The EU Taxonomy Regulation (Regulation 2020/852) and CSRD are two distinct EU regulatory instruments that address related but different questions. CSRD asks: what are your sustainability impacts, risks, and opportunities, and how are you managing them? The Taxonomy Regulation asks: what proportion of your economic activities qualify as environmentally sustainable under EU-defined technical criteria?
For mid-market compliance teams, the practical problem is that these two frameworks share data sources, have aligned applicability timelines, and produce disclosures that sit alongside each other in the annual sustainability report — but require different analytical workflows. Understanding the relationship between them is prerequisite to an efficient compliance roadmap. Running them as independent parallel workstreams is the pattern that drives unnecessary cost and consultant engagement.
The EU Taxonomy Regulation: what it requires and who it applies to
The Taxonomy Regulation establishes a classification framework for environmentally sustainable economic activities. It defines six environmental objectives:
- Climate change mitigation
- Climate change adaptation
- Sustainable use and protection of water and marine resources
- Transition to a circular economy
- Pollution prevention and control
- Protection and restoration of biodiversity and ecosystems
For an economic activity to be Taxonomy-aligned, it must satisfy three criteria: (1) make a substantial contribution to at least one of the six objectives, as defined by the Taxonomy's technical screening criteria (TSC) for that specific activity; (2) do no significant harm (DNSH) to any of the remaining five objectives; and (3) meet minimum social safeguards as defined by reference to the OECD Guidelines for Multinational Enterprises and the ILO core labor conventions.
The Article 8 reporting obligation requires companies in scope to disclose three KPI ratios annually: the proportion of their turnover, capital expenditure (CapEx), and operating expenditure (OpEx) that is taxonomy-eligible (activities listed in the Delegated Acts) and taxonomy-aligned (eligible activities that meet the TSC and DNSH criteria).
Applicability is co-extensive with CSRD applicability. Large listed companies (>500 employees, subject to the former NFRD) have been reporting taxonomy KPIs since 2022. Large non-listed EU companies entering CSRD scope for financial year 2025 begin taxonomy KPI disclosure alongside their first ESRS disclosures. Listed SMEs and non-EU companies with significant EU revenue follow the extended CSRD timelines running through 2026-2028.
A note for non-EU mid-market companies: you are not directly subject to the Taxonomy Regulation unless you meet the CSRD applicability thresholds for non-EU companies (net turnover >€150M with significant EU operations). However, if you supply goods or services to EU companies that are in scope, those companies may request information from you for their own taxonomy CapEx and supply chain assessments. The indirect requirements via customer supply chain due diligence are a real practical consideration even for non-EU suppliers.
The technical screening criteria: what they actually test
The Taxonomy's technical screening criteria are published in the EU Climate Delegated Act (Delegated Regulation 2021/2139) for objectives 1 and 2, and the Environmental Delegated Act (Delegated Regulation 2023/2486) for objectives 3-6. The criteria vary significantly by economic activity — they are not a single threshold applied uniformly.
For manufacturing activities, the climate change mitigation TSC typically set a threshold on GHG emission intensity per unit of output. For example, the TSC for manufacture of iron and steel (NACE C24.1-24.5) sets a specific tCO2e/tonne threshold below which the activity makes a substantial contribution to climate change mitigation. For cement manufacture (NACE C23.5), there is a separate tCO2e/tonne threshold. These thresholds are derived from sector decarbonization benchmarks.
For a precision engineering manufacturer, the relevant activity codes are likely in the metal products manufacturing cluster. The climate mitigation TSC for these activities typically require the company to demonstrate that its manufacturing processes meet a specific GHG intensity threshold per unit of output — which requires Scope 1 and 2 GHG data at the activity level, not just aggregate company-level totals.
The DNSH assessment requires the company to demonstrate that the eligible activity does not cause significant harm to any of the other five objectives. For manufacturing activities assessed against the climate mitigation objective, the DNSH criteria typically require: no significant increase in regulated pollutant emissions (DNSH to pollution objective), no significant deterioration of water quality (DNSH to water objective), compliance with waste management hierarchy requirements (DNSH to circular economy objective), and no significant adverse impact on biodiversity in sensitive areas (DNSH to biodiversity objective).
This is where the Taxonomy assessment becomes genuinely resource-intensive for manufacturing companies: DNSH assessment requires gathering evidence from environmental management systems, waste data, effluent monitoring records, and site-level environmental impact data — not just financial system data.
How CSRD ESRS disclosures feed into Taxonomy assessment
The connection between CSRD and the Taxonomy is not structural — they are separate regulations — but it is highly practical: the data required for ESRS E1 disclosure overlaps substantially with the data required for taxonomy climate mitigation assessment.
ESRS E1 GHG inventory as taxonomy input. ESRS E1-6 requires disclosure of gross Scope 1, 2, and 3 GHG emissions by category. The Scope 1 and 2 data at the site and process level — required for ESRS E1 disclosure — is precisely the data needed to calculate GHG intensity per unit of output for taxonomy TSC assessment. A company that has built a rigorous ESRS E1 GHG inventory, with site-level activity data and fuel type breakdowns, has the primary input for climate mitigation TSC assessment without duplicating data collection.
ESRS E1 CapEx data for taxonomy CapEx KPI. ESRS E1 transition plan disclosures (ESRS E1-1) require companies to describe climate-related CapEx commitments — investments in energy efficiency, renewable energy, low-emission production technology. This CapEx categorization, derived from the fixed asset register by investment type and objective, overlaps with the CapEx categorization required for the Taxonomy Article 8 CapEx KPI. A CapEx classification exercise conducted for ESRS transition plan disclosure can be extended to taxonomy eligibility and alignment assessment without starting from scratch.
ESRS double-materiality as taxonomy scoping tool. Before conducting a full taxonomy eligibility screening across all economic activities, mid-market companies should use their ESRS double-materiality assessment to identify which taxonomy objectives are likely relevant to their specific operations. A company whose materiality assessment identifies climate change and pollution as the material environmental topics should focus taxonomy assessment on climate mitigation and pollution prevention objectives first. Attempting full taxonomy alignment assessment across all six objectives simultaneously, before materiality scoping, is an inefficient use of limited compliance team resources.
The taxonomy eligibility assessment: a practical first step
The Article 8 disclosure process has two stages: taxonomy eligibility reporting (year one) and taxonomy alignment reporting (year two and beyond, once the full TSC and DNSH assessment is complete). This phased approach was intentional — eligibility assessment is lighter-touch and establishes the scope for the more intensive alignment assessment.
Taxonomy eligibility asks: which of our economic activities are listed in the Delegated Acts? An activity is taxonomy-eligible if it appears in the activity list, regardless of whether it meets the TSC thresholds. This is a NACE code mapping exercise: classify your revenue, CapEx, and OpEx to the NACE codes in the Delegated Acts, and report what proportion falls in eligible activity codes.
For many mid-market manufacturing companies, the eligibility assessment reveals that a significant portion of revenue comes from activities listed in the Climate Delegated Act (manufacturing of industrial equipment, building materials, vehicles, etc.) — but that full alignment assessment will require GHG intensity data and DNSH evidence that takes another reporting cycle to assemble properly.
Consider a mid-size hydraulic systems manufacturer with three EU manufacturing sites. Their taxonomy eligibility assessment found approximately 65% of revenue attributable to NACE codes listed in the Climate Delegated Act. Taxonomy alignment assessment for climate mitigation required Scope 1+2 GHG intensity per tonne of product — a calculation their ESRS E1 work had already produced — plus DNSH evidence for water, pollution, and circular economy objectives, which required pulling environmental permits and waste data from site-level environmental management records. Year-one disclosure: eligibility KPIs reported, alignment assessment noted as in progress with a completion timeline disclosed. This is an accepted approach for first-year taxonomy filers.
What mid-market companies should sequence
The most common inefficiency is running CSRD and Taxonomy as independent project workstreams with separate data collection efforts. The more effective sequence:
- Build ESRS E1 GHG inventory first. This is the data foundation that both CSRD and taxonomy reporting need. A rigorous Scope 1 and 2 inventory at site and process level, with fuel type and energy carrier breakdowns, satisfies both ESRS E1-6 requirements and provides the GHG intensity inputs for taxonomy TSC assessment.
- Conduct taxonomy eligibility screening in parallel with materiality assessment. NACE code classification of revenue, CapEx, and OpEx is a finite exercise that can run in parallel with the ESRS double-materiality assessment. It takes a few days of internal analysis — no specialist data collection required at this stage.
- Extend CapEx classification from ESRS transition plan work. If your ESRS E1 transition plan disclosure includes CapEx commitments classified by decarbonization objective, use that classification as the starting point for taxonomy CapEx KPI calculation. Do not re-classify the same asset register data independently.
- Stage the DNSH assessment across reporting cycles. Full DNSH evidence collection for all eligible activities is the most resource-intensive part of taxonomy alignment assessment. It is acceptable — and expected for first-year filers — to complete eligibility reporting in year one and phase full alignment assessment across years two and three, with a documented assessment timeline disclosed.
We are not suggesting that Taxonomy alignment assessment is something that software can fully automate. The TSC compliance judgment for each economic activity — particularly the DNSH evidence assessment — requires legal and technical analysis of the Delegated Act criteria against your specific operations. That judgment belongs with your environmental compliance team or an external specialist advisor, not an automated pipeline.
What Greenopsiq automates is the upstream data work: the GHG inventory at site and activity level, the CapEx classification from fixed asset register data, and the ESRS E1 disclosure package that your taxonomy assessment team uses as the primary input. We eliminate the data-gathering phase that precedes the alignment judgment. Request a walkthrough to see how the ESRS E1 output maps to your specific taxonomy reporting requirements.
