EU Taxonomy Reporting in Practice: Why “Eligible” Is Not “Aligned”

The most expensive misunderstanding in EU Taxonomy reporting fits in one sentence: a company sees that 70% of its turnover is taxonomy-eligible and tells its board, its bank and its investors that 70% of the business is “green under the EU Taxonomy”. It is not. Eligibility means only that an activity is described somewhere in the Taxonomy's delegated acts; whether it is actually environmentally sustainable is decided three demanding steps later.

For most first-time reporters the aligned figure lands far below the eligible one, and conflating the two is the single most common error assurance providers flag, both figures sit side by side in the Article 8 templates, so any inconsistency with the narrative is immediately visible. Everything below is referenced to the underlying legal text or an official Commission source, current as of July 2026.

Key takeaways. Eligible is not aligned: eligibility is a mapping exercise, while alignment requires passing technical screening criteria, do-no-significant-harm (DNSH) tests and minimum safeguards.1 After the Omnibus I Directive, mandatory Article 8 reporting tracks the reduced CSRD population: more than 1,000 employees and net turnover above €450 million.12 Reporting is simpler from FY2025/FY2026: Delegated Regulation (EU) 2026/73 brings a 10% cumulative materiality threshold, an OpEx opt-out, and templates cut from 78 to 28 datapoints.5 The KPIs remain accounting numbers that must reconcile to the financial statements.4 And DNSH is where alignment claims die: one failed criterion, most often the climate risk assessment, makes a qualifying activity non-aligned.

What is the EU Taxonomy and who has to report in 2026?

The EU Taxonomy is a classification system, not a rating. Established by Regulation (EU) 2020/852, it defines when an economic activity counts as environmentally sustainable. Article 3 sets four cumulative conditions: the activity must contribute substantially to at least one of six environmental objectives, do no significant harm to any of the others, be carried out in compliance with minimum (social) safeguards, and meet the technical screening criteria set out in delegated acts.1 Article 8 then obliges companies subject to EU sustainability reporting to disclose how much of their turnover, CapEx and OpEx is associated with taxonomy-aligned activities.1

Who must report changed materially in early 2026. The Omnibus I Directive (EU) 2026/470, published in the Official Journal on 26 February 2026, cut the CSRD's scope to companies with more than 1,000 employees and net turnover above €450 million (with consolidated thresholds for groups), removed listed SMEs, and set first reporting for newly scoped companies at financial years beginning in 2027; non-EU parent groups with over €450 million of EU turnover follow from financial years beginning in 2028.12, 11 Article 8 reporting is now required only of that reduced CSRD population, and the earlier proposal to allow reporting of “partial” taxonomy alignment was deleted from the final text.12 Large listed companies reporting since FY2024 (the “wave one” population) continue, provided they still meet the new thresholds.16

Two practical caveats. First, member states must transpose the directive, the CSRD amendments by March 2027, so national timing can differ while transposition is under way.12 Second, falling out of mandatory scope does not mean falling out of the taxonomy economy: banks calculating their own taxonomy KPIs, SFDR investors and large corporate customers keep asking suppliers and borrowers for the data. Voluntary reporting on the official framework is common precisely because ad hoc “green revenue” estimates carry no evidential weight.

Check your scope position first; assume someone in your value chain will ask for the data anyway.

EU Taxonomy eligibility vs alignment: what is the difference?

Eligibility answers one question only: does the Taxonomy have criteria for this activity at all? An activity is taxonomy-eligible if it matches an activity description in the Climate or Environmental Delegated Act, irrespective of whether it meets any environmental criteria.4 A coal-intensive cement plant and a best-in-class low-clinker plant are equally eligible, because “manufacture of cement” appears in the Climate Delegated Act. Eligibility is merely the entry ticket to the assessment.

Alignment is the environmental performance claim. An activity is taxonomy-aligned only if it also (a) meets the technical screening criteria (TSC) for a substantial contribution to at least one objective, (b) satisfies the DNSH criteria for the other relevant objectives, and (c) is carried out by a company meeting the minimum safeguards on human rights, anti-corruption, taxation and fair competition.1

The gap between the two numbers is normal and informative: high eligibility with low alignment means the company operates in sectors the EU considers pivotal to the transition, but has not yet demonstrated or documented the required performance. Treating the eligibility figure as the headline “green share” in investor communications is the fastest way to attract a greenwashing challenge.

How does an EU Taxonomy assessment actually work?

In practice, taxonomy reporting is a five-step pipeline, and the order matters: there is no point assessing DNSH for an activity that fails its technical screening criteria, or calculating KPIs before the alignment population is settled. Each step has its own evidence requirements, and each removes turnover from the aligned pool.

Figure 1. The assessment funnel: each test removes turnover from the aligned pool, here, 60% eligible turnover ends as a 25% aligned KPI.
Share of total net turnover surviving each test 1. Eligibility screening 60% Activity described in a delegated act ↓ −20 pts fail TSC 2. Technical screening criteria 40% Substantial contribution met ↓ −15 pts fail a DNSH criterion 3. DNSH assessment 25% No significant harm to other objectives → entity-level gate: pass/fail 4. Minimum safeguards 25% Human rights, tax, anti-corruption → 5. Aligned & disclosed 25% Turnover, CapEx, OpEx KPIs Illustrative shares, used consistently in the worked example in this article. Actual eligible-to-aligned drop-off varies widely by sector and evidence maturity.

Step 1, Eligibility screening: mapping activities to the framework

Break the business into economic activities (NACE codes help, though the delegated acts' own activity descriptions are decisive) and match each against the Climate and Environmental Delegated Acts. The output is a mapped register: activity, delegated act reference, objective(s), and the attached revenue, CapEx and OpEx pools. Since Delegated Regulation (EU) 2026/73, activities cumulatively below 10% of turnover, CapEx or OpEx may be classed as non-material and excluded from detailed assessment, provided the proportion is disclosed.5

Step 2, Technical screening criteria: the substantial contribution test

Each eligible activity carries quantified criteria defining what “contributing substantially” means, a life-cycle emissions threshold, an energy performance level, a design standard, and the evidence gets technical: energy performance certificates, emissions calculations, product specifications. An activity that fails its TSC stops here; it stays eligible and is reported as such, but never becomes aligned.2

Step 3, DNSH: do no significant harm to the other objectives

The activity must then clear the DNSH criteria the delegated act specifies for the other objectives. The recurring items: a climate risk and vulnerability assessment (adaptation DNSH, required for nearly every activity), water management, circularity of waste, restrictions on hazardous chemicals, and site-level biodiversity assessments. The 2026/73 amendments narrowed the pollution-related DNSH in Appendix C, reducing the substances in scope and aligning it with existing EU chemicals legislation.13, 14 DNSH is assessed per activity but often per asset or site in practice, one failure removes that activity's revenue from the aligned numerator.

Step 4, Minimum safeguards: the entity-level test

Minimum safeguards under Article 18 operate at company level: alignment with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, covering human rights, bribery and corruption, taxation and fair competition.1 The test is binary for the whole entity: a company that cannot evidence adequate due diligence cannot claim alignment for any activity, however green. Auditors look for documented processes and no unaddressed adverse findings, not a policy PDF.

Step 5, KPI calculation and disclosure

Finally, the aligned and eligible populations are converted into the three KPIs and presented in the standard templates of the Disclosures Delegated Act, as simplified by Regulation (EU) 2026/73.4, 5 The templates sit inside the sustainability statement in the management report, so they fall within the assurance scope alongside the CSRD disclosures.

Run the steps in order, document as you go, and let each failed test tell you where next year's alignment work sits.

What are the six environmental objectives?

Article 9 of the Taxonomy Regulation defines six environmental objectives, split across two delegated acts. Criteria for the two climate objectives were set by the Climate Delegated Act (EU) 2021/2139, applicable since January 2022 and later supplemented for certain gas and nuclear activities by Delegated Regulation (EU) 2022/1214; criteria for the other four followed in the Environmental Delegated Act (EU) 2023/2486, applicable since January 2024.2, 3, 6

Figure 2. The six environmental objectives of Article 9, Taxonomy Regulation, grouped by the delegated act that sets their technical screening criteria.
CLIMATE DELEGATED ACT (EU) 2021/2139, applicable since January 2022 1. Climate change mitigation Cutting or avoiding greenhouse gas emissions 2. Climate change adaptation Reducing physical climate risk to the activity or others ENVIRONMENTAL DELEGATED ACT (EU) 2023/2486, applicable since January 2024 3. Water and marine resources Sustainable use and protection 4. Transition to a circular economy Design, durability, reuse, recycling 5. Pollution prevention and control Air, water, soil; hazardous substances 6. Biodiversity and ecosystems Protection and restoration An aligned activity contributes substantially to at least one objective and does no significant harm to the rest. Gas and nuclear criteria were added by Reg. (EU) 2022/1214.

In commercial terms, eligible revenue typically sits here:

Objective Delegated act Typical eligible activities
Climate change mitigation (EU) 2021/21392 Renewable energy, low-carbon manufacturing, green buildings, low-carbon transport
Climate change adaptation (EU) 2021/21392 Adapted infrastructure, engineering services, flood defences
Water and marine resources (EU) 2023/24863 Water supply, desalination, leakage reduction
Circular economy (EU) 2023/24863 Repair and refurbishment, recycling, circular product design
Pollution prevention and control (EU) 2023/24863 Remediation, pharmaceuticals manufacturing improvements
Biodiversity and ecosystems (EU) 2023/24863 Conservation, restoration, accommodation-linked ecotourism

The Commission's EU Taxonomy Navigator is a searchable compass of every activity, its criteria and its FAQs, bookmark it before you buy anything else.8

What do eligible and aligned look like in practice?

A machinery manufacturer

A mid-sized manufacturer makes components for wind turbines (60% of turnover) and conventional hydraulic equipment (40%). The wind component line maps to the Climate Delegated Act's manufacturing activities for renewable energy technologies, so 60% of turnover is eligible; the hydraulic line matches no activity description, so it is non-eligible. To make the 60% aligned, the company must evidence the substantial contribution (products manufactured for renewable generation), then clear DNSH: a climate risk and vulnerability assessment for its plants, compliant waste management, and the chemicals tests under the pollution appendix. If one factory has no climate risk assessment, that factory's output drops out of alignment. A realistic first-year outcome is 60% eligible, 25–35% aligned, the missing piece is evidence, not green products, and the gap becomes the year-two work plan.

In euros: the group's audited net turnover is €480 million, of which €288 million (60%) is eligible and, after the tests in Figure 1, €120 million survives as aligned:

€120m aligned turnover÷€480m total net turnover=25% aligned turnover KPI

The denominator is always the full audited revenue line; the same company separately discloses 60% eligible turnover.

A real estate investor

A property company's rental income maps almost entirely to “acquisition and ownership of buildings”, typically making 90%+ of turnover eligible. Alignment under climate mitigation is harder: buildings built before 31 December 2020 need at least an EPC class A certificate or evidence of belonging to the top 15% of the national or regional stock by primary energy demand; buildings built after that date must meet the criteria for new construction; large non-residential buildings additionally need efficient energy management arrangements.2 Add the adaptation DNSH (a physical climate risk assessment per asset) and a 90% eligible portfolio commonly produces a 10–30% aligned turnover KPI. The “top 15%” test is a well-known pain point because national benchmarks vary in quality, document the methodology and source used.

Eligibility is set by what the business does; alignment is set by evidence maturity. That is why two companies in the same sector can publish very different aligned KPIs in year one.

How are the Turnover, CapEx and OpEx KPIs calculated?

The KPIs are fractions, and both ends of each fraction are accounting-defined by the Disclosures Delegated Act.4

  • Turnover KPI. Denominator: net turnover as presented in the income statement. Numerator: the part of that turnover derived from products and services associated with taxonomy-aligned activities. The denominator must equal the audited revenue line.
  • CapEx KPI. Denominator: additions to tangible and intangible assets during the year before depreciation, amortisation and remeasurements, in IFRS terms, additions under IAS 16, IAS 38, IAS 40 and IFRS 16 right-of-use assets. Numerator: CapEx related to aligned activities, plus CapEx under a credible plan to expand or upgrade an activity to alignment (normally within five years), plus certain individual measures such as building renovation works.4
  • OpEx KPI. A deliberately narrow definition: direct, non-capitalised costs for research and development, building renovation, short-term leases, maintenance and repair, and day-to-day servicing of property, plant and equipment, not total operating expenses. Since 2026/73, a company for which this measure is not material to its business model may omit the OpEx template entirely, disclosing total OpEx and an explanation.5, 13
Figure 3. The manufacturer's net turnover by taxonomy category: only the aligned segment enters the KPI numerator; the denominator is always 100% of net turnover.
Turnover KPI = turnover from aligned activities ÷ total net turnover TOTAL NET TURNOVER (per income statement) = 100% = €480m Aligned 25% (€120m) Eligible, not aligned 35% Non-eligible 32% Non-mat. 8% Passed TSC + DNSH + minimum safeguards <10% cumulative: may be exempted as non-material under Reg. (EU) 2026/73 Illustrative split for the machinery manufacturer example. Eligible turnover (aligned + eligible-not-aligned) is 60%; segments sum to 100% of net turnover.

Three rules keep the numbers defensible. No double counting: each euro is allocated to at most one activity and counted once across numerators. Reconciliation: denominators must tie to the financial statements, and the templates require cross-references to the related line items, assurance teams will trace them. Consistency: the assessment uses the same consolidation perimeter as the group accounts.

This is why taxonomy reporting behaves more like financial consolidation than a sustainability survey, and why spreadsheet-only approaches tend to break in year two when comparatives, restated mappings and auditor sampling arrive at once. Purpose-built tools such as EcoLedger's EU Taxonomy module exist to run the eligibility register, TSC/DNSH workflow and KPI engine on a single evidence trail that reconciles to the ledger.

What did the Omnibus simplifications change for Taxonomy reporting?

Two separate instruments matter, and they are often confused. Commission Delegated Regulation (EU) 2026/73, adopted 4 July 2025, published in the Official Journal on 8 January 2026, in force since 28 January 2026, simplifies how those in scope report, applying to reports published from 2026 (i.e. covering FY2025), with an option to apply the old framework for FY2025 one last time.5, 14, 15 The Omnibus I Directive (EU) 2026/470 changes who reports, as covered above.12

Area Before (up to FY2024 reports) After Reg. (EU) 2026/73 and Dir. (EU) 2026/470 Status
Mandatory scope All CSRD-scope companies (large companies from FY2025, listed SMEs later) CSRD scope cut to >1,000 employees and >€450m turnover; only these report under Article 8; first-time entrants report on FY202712 Mandatory
10% materiality threshold All eligible activities assessed, however small Activities cumulatively <10% of turnover/CapEx/OpEx may be exempted as non-material (proportion disclosed); a parallel threshold applies to financial undertakings' exposures13 Optional
OpEx KPI Full OpEx template required Entire OpEx template may be omitted where OpEx is not material; disclose total OpEx plus explanation13 Optional
Templates 78 datapoints for non-financial undertakings 28 datapoints (−64%); new summary table; ~89% fewer datapoints for credit institutions13, 15 Mandatory
DNSH pollution (Appendix C) Broad assessment of chemicals use and presence Reduced scope of substances, aligned with existing EU chemicals law14 Mandatory
Financial undertakings Full taxonomy KPIs (e.g. green asset ratio) Option to defer detailed KPI disclosures until 31 December 2027 subject to conditions14, 15 Optional
Partial alignment Not permitted Proposed opt-in for reporting partial alignment deleted from the final text, alignment remains pass/fail12 Deleted
The headline of the simplification: templates for non-financial undertakings shrink from 78 datapoints to 28: a 64% cut: and credit institutions lose around 89% of theirs, for reports published from 2026.13

One nuance on the much-discussed “opt-in for mid-caps”. The February 2025 Omnibus proposal envisaged making taxonomy reporting voluntary for companies with more than 1,000 employees but turnover below €450 million.10 In the final directive those companies fall outside mandatory CSRD scope altogether, so their reporting is voluntary by construction rather than via a bespoke opt-in.12

And note what is still moving as of July 2026. The Commission's FAQ notice on the simplified regime, published in draft in December 2025, remains guidance-in-progress; simplified ESRS are expected during 2026; and member-state transposition of Omnibus I runs to 2027, check national implementation before locking your reporting calendar.7, 9

What do auditors flag most often in Taxonomy disclosures?

Assurance over the sustainability statement includes the Article 8 templates. The recurring findings:

  • Eligibility presented as alignment: in the narrative, investor decks, or a CEO statement contradicting the templates.
  • Missing climate risk and vulnerability assessments. The adaptation DNSH applies to almost every activity; claiming alignment without a documented, asset-relevant assessment is the most common single failure.
  • Minimum safeguards asserted, not evidenced. A human rights policy is not a due diligence process; auditors ask how adverse impacts are identified and remediated, and whether findings remain unresolved.
  • Denominators that don't reconcile. CapEx totals that exclude right-of-use assets, or a turnover denominator that quietly omits a discontinued operation, will be traced and challenged.
  • Double counting across turnover, CapEx and OpEx numerators, or between two activities sharing an asset.
  • CapEx plans without governance. A numerator boosted by “planned” alignment needs a board-approved plan with dates and budgets, not an ambition.
  • Stale templates. From FY2025/FY2026 the simplified 2026/73 templates apply; filing on superseded formats invites a restatement conversation.5

The pattern is the same throughout: figures published without a per-activity evidence trail. If every number can be clicked back to a criterion, a document and an owner, the audit is a walkthrough; if not, it is an excavation.

A first-year EU Taxonomy roadmap

  • Months 1–2, scope and map. Confirm whether you are in mandatory scope post-Omnibus (or reporting voluntarily). Build the activity register against the delegated acts and decide your non-material bucket under the 10% threshold.
  • Months 2–4, screen eligibility and attach money. Allocate turnover, CapEx and OpEx to each activity from the ledger, on the same consolidation perimeter as the accounts. Agree denominators with finance now, not in review.
  • Months 4–7, run the alignment tests. Assess TSC per activity, DNSH per activity and site (prioritise climate risk assessments, they take longest), then minimum safeguards at entity level.
  • Months 7–9, calculate and reconcile KPIs. Populate the simplified templates, reconcile to the financial statements, eliminate double counting.
  • Months 9–12, dry-run assurance and disclose. Have internal audit or your assurance provider walk the evidence trail before year-end and fix gaps while there is still time. Publish the templates within the sustainability statement, and turn every failed test into next year's alignment plan.

Treat year one as evidence-building, not scoring: the eligible-but-not-aligned gap becomes a costed programme, and the CapEx KPI starts doing what it was designed for, showing investors the direction of travel.

Frequently asked questions

What is the difference between taxonomy-eligible and taxonomy-aligned?

An activity is taxonomy-eligible if it is described in the Taxonomy's delegated acts, regardless of how it is performed. It is taxonomy-aligned only if it also meets the technical screening criteria, does no significant harm to the other five objectives, and the company complies with minimum safeguards. Eligibility says nothing about environmental performance; alignment does.1

Who has to report under the EU Taxonomy in 2026?

Companies in scope of the CSRD must report under Article 8 of the Taxonomy Regulation. Following the Omnibus I Directive (EU) 2026/470, the CSRD applies to companies with more than 1,000 employees and net turnover above EUR 450 million, plus certain non-EU groups with significant EU turnover.12, 16

What are the six environmental objectives of the EU Taxonomy?

Climate change mitigation; climate change adaptation; sustainable use and protection of water and marine resources; transition to a circular economy; pollution prevention and control; and protection and restoration of biodiversity and ecosystems.1, 2, 3

What does DNSH (do no significant harm) mean in the EU Taxonomy?

DNSH is the requirement that an activity making a substantial contribution to one environmental objective must not significantly harm any of the other five. Failing a single DNSH criterion makes the activity non-aligned.2, 3

What is the 10% materiality threshold in EU Taxonomy reporting?

Under Commission Delegated Regulation (EU) 2026/73, economic activities that cumulatively account for less than 10% of a company's turnover, CapEx or OpEx may be treated as non-material and excluded from eligibility and alignment assessment, provided the non-material proportion is disclosed.5, 13

Do the Taxonomy KPIs have to reconcile to the financial statements?

Yes. The denominators are defined by reference to the accounting framework: net turnover as reported in the income statement, and CapEx as additions to tangible and intangible assets under standards such as IAS 16, IAS 38, IAS 40 and IFRS 16, and must tie back to the financial statements.4

Can a company report EU Taxonomy alignment voluntarily?

Yes. Companies outside the mandatory scope can apply the same framework voluntarily, and many do because banks, investors and corporate customers request taxonomy KPIs. A voluntary report should follow the same eligibility, screening, DNSH and safeguards logic, otherwise the figures are not comparable.

Report the EU Taxonomy like a financial process, not a fire drill.

EcoLedger's EU Taxonomy module covers the full journey in one workflow, eligibility screening, TSC assessment, DNSH across all six objectives, minimum safeguards documentation and a Turnover/CapEx/OpEx KPI engine, with a built-in Delegated Acts reference library and exports as a Word disclosure pack, Excel workbook and auditor binder. Deployed in 48 hours on a flat 12-month licence, no per-seat fees.

See the EU Taxonomy Software

References

  1. EUR-Lex, Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment (Taxonomy Regulation), accessed July 2026.
  2. EUR-Lex, Commission Delegated Regulation (EU) 2021/2139 (Climate Delegated Act), accessed July 2026.
  3. EUR-Lex, Commission Delegated Regulation (EU) 2023/2486 (Environmental Delegated Act), accessed July 2026.
  4. EUR-Lex, Commission Delegated Regulation (EU) 2021/2178 (Disclosures Delegated Act, Article 8), accessed July 2026.
  5. EUR-Lex, Commission Delegated Regulation (EU) 2026/73 of 4 July 2025 amending the Disclosures, Climate and Environmental Delegated Acts (Omnibus simplification), accessed July 2026.
  6. European Commission, Implementing and delegated acts, Taxonomy Regulation, accessed July 2026.
  7. European Commission, Draft Commission Notice: FAQs on the Omnibus Delegated Act (17 December 2025), accessed July 2026.
  8. European Commission, EU Taxonomy Navigator, accessed July 2026.
  9. European Commission, Corporate sustainability reporting, accessed July 2026.
  10. European Commission, Omnibus package on sustainability (February 2025), accessed July 2026.
  11. Council of the EU, press release, 24 February 2026: Council signs off simplification of sustainability reporting and due diligence requirements, accessed July 2026.
  12. Covington & Burling, “EU CSDDD/CSRD Omnibus Published in Official Journal” (Directive (EU) 2026/470), February 2026, accessed July 2026.
  13. KPMG IFRG, “New amendments simplify EU Taxonomy”, accessed July 2026.
  14. EY, “Revised Delegated Act on EU Taxonomy enters into force”, accessed July 2026.
  15. Arthur Cox, “EU Taxonomy: Simplification measures adopted”, accessed July 2026.
  16. BDO, “CSRD Post-Omnibus: Revised Scope and Requirements”, accessed July 2026.
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