the Delegated Acts will apply from October 2022.

Corporate Sustainability Reporting Directive

This proposal aims to improve the flow of sustainability information from corporates. It is intended to make sustainability reporting by companies more consistent, so that finance firms, investors and the public have access to reliable and readily comparable sustainability information (in the same way they have access to financial reporting).

The proposal revises existing rules introduced by the NFRD which require listed companies, banks and insurance companies with more than 500 employees to produce non-financial statements.

The proposed CSRD:

  • extends the scope of the EU’s sustainability reporting requirements to all large companies (as defined by the Accounting Directive) and all companies listed on regulated markets (except listed micro-enterprises);
  • introduces more detailed reporting requirements, and a requirement to report according to mandatory EU sustainability reporting standards;
  • requires the audit (assurance) of reported information (aiming to ensure that reported information is accurate and reliable);
  • requires companies to digitally ‘tag’ the reported information, so that the information is machine readable and feeds into the European single access point envisaged in the capital markets union action plan.

It is interesting to note that medium-sized companies remain out of the scope of mandatory sustainability-related disclosures (despite the fact that such companies can have a significant impact on ESG factors).


The next step for the draft CSRD is for the Commission to engage in discussions with the European Parliament and EU Council to negotiate a final legislative text of the directive. If approved, the CSRD, as an EU Directive, will require transposing legislation in EU member states, including Ireland.

If agreement is reached on the legislative text in the first half of 2022, the Commission should be able to adopt the first set of reporting standards under the new legislation by the end of 2022, this would mean that companies would apply the standards for the first time to reports published on or after 1 January 2024, covering financial years commencing on or after 1 January 2023.  The Commission has sent a letter to the European Financial Reporting Advisory Group (“EFRAG”) requesting that the EFRAG begin work on the sustainability reporting standards envisioned in the CSRD proposal.