EU Platform Proposes Updates to Simplify Taxonomy Reporting

The Platform on Sustainable Finance is an advisory body to the European Commission. Their recently published comprehensive report sets out evidence-based recommendations to streamline and improve the EU taxonomy reporting framework. These focus on simplifying key assessment processes, further refining KPIs for calculations, and therefore supporting Small and Medium Enterprises to meet their sustainability disclosure requirements. The proposed changes form part of continuous efforts to make the EU taxonomy practical, market-aligned, and effective in encouraging the adoption of sustainable finance.

One of the main recommendations is the simplification of the "do no significant harm" assessment, which is a critical element of the EU taxonomy. The advisory body recommends that the assessment process be adapted to different types of entities, such as financial and non-financial organizations, and differentiated based on factors such as usage, including turnover and capital expenditure, as well as geographic exposure, particularly between EU and non-EU markets. These refinements are expected to reduce the complexity and administrative burden associated with sustainability reporting, making it more accessible and efficient for businesses across sectors.

Another key recommendation is the introduction of materiality principles for all reporting entities. This includes setting clear thresholds for KPIs and simplifying the DNSH assessment for turnover-related KPIs. The report aims to establish standardized thresholds, which will enable companies to have a better understanding of their reporting obligations, thereby improving the accuracy and consistency of sustainability disclosures. The advisory body also proposes clarifications on KPI calculations, particularly concerning operational expenditures (OpEx). It promotes that the reporting compulsory scope be restricted to particular categories, like R&D expenditures, which would reduce the reporting complexity.

Data access and estimation procedures are also covered in the report. The Platform on Sustainable Finance highlights that clear instructions on estimates are required within the scope of taxonomy. It advocates for safe harbors on reporting in the financial sector so that companies get legal protection if they use reasonable estimates for sustainability data. Furthermore, the report recommends an extension of the usage of proxies and estimates for determining key metrics like GAR and GIR. Another measure suggested is to reduce the complexity of retail assessments so the taxonomy can be more user-friendly for different stakeholders.

Supporting SMEs is a central focus of the suggestions. The Platform on Sustainable Finance understands that small firms, banks, and investors will face difficulty in adhering to the EU taxonomy because it proposes voluntary and simplified reporting approaches. These are aimed at lightening the regulatory burden on SMEs to enable their full and active involvement in sustainability reporting. The report underscores the need for the integration of the taxonomy into SME disclosures in a way that is manageable yet meaningful as a step toward greater inclusivity in sustainable finance practices.

The recommendations expand on the previous work of the Platform on Sustainable Finance, which includes the guidelines on data and usability from 2022 and the compendium of market practices from 2024. The latest report by the advisory body aims to ensure that the taxonomy remains in line with market needs and continues to be a practical tool for driving sustainable investments. The Platform addresses the key challenges and proposes targeted solutions to enhance the usability and effectiveness of the EU taxonomy framework.

The European Commission will review and consider the recommendations during its process of implementing better regulatory coherence. Such practices are expected to promote the understanding of sustainable finance among all the entities in the EU, thus enhancing how businesses, investors, and financial institutions can manage their activities in consonance with the sustainability objectives of the EU. This is likely to bring about major business, investment, and financial sector changes once the recommendations are adopted.

As sustainability becomes an ever-closer focus for the global financial system, the EU taxonomy is shaping and directing all investment decisions and driving business practices toward greater environmental responsibility. The present report on action-based recommendations by the Platform on Sustainable Finance marks a critical step in ensuring that the taxonomy will always be dynamic and effective for all the goals that it seeks to achieve for the EU. Stakeholders across the financial and business sectors will be closely watching the European Commission’s response to these recommendations and the potential regulatory changes that may follow.