EU taxonomy guide: what it is and benefits for your business

Are you thinking of a start-up in the EU? Then you should know the several rules and legislations you would be surrounded by. EU taxonomy according to Celsia intends to make the process easier and guide you as you embark on your journey in the industry.

Continuity in finance as well as the environment are the foundations of setting up an enterprise in a country within the European Union. They also help you achieve the goals set by the European Green Deal. Let’s check what the EU taxonomy is, its benefits and how it can help your business grow.

Getting into basics

Before diving into the details, let us know what exactly is taxonomy. Any government is interested in increasing sustainability today. At the same time, it also helps retain the economy by rising in investments as organizations increase activities that support viability. Therefore, it brings profit for every side.

The protocol lists several items that are considered non-harmful to life and the environment. Also, it includes a detailed division of the venture that one could start and receive several benefits.

To avoid the loopholes, the financial framework by the EU has further added technical rules that a business must conform to, to be considered worthwhile. This regulation was implemented on 12th July 2020. And the governments have been trying to strengthen the rules. The following are the delegations:

  • Decreasing climate problems
  • Adapting to the change in climate
  • Preserving water and marine resources
  • Changing into a sharing economy
  • Mitigating pollution
  • Preserving the natural ecosystems

Further, the European Green Deal purpose is to decrease carbon emissions and make them zero till 2050. They also want to decrease the use of non-renewable resources as an indicator of growth in the economy. One last point of the European Green Deal is that everyone is a part of the growth and that every place is equally developed.

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How does EU taxonomy work?

Now that you know what EU taxonomy is, let us understand how this taxonomy protocol works. Let’s check the following list with the main points.

Directing capital

The taxonomy prefers activities that do not harm the environment. Therefore, they work by directing the funds more toward companies and businesses that follow the sustainability regulation.

For example, a car manufacturing company focuses on sustainable transportation, thereby making electric cars rather than fossil fuel-based vehicles. The EU taxonomy would prefer such companies over benzene-based cars.

Setting standards

The next important task of the EU taxonomy is to set standards for enterprises. This would mean the investors can receive security, and decrease market separation. Also, the taxonomy aims to prevent the usage of sustainability as a PR method instead of following the standards. 

Rules to maintain sustainability

Another way in which the EU taxonomy is helping is by laying down a set of comprehensive and detailed rules. The goal is to make it clear what is good for the environment and what is not. When a company ticks all the boxes in this protocol, then one can be sure that their business is environmentally sustainable.

Company performance assessment

The taxonomy also has certain rules that help the companies assess their performance and upgrade when needed from time to time. Using the protocol, they would know if all the criteria are met and the results will be posted for everyone to see. People would know who is sustainable and who is not.

Global influence

The last goal of EU taxonomy is to become a standard for every country. For now, these taxonomy rules apply only to EU countries. Many other countries have developed their system to finance environmentally-friendly businesses. Having one set of global financing standards would help international businesses. They can avoid any type of confusion.

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Benefits for large businesses

So why is the EU taxonomy good for big companies? EU taxonomy will have a great influence on big businesses. From 2023, it would be mandatory to follow the legislation of EU taxonomy for all big companies that have more than 500 employees and who have a financial turnover of more than 45 million Euros. Here are a few benefits of doing so.

Increased transparency

As mentioned before, companies would have to report their performance assessments to the public. This would mean better transparency and, in turn, increased trust.

Better brand awareness

Brand awareness will be doubled with the EU taxonomy. Not only the assessment results, but the concept of sustainability adds extra returns to your previous one.

Green label

Following this protocol would automatically put a label of being eco-friendly or green. The company does not need extra PR gimmicks to be green.

Get an edge over competitors

With such taxonomy regulations, you would be on your toes. The regular assessments, the upgrades, and the changes would provide you an edge over your competitors. You don’t even have to do competition research. The EU taxonomy would provide all the criteria that you need.

Impact on small businesses

Are you a start-up? The EU taxonomy will also have a positive impact on you. While the smaller businesses are not obliged to report their returns and financial plans to the public, they are encouraged to do so.

When they do so, it would act as a positive move toward their investors. The companies would come up to be trustworthy. Following the EU taxonomy protocol would help you decrease your overall debt.

Final thoughts

In conclusion, taxonomy reporting could become a great solution for all big and small companies that are expected to redirect their finances in the direction of EU sustainability and care about the environment. The taxonomy and the green deal are the two main things that can push organizations to become green.

This is a great push towards sustainability and going against overusing the earth’s resources. There is a proven record that whatever oil we have, will suffice only in the next 46 years. We are running out of resources and therefore this taxonomy framework can help to preserve some of it as well.