Green Taxonomy

Green taxonomies aim to give investors, companies and regulators a common language for identifying sustainable activities and reduce greenwashing, where activities are presented as greener than they are.

The best known is the EU Taxonomy, set out in a regulation adopted in 2020. To be considered sustainable under the EU Taxonomy, an activity must make a substantial contribution to at least one of six environmental objectives, such as climate change mitigation or adaptation, do no significant harm to the other objectives and meet minimum social safeguards.

For example, the EU Taxonomy sets technical criteria for when electricity generation, building renovation or vehicle manufacturing counts as sustainable, such as limits on emissions per unit of output.

Many companies in the European Union must report the share of their revenues, capital spending and operating spending that is aligned with the taxonomy. Other jurisdictions, including China, the United Kingdom, Singapore, Australia and several others, have developed or are developing their own taxonomies, some with different approaches, such as including transition activities. Taxonomies can be complex to apply, and decisions about controversial activities, such as nuclear power and gas, have been debated.