Simplifying the EU Taxonomy: Key Recommendations from the EU Platform on Sustainable Finance

Sustainable finance is at the core of Europe's transition to a low-carbon, climate-resilient economy. To achieve this the EU introduced the EU Taxonomy, a legal framework designed to classify sustainable economic activities.

The EU Taxonomy plays a crucial role in directing capital towards green investments. According to the 2024 European Commission report on sustainable finance, investments in green sectors have increased by 22% in the last year, demonstrating the importance of EU Taxonomy in directing capital towards sustainable projects

However, its implementation has presented challenges, particularly regarding complexity and reporting burdens for businesses and investors.

In response, the EU Platform on Sustainable Finance published its report, "Simplifying the EU Taxonomy to Foster Sustainable Finance," in February 2025. This report outlines evidence-based recommendations aimed at making the EU Taxonomy more effective, accessible, and aligned with market needs. This proposal is based on extensive market research, pilot projects, and stakeholder feedback from investors, banks, insurers, corporations, SMEs, auditors, and consultants.

Objectives of the Report

The report identifies key obstacles that hinder the effective implementation of the EU Taxonomy and proposes measures to enhance usability. The four main recommendations include:

1. Reducing the administrative burden of taxonomy reporting for businesses and financial institutions.
2. Refining the ‘Do No Significant Harm (DNSH) assessment to ensure clarity and consistency.
3. Enhancing key performance indicators (KPIs) to improve transparency and usability.
4. Facilitating access to sustainable finance for SMEs by simplifying compliance requirements.

Key Recommendations

1. Reducing the Reporting Burden

To streamline reporting requirements and encourage broader adoption, the EU Platform suggests reducing compliance costs for businesses by:

• Making OpEx reporting voluntary, except for Research and Development (R&D).
• Introducing a materiality threshold for revenue, OpEx, and CapEx, aligning them with financial reporting principles.
• Simplifying reporting templates to eliminate unnecessary complexity and ensure relevance.
• Enhancing alignment with financial reporting standards to improve data consistency.

2. Refining the ‘Do No Significant Harm’ (DNSH) Assessment

The DNSH principle ensures that sustainable activities do not negatively impact other environmental objectives. However, its application has been considered overly complex. The report proposes:

• A comprehensive review of DNSH criteria to enhance clarity and consistency.
• A ‘comply or explain’ approach for revenue reporting, allowing for more flexibility.
• A simplified compliance framework to reduce excessive documentation requirements.

These refinements aim to maintain the integrity of the DNSH principle while making compliance more practical for businesses.

3. Improving Key Performance Indicators (KPIs)

The report acknowledges challenges in the calculation and interpretation of KPIs such as the Green Asset Ratio (GAR) and the Green Investment Ratio (GIR). To address this, the EU Platform recommends:

• Allowing proxies and estimates in GAR and GIR calculations to increase usability.
• Introducing a simplified retail assessment to ease compliance for banks and insurers.
• Ensuring consistency in KPI calculations by aligning the numerator and denominator of GAR.

4. Supporting SMEs in Sustainable Finance

Small and medium-sized enterprises (SMEs) face significant challenges in complying with the EU Taxonomy, limiting their access to sustainable finance. To address this, the report proposes:

• A simplified classification approach for listed SMEs, making it easier to qualify as a sustainable investment.
• A streamlined framework for non-listed SMEs, allowing banks to classify SME loans as ‘transition finance’ with reduced reporting obligations.

Conclusion

The recommendations outlined in the report represent a major step toward making the EU Taxonomy more practical, transparent, and accessible. If implemented, they could:

• Significantly reduce compliance costs for businesses and financial institutions.
• Enhance investor confidence by improving data consistency and clarity.
• Increase SME engagement in sustainable finance, ensuring broader economic participation in Europe’s green transition.

What is Next?

The EU Platform on Sustainable Finance's proposal will be reviewed by the European Commission which will assess its feasibility and alignment with EU sustainability goals. While the recommendations are advisory, the EC may seek further stakeholder input before deciding on potential regulatory adjustments.

It is important to note that this is an advisory report, so the Commission is not obligated to adopt the proposals, but they will take them into serious consideration. Changes could be implemented through Delegated Acts, regulatory guidance, or legislative amendments, depending on their complexity. If approved, businesses and financial institutions will need to adapt their reporting processes, with regulators overseeing compliance.