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A further milestone has been achieved in the simplification of sustainability reporting in the EU. On 28 January 2026, the Commission Delegated Act ("Delegated Act"), which simplifies the application of the EU Taxonomy Regulation, entered into force, having been published in the Official Journal of the EU on 8 January 2026.
The Delegated Act was initially adopted by the Commission on 4 July 2025, and has since been subjected to a scrutiny period by both the European Parliament and the Council of the EU.
Implementation of the Delegated Act
The Delegated Act applies retrospectively from 1 January 2026, meaning it will cover an undertaking's report for financial year 2026. For financial year 2025 reporting, there is a transitional provision, allowing undertakings to choose between two options for their reports, which are published in 2026 (i.e. after the Delegated Act has started to apply). For such reports, undertakings can either:
- apply the version of the reporting rules as amended by the Delegated Act and as applicable from 1 January 2026; or
- apply the version of the reporting rules as applicable until 31 December 2025 (i.e. not taking into account the amendments made by the Delegated Act).
The undertaking must include a statement in its sustainability report that specifies which set of reporting rules were applied when reporting on the 2025 financial year.
Key amendments by the Delegated Act
The Delegated Act simplifies the application of the EU Taxonomy Regulation by amending the Taxonomy's Disclosures,1 Climate2 and Environmental Delegated Acts.3
- Most notably the Delegated Act introduces a materiality
threshold for assessing economic activities for Taxonomy
eligibility and alignment.
- For non‑financial undertakings, economic activities do not have to be assessed for Taxonomy alignment where they cumulatively represent less than 10% of the entity's total turnover, capital expenditure or operational expenditure. Moreover, they are relieved of the requirement to assess Taxonomy alignment for their full operational expenditure where they determine it to be non‑material to their business model. The is no prescribed methodology for how to determine whether the operational expenditure is material for a reporting undertaking's business model. However guidance suggests this determination should be made consistently with the general principles for financial materiality as defined in the Accounting Directive,4 and an explanation of why the operational expenditure is not material for the business model should be provided.
- For financial undertakings, financial assets do not need to be assessed where they represent less than 10% of the respective asset category / reporting position. This only applies to assets financing specific economic activities where the use of proceeds is known. Non‑material assets excluded from Taxonomy assessment must still be disclosed separately in reporting templates. This does not apply to assets where the use of proceeds is unknown, for example, general‑purpose loans to companies or investments in company equity. Their Taxonomy alignment is determined by the Taxonomy KPIs reported by the respective company.
- In addition, the Taxonomy reporting templates have been substantially streamlined, reducing the number of required data points by approximately 64% for non‑financial undertakings and 89% for financial undertakings.
- The Delegated Act also simplifies the “do no significant harm” criteria for pollution prevention and control, particularly in respect of the use and presence of certain chemicals.
Reporting undertakings should review the Delegated Act, in order to facilitate preparation for compliance and determine which version will be applied when reporting on Taxonomy alignment as part of the broader sustainability reporting for the financial year 2025 (to the extent the respective report has not yet been published).
Footnotes
1. Delegated Regulation (EU) 2021/2178
2. Delegated Regulation (EU) 2021/2139
3. Delegated Regulation (EU) 2023/2486
4. Directive 2013/34/EU of the European Parliament and of the Council.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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