The EU Commission has simplified its Sustainability Taxonomy, a crucial classification system for guiding investments in environmentally sustainable economic activities.
The commission is implementing a comprehensive overhaul from January 2026 to reduce administrative and reporting burdens on companies, thereby enhancing corporate competitiveness.
The new measures reduce the number of data points required in the taxonomy’s reporting templates, slashing them by 64% for non-financial companies and 89% for financial companies.
Crucially, the updated rules also exempt companies from assessing taxonomy alignment for economic activities that are not financially material to their businesses. For non-financial entities, activities are considered non-material if they account for less than 10% of revenue, capital expenditure (CapEx), or operational expenses (OpEx). Financial companies also benefit from a similar materiality threshold for their financial assets.
“Today we take a decisive step towards a more growth-friendly, usable, and proportionate sustainable finance framework,” said Maria Luís Albuquerque, Commissioner, Financial Services and the Savings and Investments Union. “Our measures simplify the application of the EU Taxonomy and strike the right balance between reducing excessive administrative burden for our companies while keeping our longer-term goals in focus, including the transition to a sustainable economy.”
The impact of these simplifications is expected to be substantial. Companies, particularly smaller and medium-sized enterprises (SMEs) that have often struggled with the complexity of the taxonomy, will see a significant reduction in compliance costs and reporting efforts.
This increased flexibility in reporting will allow businesses to focus resources on genuinely impactful sustainable activities rather than extensive data collection for non-material operations. For financial institutions, simplified Do No Significant Harm criteria for pollution prevention and control, along with adjustments to Green Asset Ratio (GAR) requirements, will further streamline their reporting.
The move is anticipated to foster greater adoption of the taxonomy, mobilizing more capital flows towards truly sustainable investments by making the framework more practical and less daunting, ultimately accelerating the EU’s transition to a green economy.
Meanwhile, the changes will undergo a four-month scrutiny period by the European Parliament and Council before final implementation.
