The Taxo4: Understanding the EU Taxonomy’s final 4 environmental objectives

Updated in September 2024

What Are Environmental Objectives in the EU Taxonomy?

To understand what environmental objectives are, we need to take a look at the big picture. The environmental objectives were created in the context of the EU Taxonomy. 

The EU Taxonomy is essentially an encyclopedia, which lists economic activities that are environmentally sustainable. Its ultimate objective is to construct a common language and a clear definition of what is ‘sustainable’. 

It does so by establishing assessment criteria, named Technical Screening Criteria (TSC), that will screen the extent to which an economic activity qualifies as both environmentally and socially sustainable. 

By sticking to one, transparent standard of what is sustainable, financial market participants will have more clarity in deciding which entities to invest in based on their sustainability scores. Making financial products which pursue environmentally sustainable objectives more visible is an effective way of channelling private investments into sustainable activities. It also enables the elimination of ‘Greenwashing’, since the fog is lifted and the authentic sustainability scores of an entity become clear.

The EU Taxonomy’s TSC can be broken down into three pillars. 

1. The first is the ‘Substantial Contribution’ pillar - this means that for an economic activity to be defined as sustainable, it must either significantly contribute to, or enable other activities to significantly contribute to, at least one of six environmental objectives listed in the EU Taxonomy.
2. The second is the ‘Do No Significant Harm’ pillar (DNSH) - for an activity pursuing one or more of the six objectives to qualify as sustainable it cannot cause significant harm to any of the other 5 EU Taxonomy objectives.
3. The third and final pillar is the ‘Minimum Social Safeguards’ Pillar (MSS) - the entity must demonstrate that its own social safeguards are in compliance with the standards of the OECD Guidelines for Multinational Enterprises, and the UN Guiding Principles on Business and Human Rights.

This article will focus on the sustainability objectives that are relevant under the first two pillars.

The EU Taxonomy’s 6 Environmental Objectives

The EU Taxonomy Regulation establishes six environmental objectives, namely:

1. Climate change mitigation
2. Climate change adaptation
3. The sustainable use and protection of water and marine resources
4. The transition to a circular economy
5. Pollution prevention and control
6. The protection and restoration of biodiversity and ecosystems

The screening criteria, required to measure how to make a substantial contribution to the two first criteria (climate change mitigation and adaptation), were set out in the first Climate Delegated Act in December 2021.

In short, an economic activity that pursues the environmental objective of climate change mitigation should contribute substantially to the reduction of greenhouse gas emissions by avoiding or reducing them, or by enhancing greenhouse gas removals.

Secondly, an economic activity that pursues the environmental objective of climate change adaptation should contribute substantially to reducing or preventing the adverse impact of the current or expected future climate, or the risks of such adverse impact.

The Taxo4: The 4 Final Environmental Objectives

The Delegated Regulation (EU) 2023/2486 that fixes the Substantial Contribution and Do No Significant Harm criteria of the four remaining environmental objectives was published in June 2023. Each of the EU Taxonomy environmental objectives are interconnected. This is evident both in the methods and effects that taking positive action towards one objective will have on the others. 

For example, pollution is a pressure that affects the state of the biodiversity and water, therefore reducing pollution will in turn mitigate pressure on biodiversity and water systems. For this reason, the transition to net-zero can only be considered as seriously sustainable if it takes a holistic approach, which is the aim of the broad scope of the Taxonomy. 

The following section will outline the headline ambition levels of each of the taxo4 objectives, and present the new eligible activities.

Environmental Objective 3: Water and Marine

Safeguarding the sustainable use and protection of water and marine resources is vital for a sustainable environment. Healthy marine and water resources play a pivotal role in climate and weather stabilisation, human livelihoods, transportation, carbon sinks, and more. Therefore, safeguarding the sustainable use and protection of water and marine resources is vital for a sustainable environment. 

The headline ambition level of the EU Taxonomy for water and marine is:

“to achieve good status for all water bodies and good environmental status for marine waters, and to prevent the deterioration of water bodies that already have good status or marine waters that are already in good environmental status.”

There are 6 eligible activities for water and marine resources. The objectives of these activities are to reduce water leakage, manage water quality or prevent flood risk:

• Manufacture, installation and associated services for leakage control technologies enabling leakage reduction and prevention in water supply systems
• Water supply
• Urban waste water treatment
• Sustainable urban drainage systems (SUDS)
• Nature-based solutions for flood and drought risk prevention and protection
• Provision of IT/OT data-driven solutions for leakage reduction
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Environmental Objective 4: The Transition to a Circular Economy

The circular economy is a system that extends the lifecycle of products, for example by recycling, reusing, repairing, refurbishing, and sharing existing materials and products for as long as possible. Establishing a circular economy enables a more sustainable production and consumption model, whereby raw materials are used repeatedly and therefore kept longer in production cycles. This leads to a considerable reduction in waste generation. An economic activity can contribute substantially to the environmental objective of transitioning to a circular economy by increasing the durability, reparability, upgradability, and reusability of its products, or by reducing its use of resources via changing the design and choice of materials.

The headline ambition level of the EU Taxonomy for the circular economy is that:

Economic growth gets decoupled from the extraction of non-renewable resources through

• prevention or reduction of waste generation and an increase in the preparation for re-use and recycling of waste
• Promotion of efficient use of resources via appropriate re-use and recycling of resources
• Integration of long-term value retention and waste reduction of the product over its lifecycle in the design and production phase.
• Facilitation of product maintenance during its use phase to extend its life, while reducing the amount of waste.
• dismantling or treatment after the use of a product to ensure that it can be re-used or recycled for the manufacturing of another product

There are 21 eligible activities for circular economy. The objectives of these activities are to manufacture basic components using high circularity standards, to increase the resource use efficiency of water and waste, to increase material reuse in the construction sector, and to favour the reparation, re-use or rental of products via services:

• Manufacture of plastic packaging goods
• Manufacture of electrical and electronic equipment
• Phosphorus recovery from waste water
• Production of alternative water resources for purposes other than human consumption
• Collection and transport of non-hazardous and hazardous waste
• Treatment of hazardous waste
• Recovery of bio-waste by anaerobic digestion or composting
• Depollution and dismantling of end-of-life products
• Sorting and material recovery of non-hazardous waste
• Construction of new buildings
• Renovation of existing buildings
• Demolition and wrecking of buildings and other structures
• Maintenance of roads and motorways
• Use of concrete in civil engineering
• Provision of IT/OT data-driven solutions and software
• Repair, refurbishment and remanufacturing
• Sale of spare parts
• Preparation for re-use of end-of-life products and product components
• Sale of second-hand goods
• Product-as-a-service and other circular use- and result-oriented service models
• Marketplace for the trade of second-hand goods for reuse

An interesting element is that the construction and renovation of buildings were already included in the EU Taxonomy under the climate change mitigation. This means that companies in the real estate sector now have a second set of criteria to allow them to demonstrate their sustainability. In order to be aligned, companies do not have to be aligned with both sets of conditions, one is enough.

Environmental Objective 5: Pollution Prevention

Pollution of the natural environment results from the introduction of substances, or contaminants into natural systems at levels that trigger harm or adverse change. Pollution has grave impacts on the health of the planet, humans, and biodiversity, plus it disproportionately impacts low-income communities. Therefore, it is imperative that urgent measures are taken to prevent pollution.

The headline ambition level of the EU Taxonomy for pollution prevention is:

“to progressively phase out the most harmful substances from products for consumer or professional use except when their use has been proven to be essential for society and to substitute or minimise the production and use of substances of concern with the ultimate objective to eliminate pollution in air, water, soil, living organisms and food resources.”

There are 6 eligible activities for pollution prevention. The two main objectives of these activities are either to reduce the emission of pollutants from the pharmaceutical industry or to favour the collection, transport and treatment of waste and contaminated areas:

• Manufacture of active pharmaceutical ingredients (API) or active substances
• Manufacture of medicinal products
• Collection and transport of hazardous waste
• Treatment of hazardous waste
• Remediation of legally non-conforming landfills and abandoned or illegal waste dumps
• Remediation of contaminated sites and areas
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Environmental Objective 6: The Protection and Restoration of Biodiversity and Ecosystems

Healthy ecosystems are fundamental to human and animal welfare, as they supply fresh water, clean air, and nourishing food. Economic activities can considerably contribute to the protection and restoration of biodiversity and ecosystems in various ways, including by conserving, restoring, or protecting ecosystem services. 

Similarly to the objective of sustainable use of water and marine resources, the headline ambition level of the EU Taxonomy for biodiversity and ecosystems is: 

“to achieve the good condition of ecosystems or to protect ecosystems that are already in good condition.”

There are 2 eligible activities for protection of biodiversity and ecosystems. The two objectives of these activities are either to restore habitats, ecosystems or species or to propose accommodation in areas that are actively contributing to the restoration of habitats, ecosystems or species:

• Conservation, including restoration, of habitats, ecosystems  and species
• Hotels, holiday, camping grounds and similar accommodation
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Next Steps

The new activities mentioned above will enter into force as follows:

• Non-financial undertakingssome text
  • Eligibility: 2024 report, based on FY 2023
  • Alignment: 2025 report, based on FY 2024
• Financial undertakingssome text
  • 2024 report, based on FY 2023
  • 2026 report, based on FY 2025

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