On July 4, 2025, the European Commission (EC) adopted a "Delegated Act Amending the Taxonomy Disclosures, Climate and Environmental Delegated Acts," marking a significant shift in how companies will interact with the European Union's (EU) Taxonomy. According to the related press release, the intention behind the modifications is clear: to reduce administrative burdens and enhance competitiveness while "preserving core climate and environmental goals." This seems especially relevant for companies newly brought into the scope of sustainability reporting under the EU's Corporate Sustainability Reporting Directive (CSRD). These changes come as part of the broader Omnibus I package, first introduced in February 2025. They are set to apply as of January 1, 2026, and will cover the 2025 financial year. For companies operating in both the EU and the United States, these modifications offer a welcome opportunity to streamline sustainability disclosures in a period of evolving global standards.
The simplifications include:
- Materiality thresholds for disclosures:
Companies may now exclude economic activities from their Taxonomy
reporting if they are not "financially material" for
their business. For nonfinancial companies, activities are
considered "non-material" if they account for less than
10% of a company's (a) total revenue, (b) capital expenditures
(CapEx) or (c) operational expenditure (OpEx). Nonfinancial
companies also are now exempt from assessing Taxonomy alignment in
relation to their aggregate OpEx if it is considered non-material
relative to their business model.
Financial institutions are granted a similar exemption for certain key performance indicators (KPIs) such as the green asset ratio. In addition, financial companies are given a two-year reprieve from reporting detailed Taxonomy-related KPIs. However, non-material activities must still be reported separately as non-material exposures in the relevant reporting templates. Regulators believe that these changes should enable companies to focus attention (and resources) on operational and strategic initiatives that truly matter. - Fewer datapoints to report: The EC estimates a reduction of 64% in required datapoints for nonfinancial companies and 89% for financial companies. The message is clear: comprehensive sustainability reporting should not come at the cost of unnecessary complexity.
- Streamlining DNSH requirements: The "Do No Significant Harm" (DNSH) criteria—particularly around pollution prevention—have been clarified and narrowed. A shorter list of substances and more targeted requirements aim to reduce legal uncertainty, which has been a key concern for many reporting entities.
Looking ahead, the delegated act is now subject to a standard four-month scrutiny period by the European Parliament and Council (extendable by an additional two months). Once adopted, it will apply from January 1, 2026, reflecting information from the 2025 financial year. The announcement also included a set of "Questions and Answers on EU Taxonomy Simplifications to Cut Red Tape for Companies."
What these modifications mean for companies:
- Now is the time to review which activities are likely to fall below the 10% threshold—and whether you can benefit from the new exemptions.
- Internal reporting systems should be updated during 2025 to align with the reduced data requirements, including CapEx and OpEx simplifications.
- Companies should reassess how they document DNSH compliance, particularly in relation to chemical use, to take advantage of clearer criteria.
These changes also offer an opportunity to better coordinate EU Taxonomy disclosures with CSRD and (for financial institutions) Sustainable Finance Disclosure Regulation (SFDR) reporting, ideally reducing duplication across sustainability frameworks. The EC's approach clearly attempts to strike a balance between practical considerations (e.g., usability and the need to remain competitive) and retaining climate and environmental goals, thereby offering companies meaningful administrative relief while continuing to promote transparency around environmental performance and impacts. For U.S. and European corporates alike, this is a pivotal moment to realign disclosure strategies for a more practical, focused compliance landscape.
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