This paper explores how investors are implementing the EU Sustainable Finance Taxonomy. The three main objectives are to:

  • Highlight examples of advanced practice;
  • Support collective problem solving by outlining common challenges and possible solutions; and
  • Encourage policy makers and supervisors to provide additional guidance to financial market participants.

This paper is a follow up to the PRI’s original Testing the Taxonomy report, published in September 2020. It featured more than 35 case studies produced by members of the PRI Taxonomy Practitioners Group (TPG). Established in 2019, the TPG is a group of around 40 PRI signatories that came together to trial the EU taxonomy framework.

You can read our complementary EU taxonomy briefing here.

The EU taxonomy in brief

What is the EU taxonomy?

The EU taxonomy is a tool to help investors, companies, issuers and project promoters navigate the transition to a low-carbon, resilient and resource-efficient economy. The taxonomy sets performance thresholds (referred to as ‘technical screening criteria, or TSC’) for economic activities which:

  • make a substantive contribution to one of six environmental objectives;
  • do no significant harm (DNSH) to the other five, where relevant; and
  • meet minimum safeguards (e.g. OECD Guidelines on Multinational Enterprises and the UN Guiding Principles on Business and Human Rights).

PRI_Implementing the taxonomy

Source: Final report of the Technical Expert Group on Sustainable Finance (March 2020)

The EU taxonomy Regulation (2020/852) was adopted in June 2020. It outlines how to identify sustainable economic activities that align with one or more of six environmental objectives: climate change mitigation; climate change adaptation; 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.

Delegated Acts

Once an EU law is passed, it is necessary to ensure that it is implemented properly. To do this, the European Parliament and European Council can authorise the European Commission to adopt delegated acts, which provide these details. 

Delegated acts that are proposed by the European Commission are subject to a four to six-month scrutiny period. During this time, the European Parliament and European Council assess whether they approve or reject the act.

A delegated act can only enter into force once the European Parliament and the European Council have approved it and it has been published in the Official Journal, a list of all EU legislation. 

The Platform on Sustainable Finance (PSF) advises the European Commission on how to develop the TSC in the delegated acts. The PSF was set up under Article 20 of the taxonomy regulation and consists of financial market participants, businesses, academics and members of civil society.

Who does the EU taxonomy regulation apply to?

There are three main groups EU taxonomy rules apply to:

  • Financial market participants, including occupational pension providers, offering financial products in the EU;
  • Large companies which are required to report under the Non-Financial Reporting Directive (NFRD), which is set to be revised by the CSRD; and
  • The EU and its member states.

Financial market participants offering products in the EU that contain investments pursuing an environmental objective are required, for each relevant product, to disclose the proportion of underlying investments that are taxonomy-aligned.

Financial market participants offering financial products in the EU that do not promote or pursue sustainability-related objectives can either make EU taxonomy disclosures voluntarily or issue a statement that the financial product in question does not take into account the EU criteria for environmentally sustainable economic activities. In other words, they can disclose voluntarily or explain that they have chosen not to. 

What is the connection between the EU taxonomy and the Sustainable Financial Disclosure Regulation?

The Sustainable Financial Disclosure Regulation (SFDR), adopted in 2019, sets out the overarching framework for sustainability-related disclosures in the financial services sector at entity and product levels. The taxonomy regulation and the SFDR both apply to the same categories of funds and are designed to be complementary.

The EU taxonomy is the central tool for assessing the sustainability claims made under SFDR. Financial market participants marketing products with investments that pursue an environmental objective must disclose how and to what extent the EU taxonomy has been used in determining the sustainability of the underlying investments, the environmental objective(s) to which the fund contributes and the percentage of the underlying investments that are taxonomy-aligned (Articles 5 and 6 of the taxonomy regulation).

The draft Regulatory Technical Standards (RTS), published by the European Supervisory Authorities in October 2021, detail what the product-level taxonomy disclosures should entail and how they should be presented in pre-contractual and periodic documents. The RTS are expected to be fully adopted by the European Commission in 2022. Once formally adopted, the RTS will function as a ‘single rulebook’ for sustainability-related disclosures. 

What are investors using the framework for?

One of the primary uses is to measure the environmental performance of investment products. The framework can also be used by investors to: 

  • Assess beneficiaries’ sustainability preferences;
  • Identify sustainable investment opportunities;
  • Conduct due diligence on current and potential holdings;
  • Design green financial products;
  • Guide stewardship activities; and
  • Measure sustainability outcomes of an investment portfolio.

PRI_Implementing the taxonomy_2022_02

Figure 1: Number of PRI signatories using reference frameworks to measure sustainability outcomes in 2021

Data from the 2021 PRI reporting cycle shows that around 400 PRI signatories were already using the EU taxonomy to measure sustainability outcomes that year. Around 80% of the signatories were headquartered in Europe. The data was collected before EU taxonomy reporting became mandatory and when many of the key aspects of the framework were still in development. However, these findings underline the taxonomy’s potential to drive investment decisions towards sustainability goals. The number of investors using the EU taxonomy to measure outcomes is set to rise as the framework develops and additional reporting requirements come into force.

Key policy updates

This section covers key policy updates and proposed developments since the PRI’s Testing the Taxonomy report was published in September 2020.

Policy update timeline

April 2021

European Commission adopts CSRD proposal

In April 2021, the European Commission adopted a proposal for a new CSRD that would, if passed, revise the NFRD. Under current proposals, the directive would apply to large companies and companies listed on regulated markets (except listed micro-enterprises). Taxonomy reporting would be mandatory for all companies within the scope of CSRD.

Key differences between the NFRD and the proposed CSRD

Non-Financial ReportingDirective (NFRD)Corporate SustainabilityReporting Directive (CSRD)
  • The NFRD applies to large, listed companies, banks and insurance companies (‘public interest entities’) with more than 500 employees
  • Around 11,000[1] companies are required to report under the NFRD
  • The NFRD was adopted in 2014
  • The CSRD would apply to large and listed companies (except for micro-companies). A large company is defined as meeting two of the following criteria: (1) EUR€40 million in net turnover, (2) EUR€20 million on the balance sheet, (3) 250 or more employees
  • Around 50,000 companies would be required to report under the CSRD

July 2021

PSF publishes draft TSC for the remaining four environmental objectives

In July 2021, the PSF published draft technical screening criteria for the four remaining environmental objectives (sustainable use and protection of water and marine resources; transition to a circular economy; pollution prevention and control; and protection and restoration of biodiversity and ecosystems). The comment period on the draft RTS ran from August to late December 2021.

November 2021

Commission adopts proposal for European Single Access Point

In November 2021 and after a consultation, the European Commission adopted a legislative proposal for an European single access point (ESAP) – a central hub into which companies would be able to report entity-level taxonomy alignment data. This is the first step of the legislative process, and the proposal is now in the hands of the European Parliament and the European Council. Once an agreement is reached between institutions, the legislation will enter into force. The ESAP is expected to become operational by 31 December 2024.

December 2021

Commission adopts Taxonomy Disclosures Delegated Act

A delegated act was adopted in December 2021 for Article 8 of the taxonomy regulation. This article defines reporting requirements at entity level for companies that fall under the scope of the NFRD (which is set to be revised by the CSRD).

The Taxonomy Disclosures Delegated Act introduced the term ‘taxonomy-eligible economic activities’. This is defined as the share of economic activities that are described in the Commission’s delegated acts, but that do not yet meet the relevant TSC”. This is different from taxonomy-aligned economic activities, which need to meet the relevant TSC, and hence represent a much smaller share of an entity’s total economic activities.

The DA also introduced phased requirements for entity-level reporting:

  • As of 1 January 2022, for the reporting period 2021, only qualitative information and the proportion of taxonomy-eligible activities in relation to total activities must be disclosed.
  • As of 1 January 2023, for the reporting period 2022, full taxonomy alignment disclosures will apply to non-financial undertakings.
  • As of 1 January 2024, for the reporting period 2023, full taxonomy alignment disclosures will apply to financial undertakings.

The European Commission has published an FAQ on the Disclosures Delegated Act and the PSF has also published guidance on entity-level taxonomy disclosures. 

Taxonomy Climate Delegated Act passes into law

A delegated act for climate mitigation and adaptation was adopted in December 2021. Financial market participants offering products in the EU that contain investments pursuing environmental objectives have been required to report their taxonomy alignment against the TSC included in this delegated act since 1 January 2022. To help with taxonomy disclosures, investors can use the draft RTS.

February 2022

PSF consults on social taxonomy and taxonomy extension

In February 2022, the PSF released a report setting out the proposed structure for a social taxonomy. One of the main aims of a social taxonomy would be to help investors identify opportunities to finance solutions that ensure decent work, inclusive and sustainable communities and affordable healthcare and housing.

The publication of the social taxonomy report follows on from a consultation that was conducted during the second half of 2021. At the same time the PSF invited comment on its draft social taxonomy report, it published a public consultation report on a Taxonomy extension linked to environmental objectives. An extended taxonomy aims to go beyond economic activities that significantly contribute (SC) to environmental objectives: it could include significantly harmful (SH) activities, intermediate activities (between SC and SH) and no significant impact (NSI) activities. Therefore, it can support the transition away from SH activities towards “intermediate” and “sustainable” activities.

Following the publication of the social taxonomy and extended taxonomy proposals, the European Commission must prepare a report that outlines if and how it intends to respond.

European Commission proposes including nuclear energy and natural gas in the taxonomy

On 2 February 2022, the European Commission proposed a Complementary Climate Delegated Act covering nuclear energy and gas-fired power, cogeneration, and district heating / cooling.

This delegated act needs to be approved (or rejected) by the European Parliament and European Council before entering into force. If approved, it will amend the initial Climate Delegated Act (see below), and reporting against the criteria will be due by January 2023. The PRI’s position paper on alternative solutions to including gas-fired power and nuclear energy in the EU taxonomy is available here.

March 2022

PSF publishes draft TSC for the remaining four environmental objectives

On 30 March 2022, the PSF published its proposed TSC for the four remaining environmental objectives: sustainable use and protection of water and marine resources; transition to a circular economy; pollution prevention and control; and protection and restoration of biodiversity and ecosystems. This proposal will informthe European Commission’s delegated act.

European Commission proposes including nuclear energy and natural gas inthe taxonomy

On 29 March 2022, the PSF published a final report on the extended environmental taxonomy. An extended environmental taxonomy would cover four additional types of economic activities: unsustainable performance requiring an urgent transition to avoid significant harm; intermediate performance; unsustainable, significantly harmful performance where urgent, managed exit / decommissioning is required; and low environmental impact activities.

Following the publication of the extended environmental taxonomy report, the European Commission must prepare a report that outlines if and how it intends to respond.

Recommendations for practitioners

The below section sets out some of the most common implementation challenges, and how investors can address and mitigate them. The recommendations stem from TPG members and do not constitute formal guidance. Investors should recognise that data availability and quality are set to improve substantially as reporting becomes mandatory for a broader set of companies.

Read the recommendations




  • The data required to calculate KPIs is not always available.
  • Non-financial market participants are only required to disclose taxonomy eligibility in 2022.
  • Data is particularly limited for non-EU companies and SMEs.


Raise awareness of the benefits of reporting during engagements with companies that fall outside the scope of SFDR and NFRD, including smaller companies and firms operating outside the EU.


  • Revenue figures often are not segmented by activity type.
  • A lack of expenditure data is limiting assessments of climate change adaptation.
  • Use-of-proceeds breakdown is often not available for green bonds.


  • Engage with investees to request disclosures / verification of data on taxonomy-aligned revenues, capital expenditure and operating expenses.
  • If using data from third-party providers, conduct due diligence on the assessments. Take the time to understand the data providers’ methodology, coverage, terminology and any assumptions they may be making in their assessments.


Available data may not match taxonomy classification requirements and may not be sufficiently relevant or reliable.



  • Have regular check-ins with the data vendors to keep up-to-date with any methodological changes and raise questions regarding assessments.
  • Only include substantiated figures and be clear on data limitations.



Applying criteria to non-EU investments

Many of the TSC reference EU standards relevant to specific economic activities. Assessing non-EU investments against these standards can be challenging as, in many cases, there is no information on whether issuers are meeting these standards.

Applying criteria to non-EU investments

Engage with policy makers and supervisors on developing ‘correspondence tables’ between taxonomy criteria, existing certification schemes and other non-EU standards.


Some screening criteria are not clear to practitioners and / or involve interpretation. Take forestry activities as an example. The DNSH criteria for most of these activities require minimising the use of pesticides and fertilisers, but do not clarify to what extent. Is complying with local regulations and third-party forest certification schemes sufficient, or is there a specific threshold that needs to be complied with? There are many similar points on which investors are seeking clarification.


  • When calculating KPIs, seek evidence to support any assumptions, build an audit trail and be transparent about processes.
  • Engage with companies on how to interpret criteria.
  • Consider using third-party validators to verify taxonomy alignment disclosures.



In some TSC, timeframes are set out for meeting thresholds or taking action. Some investors have expressed uncertainty over what start and end dates should be used for assessing whether specified conditions are met.


Timeframes, definitions, multiple layers of criteria, sovereigns, coverage

Engage with policy makers and supervisors on developing the screening criteria and the scope and content of the taxonomy.

Multiple layers of criteria

Investors with certain products classified under Articles 8 and 9 of SFDR are required to conduct two levels of DNSH assessments. Investees need to be assessed at entity level, based on principal adverse impacts (PAIs) as defined by the SFDR regulation.1  Investors also need to assess economic activities of the underlying holdings against the DNSH criteria set out in the EU taxonomy regulation.



There is no methodology in place to calculate the taxonomy alignment of sovereign exposures.2



Some activities that potentially contribute to climate change adaptation and mitigation, including relevant agricultural activities, are currently not included in the EU taxonomy.




Resource requirements

Implementing the taxonomy can be resource- intensive.

Resource requirements

  • Encourage cross-functional collaboration between investment teams, data specialists, compliance, and others, to promote efficiency.
  • Start small-scale. Use existing processes and resources, then build and adjust a framework to support a full roll-out.
  • Consider using a data provider to build on existing capabilities and adopt a pragmatic approach based on available data.

Uncertainty over deadlines

Reporting deadlines are not always clearly communicated and are, in some cases, subject to change.


Uncertainty over deadlines

  • Engage with supervisory bodies to seek clarification.
  • Reporting ‘test runs’ often surface technical issues and other problems. The earlier these tests can be conducted, the greater the scope to resolve the issues ahead of cut-off dates.

Evolving standards

There are frequent updates to the regulation and to the TSC.


Evolving standards

Conduct regular training for teams involved in taxonomy implementation, covering how the framework is evolving.

Disclosure templates

Investors have to make product-level disclosures before the reporting templates for these disclosures have passed into law. Disclosure templates are included in the draft Regulatory Technical Standards that set out the content and presentation of disclosures under SFDR, but are yet to be formally adopted.


Communicating with end investors


Manage investor expectations

In many cases, end investors expect the taxonomy alignment KPIs of financial products to be higher than they currently are.

Manage investor expectations

  • Provide written explanations to contextualise alignment KPIs.
  • Educating end investors about the taxonomy. Explain how the framework works and outline economic activities it currently does, and does not, cover.

Advanced implementation practices

The below section details advanced steps investors are taking to navigate challenges in implementing the taxonomy and actions to harness the full breadth of opportunities offered by the framework.

Establish cross-functional working groups

Many TPG members are keen to stress the importance of collaboration. Responsibility for implementing the regulation needs to be shared across departments if efforts are to be successful.

Investment managers are forming multi-disciplinary taskforces to coordinate implementation. For example, Neuberger Berman’s cross-functional working group encompasses investment and data governance teams. Members of SEB Investment Management’s ‘ESG workstream’, which includes investment staff specialising in a range of different asset classes, helps to steer its implementation strategy.

TPG members recommend taking a holistic approach to implementation. Teams focused on investment, compliance, data governance, technology and automation, communications, client services, and others all have a role to play in a comprehensive implementation strategy.

Report provisionally ahead of deadlines

Reporting ‘test runs’ often surface technical issues and other problems. The earlier these tests can be conducted, the greater the scope to resolve the issues ahead of cut-off dates.

By sharing provisional assessments with institutional investors, investment managers can help drive understanding and uptake of the EU taxonomy. Of course, such reporting needs to include the necessary caveats about the KPI figures being produced on a best-efforts basis. But, even with such caveats, they still serve a purpose.

Foresight Group started sharing provisional EU taxonomy KPIs in relation to climate change mitigation and adaptation with investors in its flagship fund before disclosure became mandatory. Part of the rationale was to help familiarise investors with the framework and the level of alignment. “One of our principles has been to approach this with transparency,” says Jai Mallick, an associate at Foresight Group.

Reducing emissions, and protecting natural capital more broadly, are acutely time-sensitive tasks. Proactive reporting demonstrates that investors see the EU taxonomy not merely as a compliance exercise but also as a powerful mechanism for improving environmental performance.

Integrate the EU taxonomy systematically into the investment process

A wide range of investors are using the EU taxonomy to assess potential risks, opportunities and outcomes.

One step TPG members are taking to ensure that the taxonomy is incorporated into investment decisions systematically is to make taxonomy data easily accessible to all investment staff, including those that do not work on sustainability-focused strategies. In practice, this involves ensuring taxonomy alignment assessments are automatically fed into portfolio management software and included in investment dashboards of all investment team members.

“Making the data available in people’s existing environments – in Aladdin, for example – is a form of best practice,” says Hank Elder, ESG and Impact Investing Vice President at Neuberger Berman. “The data can’t just be an output: it needs to be used from the outset, which is why it needs to be available in as many places as possible.”

Another means of integrating the framework into investment decisions is creating a set of taxonomy-related ratios. One TPG group member referenced looking at the ratio of companies’ aligned activities to their eligible activities, which provides an insight into companies’ ability, and / or willingness to participate in the transition to a low-carbon economy. The ratio enables investors to identify companies that could be doing more to align with the taxonomy, with the information providing the basis for future engagement.

Incorporate the taxonomy in product design

The EU taxonomy’s detailed TSC provide a strong foundation for product design.

As more investors commit to aligning their portfolios with the goals of the Paris Agreement, demand for net-zero investment strategies is growing. Several TPG members report incorporating the EU taxonomy framework into net-zero investment strategies.

“Many have signed up to be net zero by 2030, 2040 or 2050. We need a structured way to get there. The taxonomy offers a science-based structure,” says Andreas Johansson, Head of the Quantitative Equity Team SEB Investment Management.

In the immediate term, product innovation is focused on climate change mitigation and adaptation. Investors also see the opportunity to use criteria for the four remaining environmental objectives to guide new investment strategies. “The biodiversity mapping is going to be particularly interesting as this is an area that’s starting to receive a lot of investor attention,” says Suzanne Tavill, Head of Responsible Investing at StepStone. 

Conduct due diligence on data provider assessments

The draft SFDR Regulatory Technical Standards (RTS) set out rules on when investors can use third-party data in their product-level EU taxonomy disclosures. The rules state that “public reporting data should be prioritised” but allow for the use of information provided directly from investee companies or third parties when there is no public reporting data available and when the information provided is “equivalent” to disclosures made under Article 8 of the EU taxonomy regulation.

There are several steps investors can take to ensure external assessments are robust. One is to bring in a range of providers to tender for contracts covering taxonomy data. This enables comparison of providers in relation to key elements of their offering, including methodology, data assurance processes and coverage.

SEB Investment Management and La Financière de l’Echiquier (LFDE) are among the TPG members that report using two different providers of taxonomy assessments. Having multiple providers allows investors to compare assessments of the taxonomy alignment of individual holdings. When there are notable differences in scores for the same entity, the next step is to ask the data vendors about the discrepancies to check if they are due to methodological differences or data errors.

Some investors have in-house research analysts, who have strong knowledge of specific issuers, assets and check taxonomy alignment assessment provided by data vendors. LFDE highlights the impact such checks can have: SPIE, an engineering solutions provider, began self-reporting its taxonomy alignment ahead of the implementation deadline, stating that 41% of its revenue was aligned with the EU taxonomy. Despite the disclosure, a data provider incorrectly assessed the company to have no taxonomy-eligible revenues. LFDE engaged with the provider regarding the assessment, which was subsequently revised.

Obtain external validation

Obtaining external validation of EU taxonomy assessments is not mandatory, but it is a step that numerous practitioners are taking to provide additional assurance to end investors. This step appears particularly common amongst private markets-focused practitioners investing in assets or companies that are not in the scope of the NFRD.

“Third-party validation is worth more in terms of communicating to investors. It has more impact and it’s more credible,” says Henry Morgan, Sustainable Investment Manager at Foresight Group, which has obtained external validation of the taxonomy alignment of its flagship sustainable infrastructure fund.

Conduct taxonomy-focused stewardship

Engagement is an important means by which investors can enhance their portfolios’ taxonomy alignment. Most TPG members interviewed report having dialogues with investee entities about their taxonomy disclosures.

Impax is one investment manager that is planning multiple taxonomy-focused engagements. It intends to reach out to a broad swathe of its holdings to request that they publish data at economic activity-level to fill the data gaps. Impax will also be conducting focused engagements with its companies. For example, one of its investee companies, a Nordic industrials group with involvement in heating technology solutions, is classified as having low levels of taxonomy alignment due to falling short of ‘significant contribution’ criteria. In response to engagement questions, Impax received assurances that the company was acting to ensure the criteria would be met in coming years.

“Engaging with companies is very important because the whole of the industry is building capacity right now and we need to bring our companies along by sharing with them the questions which we need to answer,” says Thea Cheung, Sustainability Research and ESG Analyst at Impax.

Support capacity-building

The EU taxonomy can serve as an important tool to combat accusations of greenwashing. It can be used to highlight the scientific foundations of sustainability claims made by investors. In recognition of this, practitioners are working to promote understanding and adoption of the framework.

“Using the EU taxonomy framework is a good way of demonstrating objectivity and providing transparency,” says Andreas Johansson, Head of the Quantitative Equity Team at SEB Investment Management. The Sweden-headquartered firm has held online discussions on the EU taxonomy involving academics and asset owners to educate market participants.

Investment managers are also collaborating with their peers to develop implementation practices. By participating in initiatives such as the PRI’s TPG, and through contributing to discussions in conferences and forums, investors are strengthening their collective understanding of the EU taxonomy.

“We’re all trying to solve the same problem, so it’s not a case of trying to get some kind of competitive advantage over each other,” says Sarah Peasey, Director of European ESG Investing at Neuberger Berman. 

Participate in the policy-making process

The EU taxonomy regulation will continue to evolve. Through contributing to policy design, organisations can support their own implementation efforts.

The European Commission routinely seeks input from the industry on the EU taxonomy regulation and its broader Sustainable Finance Action Plan. The Commission also provides opportunities for investors to put forward staff to sit on expert advisory groups. Organisations can therefore help to ensure the rules are workable and feasible.

PRI signatories that are looking to develop their policy engagement work can sign up to the PRI policy newsletter or email [email protected] for information.

Recommendations for policy makers and supervisors

  • Provide additional clarity on timelines. There has been significant uncertainty surrounding deadlines for taxonomy disclosure. Regular and clearly-worded updates on timelines should be provided to investors, preferably through a dedicated webpage. These resources should clarify the difference between entity and product-level disclosures and explain different requirements related to the sfdr and taxonomy regulation.
  • Facilitate data collection. The proposed creation of an esap is set to reduce the resources and costs required to source taxonomy data. Based on interviews with tpg members, there appears to be strong investor support for this proposal.
    • Maintain the proposal for the CSRD to cover listed SMEs and large undertakings as this would help address data availability issues.
    • In the absence of public taxonomy data, guidance should clarify under which circumstances information is deemed “equivalent” to disclosures made under Article 8 of the EU taxonomy regulation.3
  • Offer additional guidance on how to interpret criteria. Worked examples of taxonomy alignment calculations should be provided across asset classes. There should also be a channel through which investors can pose questions.
  • Provide additional guidance to support assessments of non-EU issuers and assets. It is recommended that comprehensive correspondence tables are developed by policy makers to map EU standards referenced in the taxonomy to non-EU standards.
  • Enable investors to communicate limits of analysis and underlying data. The sequencing of reporting requirements means many investors will have to report based on partial data over the coming years. Until requirements under the taxonomy Article 8 Delegated Act and the CSRD fully enter into force, reporting templates should allow investors to outline any assumptions they have had to make in calculating KPIs.