EU Green Taxonomy: what it is and how it affects your business in 2026

The EU Green Taxonomy is a classification system that defines which economic activities can be considered environmentally sustainable, with common technical criteria for the whole European Union. Its aim is to give companies and investors a single language for sustainability and to steer capital towards activities that genuinely contribute to the green transition, avoiding greenwashing.

It is governed by Regulation (EU) 2020/852 and, since 2025 and 2026, has been significantly simplified by the Omnibus package. In this guide we explain what the taxonomy is, its six environmental objectives, who it applies to after the simplification and how it affects your business in 2026.

What is the EU Green Taxonomy?

The EU taxonomy is a methodology for classifying economic activities according to their environmental sustainability. An activity is considered aligned with the taxonomy when it meets four conditions:

• It contributes substantially to at least one of the six environmental objectives.
• It does no significant harm to any of the other objectives (the DNSH principle, "do no significant harm").
• It respects minimum social and governance safeguards (human rights, labour rights, anti-corruption).
• It meets the technical screening criteria defined by the European Commission.

It is not a voluntary marketing label: it is the reference framework that investors, banks and regulators use to tell sustainable investment apart from the rest. It sits within the European Green Deal and connects with the CSRD and the SFDR financial disclosure regulation.

The 6 environmental objectives of the taxonomy

The taxonomy is built around six environmental objectives. To be aligned, an activity must contribute substantially to at least one and not harm the others:

1. Climate change mitigation: reducing greenhouse gas emissions (renewable energy, energy efficiency, electrification of transport).
2. Climate change adaptation: increasing resilience to impacts such as droughts, floods or extreme weather events.
3. Sustainable use and protection of water and marine resources: preserving the quality and quantity of water and protecting marine ecosystems.
4. Transition to a circular economy: reducing waste, reusing, recycling and extending the useful life of products.
5. Pollution prevention and control: reducing air, water and soil pollution.
6. Protection and restoration of biodiversity and ecosystems: conserving habitats, species and ecosystems.

The Omnibus package simplification (2025-2026)

This is the most important change for understanding the taxonomy as of 2026. Faced with criticism over the administrative burden, the European Commission approved a simplification delegated act, adopted on 4 July 2025, published in the Official Journal on 8 January 2026 and in force since 28 January 2026. It applies from 1 January 2026, with the option of applying it already to financial year 2025 reports. Its main measures are:

• A 10% materiality threshold: economic activities that cumulatively represent less than 10% of the company's turnover, CapEx or OpEx do not have to be assessed for taxonomy eligibility and alignment. Non-financial companies may also omit the OpEx KPI when operating expenditure is not material to their business model.
• An equivalent threshold for financial entities: they may stop assessing financial assets that represent less than 10% of the relevant asset category, provided the use of proceeds is known. It does not apply to general-purpose loans or equity investments.
• Shorter, simpler reporting templates, with fewer mandatory datapoints.
• Simplification of the DNSH criteria relating to pollution prevention and control.
• Flexible application: for financial year 2025 reports, companies in scope may apply the new framework or keep the previous one, stating in the report which version they used.

The stated aim is to reduce the administrative burden without giving up the environmental objectives. This simplification is consistent with the changes the same Omnibus package introduced to the CSRD, the ESRS and the CSDDD.

Which companies does the taxonomy affect?

The obligation to report on the degree of alignment with the taxonomy is tied to the scope of the CSRD. In practice, it affects:

• Large companies subject to the sustainability reporting obligation under the CSRD, which must publish what proportion of their turnover, CapEx and OpEx is aligned with the taxonomy.
• Financial entities (banks, asset managers, insurers), which report their Green Asset Ratio (GAR).
• Financial market participants offering sustainable products under the SFDR.

One up-to-date nuance matters: Directive (EU) 2026/470, known as Omnibus I, raised the CSRD thresholds to more than 1,000 employees and more than 450 million euros in net turnover, both criteria at once, with first reports covering financial years starting on or after 1 January 2027. Because taxonomy reporting follows the CSRD scope, many companies that were going to enter in later waves have fallen out of the obligation. It is worth checking case by case. Even so, many companies that are not obliged report their alignment voluntarily because their clients, banks or investors ask for it.

Benefits of the taxonomy for your business

• Access to sustainable finance: demonstrating alignment makes it easier to access green loans and to issue green bonds on better terms.
• Transparency and comparability: it provides a common language that lets investors and clients compare companies on consistent criteria.
• Credibility against greenwashing: a classification based on verifiable technical criteria protects reputation and reduces regulatory risk.
• Better internal management: it forces companies to measure and to integrate sustainability into investment decisions.

How to classify your activities under the taxonomy

In short, the process follows these steps:

1. Identify eligible activities: determine which of your activities appear in the taxonomy delegated acts, already applying the 10% materiality threshold.
2. Assess the substantial contribution: check whether each activity meets the technical criteria for one of the six objectives.
3. Verify the DNSH principle: make sure it does not significantly harm the other objectives.
4. Check the minimum safeguards on social and governance matters.
5. Calculate and publish the KPIs for aligned turnover, CapEx and OpEx.

The bottleneck is usually the data: to evidence the climate contribution you need a rigorous carbon footprint measurement and full traceability, exactly the same basis the CSRD requires.

Frequently asked questions about the EU Green Taxonomy

Is the taxonomy mandatory?

Alignment reporting is mandatory for the companies and financial entities subject to the CSRD. The rest can use the taxonomy voluntarily, something increasingly common at the request of investors and clients.

What changed with the Omnibus package?

A 10% materiality threshold was introduced, reporting templates were shortened and DNSH criteria were simplified, with the aim of reducing the administrative burden. The delegated act applies from 1 January 2026 and can already be applied to financial year 2025 reports.

What is the difference between an eligible activity and an aligned activity?

An activity is eligible if it appears in the taxonomy delegated acts. It is aligned if, in addition, it meets the technical criteria for substantial contribution, the DNSH principle and the minimum safeguards.

What is the Green Asset Ratio (GAR)?

It is the indicator financial entities publish to show what proportion of their assets finances activities aligned with the taxonomy.

At Manglai we help companies build the environmental database that the taxonomy and the CSRD require: traceable carbon footprint measurement and auditable reports ready to classify your activities on technical criteria.