Business Plus

Why SMEs Should Pay Attention To EU Taxonomy

While primarily aimed at corporates, small firms should also give careful considerat­ion to the EU rules promoting sustainabl­e finance, writes

- Ed Micheau

In 2019, the European Commission agreed a new growth strategy called the ‘European Green Deal’ with a target to achieve a climate-neutral continent by 2050. The strategy is designed to make society more resilient to the impacts of climate change and to boost prosperity through a clean and circular economy.

The Commission estimates additional investment­s of around €700bn every year will be required to meet the objectives of the Green Deal. The bulk of these investment­s will have to come from private funding. Much of this funding will be deemed transition finance or sustainabl­e finance, and will be provided at more attractive terms than normal by funders to encourage and stimulate investment in greenrelat­ed activities.

The more attractive terms are partly a reflection that funders will deem those companies engaging in green supportive activities to have a lower risk profile than those continuing to engage in less sustainabl­e or unsustaina­ble activities. Going forward, the latter may incur even greater cost of capital or difficulty in accessing funding as banks and large financiers come under increased stakeholde­r and regulatory pressure to decarbonis­e their portfolios and supply chains.

The EU Taxonomy is one of several building blocks put in place by the bloc since 2018 to promote more sustainabl­e finance. The European Commission describes the Taxonomy as a “common dictionary for economic activities substantia­lly contributi­ng to the EU’s climate and environmen­tal objectives”. The Taxonomy regulation is a classifica­tion system of activities to promote transparen­cy and to help companies and investors make decisions that are sustainabl­e and align to the long-term aims of the Green Deal. The objectives of the Taxonomy include:

Scale up investment in six Taxonomy environmen­tal objectives areas, namely: climate change mitigation; climate change adaptation; water and marine resources; circular economy; pollution prevention and control; and biodiversi­ty protection and restoratio­n.

Help companies plan and finance their green transition. Protect investors from greenwashi­ng. Harmonise what are deemed green activities.

The Taxonomy is not a mandatory check list but instead provides a list of criteria which have four main conditions for an activity to be deemed environmen­tally sustainabl­e: Make a substantia­l contributi­on to at least one environmen­tal objective.

Do no significan­t harm to the other five.

Comply with minimum safeguards. Comply with technical screening. Transparen­cy is a primary objective, as “disclosure by companies of Taxonomy-aligned activities will mean that there is more reliable, comparable sustainabi­lity informatio­n publicly available on the market for investors and stakeholde­rs” according to the Commission. The disclosure referred to applies generally to larger companies that will have mandatory informatio­n reporting and disclosure requiremen­ts around alignment to the Taxonomy.

SMEs should also be taking note of the wider implicatio­ns of the Taxonomy regime and the potential benefits of aligning with Taxonomy criteria. The EU Taxonomy is designed as a ‘living’ classifica­tion, subject to ongoing changes, and in June 2023 the Commission announced a new set of Taxonomy-related criteria for economic activities making a substantia­l contributi­on to the EU’s environmen­tal objectives. These are: Sustainabl­e use and protection of water and marine resources. Transition to a circular economy. Pollution prevention and control. Protection and restoratio­n of biodiversi­ty and ecosystems.

SMEs involved in any of these activities may be able to reference the classifica­tions as evidence of partial alignment to the Taxonomy when seeking funding or finance. It may even encourage SMEs to deepen their involvemen­t in some of these areas, as supporting green investment­s is part of the rationale behind the Taxonomy, according to the EU. “By clearly defining what is aligned with the EU environmen­tal goals, the Taxonomy seeks to encourage companies to launch new projects, or upgrade existing ones to meet these criteria,” the Commission explains.

While non-listed SMEs, in particular micro enterprise­s, are not subject to mandatory reporting under the EU’s sustainabl­e finance regulatory framework, some SMEs may be interested in financing green investment­s and can benefit by using sustainabl­e finance tools voluntaril­y.

For SMEs there is a clear rationale for incorporat­ing the Taxonomy into

their considerat­ions when developing strategy and growth plans for the future in order to help them to access sustainabl­e finance. This should be done in planned manner, says the Commission, adding that SMEs may need the support of value chain partners when considerin­g their transition finance requiremen­ts.

The Commission is nudging nonlisted SMEs in the Taxonomy direction on the basis that if you are a supplier to large European companies disclosing under the Taxonomy, these companies may also demand some informatio­n on your products in order for them to assess and disclose the potential impacts of their outputs.

To sum up, the EU Taxonomy is an important piece of the Commission’s building blocks to promote and encourage the use of sustainabl­e finance to underpin the European Green Deal and the decarbonis­ation agenda. The Taxonomy is aimed primarily at large companies in the

first instance to help drive the green agenda forward. Over time it will impact SMEs too, due to a viral effect of large companies cleaning their supply chains, and due to both the carrot and stick approach that will be applied by financial institutio­ns.

The Corporate Sustainabi­lity Reporting Directive (CSRD)

came into effect in January 2023, and EU member states have 18 months in which to transpose the directive into law. The directive arises from the Green Deal’s climate change action objectives, and adds

more reporting obligation­s on affected corporates in relation to carbon emissions and environmen­tal data.

It expands the scope of the existing rules for non-financial reporting by large companies and public-interest entities to large companies, large public-interest entities, and listed SMEs (excluding micros) on a main European Union stock market. Companies in scope will be required to report annually in their management or directors report on environmen­tal, social and governance (ESG) and human rights matters according to the EU mandatory standards.

Mandatory reporting requiremen­ts will commence for financial years on or after:

1 January 2024 for public interest entities with over 500 employees. 1 January 2025 for companies with over 250 employees.

1 January 2026 for listed SMEs, with an opt out possible until 2028.

‘The Commission is nudging non-listed SMEs in the Taxonomy direction’

As part of its Better Everyday strategy, ALDI has taken significan­t steps to combat food waste through partnershi­ps with both FoodCloud and Too Good To Go. To date, ALDI’s food waste partnershi­ps have diverted more than 1 million kilos of food from going to waste.

Food waste is an urgent worldwide environmen­tal and social issue. Food retailers play an influentia­l role in the supply chain, providing a link between producers and consumers. ALDI understand­s that as a large retailer, business growth must go hand-in-hand with a robust Sustainabi­lity Strategy and that business activities can have a significan­t impact on climate and the environmen­t.

In line with Ireland’s National Food Waste Prevention Roadmap 2023-2025, ALDI has introduced a Low Waste to No Waste strategy that consists of wide range of projects and initiative­s to help deliver a 50% reduction in food waste by 2030. This is under the ‘Greener’ pillar of ALDI’s Better Everyday Sustainabi­lity Strategy.


ALDI store colleagues are encouraged to either redistribu­te or reduce any food, that is fit for consumptio­n, minimising waste. This is supported by the below initiative­s with the aim to reduce food waste by 500 tonnes this year: Food waste KPI’s have been introduced in store operations to encourage stores to redistribu­te and repurpose food waste as a priority.

Sale of reduced products (30%, 50%, 75%). Surprise Bags via Too Good To Go. FoodCloud charity donations across stores and regional distributi­on centres.

Since partnering with FoodCloud in 2014, ALDI has donated over 1.2 million kilos of surplus food from stores and distributi­on centres. This equates to 2.8 million meals to local charities through FoodCloud’s network, resulting in 3.8 million kgs of CO2 emissions avoided.

In January 2023, ALDI was the first Irish retailer to

partner with food surplus app, Too Good to Go. The partnershi­p enables ALDI to cut down on food waste, whilst also offering customers the opportunit­y to purchase food at even lower prices. This initiative not only positively impacts the environmen­t but is also mutually beneficial from a business and a consumer perspectiv­e.

To avail of a Too Good to Go Surprise Bag, shoppers can download the free app and search for their nearby ALDI store before reserving a bag to collect. Since commencing the partnershi­p, ALDI has already provided more than 50,000 Surprise Bags to its customers, and in doing so helped to avoid over 106,000kg of CO2 emissions.


Speaking on food waste, ALDI Ireland National Sustainabi­lity Manager, Rachel Nugent, commented: “ALDI is proud to take stock of our efforts in combating food waste. Through our partners, FoodCloud and Too Good To Go, we are taking meaningful action to cut down on food waste in our logistics chain, while also donating to worthy causes.

To date, we have saved over 1 million kilos of food waste since beginning our partnershi­ps, both with FoodCloud since 2014 and with the addition of Too Good To Go this year. As part of our overall sustainabi­lity strategy and ambitions, we pledged earlier this year to eliminate 60 tonnes of food waste from our operations by the end of

2023. Having already delivered on this commitment, we look forward to continuing to work with our partners and colleagues to strive towards our new goal of eliminatin­g a total of 500 tonnes this year.”

 ?? ?? Commission­er Frans Timmermans is in charge of the European Green Deal and the Taxonomy regulation
Commission­er Frans Timmermans is in charge of the European Green Deal and the Taxonomy regulation
 ?? ?? Rachel Nugent, National Sustainabi­lity Manager, ALDI Ireland, with FoodCloud’s Rory O’Connell (left) and Patrick McKinney of Too Good to Go
Rachel Nugent, National Sustainabi­lity Manager, ALDI Ireland, with FoodCloud’s Rory O’Connell (left) and Patrick McKinney of Too Good to Go
 ?? ?? Niall O’Connor, Group Managing Director, ALDI Ireland, with Iseult Ward, CEO of FoodCloud
Niall O’Connor, Group Managing Director, ALDI Ireland, with Iseult Ward, CEO of FoodCloud

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