Seven Things People Get Wrong
1. "The taxonomy tells you what to invest in"
No. It is a transparency tool that defines what qualifies as environmentally sustainable. It does not prohibit investment in non-aligned activities, and it does not mandate green investment. An investor is free to put 100% of their portfolio into non-aligned activities - they just have to disclose that.
2. "If an activity is not in the taxonomy, it is unsustainable"
No. The taxonomy does not yet cover all economic activities. Education, healthcare, many digital services, hospitality - these are not taxonomy-eligible because criteria haven't been written for them. That says nothing about their sustainability. It just means the taxonomy is silent on them.
3. "Taxonomy-eligible means taxonomy-aligned"
This is the most common confusion. Eligible means the activity is described in the delegated acts. Aligned means it passes all four tests. A cement plant is eligible; whether it's aligned depends on its actual emissions.
4. "100% alignment is the goal"
Unrealistic. Most companies have a mix of eligible, aligned, and non-eligible activities. Even highly green companies rarely exceed 30-50% alignment because many support functions (offices, IT, HR) are not covered by the taxonomy.
5. "Only EU companies need to care"
Non-EU companies with EUR 150M+ net turnover in the EU fall under CSRD (from FY 2028). And any non-EU company seeking European investors, listing on EU exchanges, or issuing green bonds in Europe will be assessed against taxonomy criteria by the market, even if not legally required.
6. "The taxonomy is static"
The Commission is required to regularly review and update the technical screening criteria. The Platform on Sustainable Finance advises on updates, and a stakeholder request mechanism was launched in October 2023 for anyone to propose new activities or criteria changes.
7. "Nuclear and gas cannot be green under the taxonomy"
They can, under strict conditions defined in the Complementary Climate Delegated Act. This was controversial, but it is the current law. These activities must be disclosed separately in reporting templates.
What the Data Reveals About Current Limitations
The aggregate numbers from 2022-2024 reporting tell an honest story:
- Turnover alignment averages 11.2% across sectors - most company revenue comes from activities not (yet) covered by the taxonomy
- CapEx alignment averages 22.7% - higher because it captures transition investment, but still modest
- Bank GARs average just 2.8% - not because banks are "not green," but because most lending goes to SMEs and households not yet in scope for taxonomy reporting
- Only ~30% of in-scope companies report any taxonomy-aligned activities at all
These numbers will rise as the taxonomy expands to cover more activities and CSRD brings more companies into the reporting scope. But they also reflect a structural reality: the taxonomy deliberately covers specific industrial and energy activities, not the entire economy.
What Comes Next
The taxonomy is a work in progress. Several developments are on the horizon:
- Simplification: The February 2025 Omnibus package proposed streamlining reporting requirements and reducing complexity of the technical screening criteria. A delegated act implementing these simplifications was adopted in July 2025
- Comprehensive review: The Commission is reviewing both the Climate and Environmental Delegated Acts to simplify the technical screening criteria themselves
- Expanded coverage: More economic activities will receive criteria over time, including in sectors currently not covered
- Social taxonomy: The Platform on Sustainable Finance has recommended a social taxonomy (covering decent work, adequate living standards, inclusive communities), though no legislative proposal has been made yet
- International convergence: Other jurisdictions (UK, Singapore, ASEAN, China) are developing their own taxonomies. Interoperability between these systems is a growing priority
- Stakeholder request mechanism: Launched in October 2023, anyone can now propose new activities or criteria changes to the Commission
The taxonomy will evolve. Criteria will tighten, new activities will be added, and the scope of companies required to report will expand. Companies that start building their assessment processes now - even if not yet legally required to report - will be better prepared than those who wait.
Key Takeaways
- 1The taxonomy is a classification and transparency tool, not an investment mandate - it does not prohibit non-green activities
- 2Not being taxonomy-eligible does not mean an activity is unsustainable - it means the taxonomy has not written criteria for it yet
- 3The taxonomy will expand: more activities, tighter criteria, a potential social taxonomy, and growing international convergence
- 4Companies that build their taxonomy assessment processes early gain a structural advantage over those who wait for mandatory deadlines