The European Commission published the final version of the FAQ regarding the Delegated Act on Disclosures under Article 8 of the EU Taxonomy Regulation (Regulation (EU) 2021/2178) in early October 2022.
Already in December 2021, the European Commission published 22 FAQs regarding the reporting obligations of financial and non-financial companies in accordance with the Delegated Act on Disclosures under Article 8 of the EU Taxonomy Regulation. The 33 questions and answers (“FAQ”) recently published in October 2022 aim to amend them and serve as additional guidelines and interpretive aids for businesses. The final interpretation itself remains reserved for the Court of Justice of the European Union as the competent authority to interpret Union law.
These FAQs are broken down as follows:
- General FAQs
- Non-financial companies
- Financial commitments
- Asset manager
- Insurers
- Credit institution
- Debt market
- Interaction with other regulations
Economic activity eligible for the taxonomy
The FAQs explain, among other things, what is meant by “economic activity eligible for the taxonomy”. Economic activities eligible for taxonomy are those activities that are already included in one of the delegated acts of the taxonomy regulation. If the activity is not (yet) included in one of the delegated legal acts, it cannot be considered eligible for the taxonomy. However, the taxonomy itself is described in the FAQ as “a dynamic framework that should expand its scope of activities over time”, meaning that eligible activities continually expand accordingly.
Weighing of assets (asset managers)
The FAQs also explain how asset managers can weight their holdings in a portfolio to declare which assets qualify for the taxonomy. Here, the taxonomy eligibility ratio is weighted by the value of risky positions in the asset manager’s total assets. In simple terms, therefore, an asset manager has equal exposure to two assets, one 100% taxonomy eligible and the other 0% taxonomy eligible, giving taxonomy eligibility. 50% for all assets.
Taxonomy-eligibility of debt assets
To assess the taxonomic eligibility of debt instruments, such as a bond or a loan, it is recommended to use the taxonomic eligible value of the underlying company (revenue and CapEx). However, only the portion of the proceeds of the debt instrument that can also be allocated to Taxonomy-eligible activities is itself Taxonomy-eligible. Therefore, if only 50% of the debt instrument’s proceeds are taxonomy-eligible, the taxonomy-eligible revenue and CapEx value of the debt instrument should also be counted at 50%.
Interaction with CSRD
The delegated act on the communication of information and the proposal for a directive on sustainable development reporting (CSRD) are intended to complement each other. The CSRD extends the scope of current reporting obligations to all large listed and unlisted companies and to all listed SMEs, with the exception of micro-entities. Information under the delegated act on disclosure should be reported in the same management report at company level, alongside other sustainability-related information required under CSRD provisions, as proposed.
Other questions and answers
Other questions answered by the FAQ (not conclusive):
- How should a credit institution holding an investment firm license under the Markets in Financial Instruments Directive (MifiD) declare its economic activities eligible for the taxonomy?
- Can green debt securities of non-EU entities be declared as eligible for the taxonomy?
- Can green sovereign debt be declared eligible for the taxonomy?
- What should financial companies report if information about the underlying entities is not publicly available?