EU taxonomy regulation and reporting requirements

Learn how EU taxonomy rules shape sustainability reporting, as well as how to support transparent, responsible forest management under new regulations.

November 3, 2025

With so many countries and businesses working and collaborating on sustainability efforts, the European Union needs clear, universal standards that set the rules for sustainable business practices. The EU Taxonomy clarifies what green investing means, helping to channel capital where it will make the biggest impact for a greener future.

By providing a common language and standardized criteria, the Taxonomy guides companies in strengthening their sustainability performance and reporting to attract investment.

In 2025, businesses that have adopted the EU Taxonomy have seen improved credibility with investors and stakeholders. This boost aids in positioning and informed decision-making ahead of stricter regulatory requirements.

Below, we cover what the EU Taxonomy is, why it matters for forests specifically, and who is required to report under these rules.

Table of contents:

What is the EU Taxonomy?
Why the EU Taxonomy matters for forest sustainability
Six environmental objectives of the EU green taxonomy rules
Who does the EU Taxonomy apply to?
EU Taxonomy reporting requirements
How FSC supports responsible reporting

What is the EU Taxonomy?

The EU Taxonomy is a classification system established by the European Union to define which economic activities are environmentally sustainable. It’s part of the broader European Green Deal, which is the EU’s ambitious plan to become the world’s first climate-neutral continent by 2050.

The initiative targets a 55 per cent cut in greenhouse gas emissions by 2030. The goal is sustainable economic growth across all sectors, like energy, transport, agriculture, and industry.

The Taxonomy supports this goal by providing clear, science-based criteria that define the scope of a sustainable activity. This definition guides investments toward projects that deliver genuine environmental benefits.

By establishing benchmarks that investors and stakeholders can trust, it also helps prevent greenwashing – the misleading practice of companies exaggerating their environmental efforts. The EU’s Taxonomy tackles this by setting standardized benchmarks that investors and stakeholders can trust.

20% of all capital investments and 60% of those in the utilities sector align with the EU Taxonomy.

In the past, organizations defined and measured sustainability inconsistently, which made reporting unhelpful for asset managers, companies, and policymakers. Now, sustainability claims are clearer and uniform, thanks to a scientific framework and standard rules.

As a result, investors can direct funds toward initiatives and related businesses that benefit the climate, safeguard nature, and maintain healthy ecosystems.

It also simplifies reporting by honing in on what's important and offering simple forms. Businesses can better demonstrate alignment with EU environmental objectives to increase investments and green financing.

And companies are increasingly adopting taxonomy standards: An average of around 20 per cent of all capital investments align with the Taxonomy, and some industries are seeing 60 per cent alignment, according to the European Commission.

Ultimately, it creates a level playing field across the EU financial system. In turn, this fosters innovation in green products and services and supports long-term competitiveness in a rapidly evolving regulatory landscape.

Why the EU Taxonomy matters for forest sustainability

Sustainable forestry is a key factor in the EU’s economic health, sitting at the intersection of climate change mitigation and biodiversity conservation. And it’s greatly impacted by the state of sustainable finance.

The EU Taxonomy works as a kind of bridge between sustainable finance and forest management. It ensures that investment and economic activity support climate goals as well as the responsible management of Europe’s vast forests.

The EU Taxonomy is crucial to improving forest management, which matters because of the vast forest coverage in the EU.

The forests are also significant economic contributors to the EU, with Sweden and Finland alone containing 50 million hectares of forested land. Forest management added 0.17 per cent to the GDP in 2022, and forest-based sectors like wood industries, pulp, and paper added seven per cent.

Forestry is closely tied to ecosystem services and climate resilience. It’s uniquely affected by taxonomy rules because these rules:

Encourage sustainable forest management.
Foster transparency around deforestation.
Seek to prevent harmful forestry practices.
Reward those contributing to protection and restoration.

Compliance with these taxonomy rules is a key driver for delivering environmental responsibility and promoting sustainable rural economies. Because of this, sustainable forestry is central to the European Green Deal.

Six environmental objectives of the EU green taxonomy rules

The Taxonomy’s framework is structured around six standardized, legally defined climate change solutions and objectives. Each one is crucial for investors, policymakers, and industry actors:

Climate change mitigation: Activities that directly reduce greenhouse gas emissions or enhance carbon sequestration, supporting the EU’s net-zero targets.
Climate change adaptation: Activities that increase resilience against climate impacts, ensuring continued ecosystem and economic health.
Sustainable use and protection of water and marine resources: Emphasis on safeguarding water cycles, preventing over-extraction, and maintaining healthy aquatic ecosystems.
Transition to a circular economy: Sustainable supply chain resources promoting resource efficiency, waste minimization, and sustainable material use, all foundations for a systemic green transformation.
Pollution prevention and control: Aiming to control and eliminate the release of pollutants into air, water, or soil in both direct and indirect operations.
Protection and restoration of biodiversity and ecosystems: Focused on conserving natural habitats, supporting species diversity, preventing ecosystem degradation, and restoring vital natural capital. These are especially important for strong forest management.

These objectives help set strict guiding principles that act as regulatory bumpers for companies navigating sustainability efforts.

Who does the EU Taxonomy apply to? Key reporting requirements

The EU Taxonomy applies to all large public interest companies in the EU, encompassing listed companies, banks, insurers, and those supervised by national authorities. Importantly, the regulation now includes most companies subject to the Corporate Sustainability Reporting Directive (CSRD) and formerly, the Non-Financial Reporting Directive (NFRD).

The CSRD sets the how and what of sustainability reporting. It determines which companies must disclose environmental, social, and governance information, and in what format. The EU Taxonomy defines what counts as environmentally sustainable. In practice, this means companies reporting under CSRD must also disclose the proportion of their activities that are Taxonomy-eligible and Taxonomy-aligned.

Example:

A bank needs to assess the share of its financing portfolio that supports Taxonomy-aligned projects, like renewable energy investments or sustainable forestry.

Or, a beverage company should calculate how much of its production (such as sustainable water use, renewable energy in bottling plants, or certified sourcing of raw materials) meets the technical screening criteria of the Taxonomy.

Together, CSRD and the EU Taxonomy ensure that corporate sustainability disclosures are not only transparent but also scientifically comparable across sectors.

Reporting requirements started in 2022 for larger public-interest entities, and phasing for additional companies was introduced between 2023 and 2026. Non-EU companies with significant operations in Europe may also fall under the scope set by these incremental stages.

The EU Taxonomy reporting requirements roll out progressively:

2025: All CSRD entities must report activities’ eligibility for all six taxonomy objectives, and alignment only for climate change mitigation/adaptation.
2026: Alignment reporting extends to water, circular economy, pollution, and biodiversity objectives.

Recent amendments to the EU Taxonomy reporting framework will apply to reports published on 1 January 2026, covering the 2025 financial year, for companies already in scope of the regulation. However, businesses have the option to continue using the current reporting rules for the 2025 reporting period.

These simplification measures aim to reduce administrative burdens and include streamlined disclosure templates and lighter requirements for non-material activities. Keep in mind that there will likely be reviews and updates to the Taxonomy's criteria and disclosure rules through 2026 and beyond.

EU Taxonomy reporting requirements: What you need to know

To comply with the EU Taxonomy framework, companies subject to its scope need to disclose clear, credible information on their environmental sustainability efforts. This reporting involves defining economic activities and providing quantitative data and qualitative context.

Taxonomy-eligible vs. taxonomy-aligned activities

Companies must first identify their economic activities which fall within the scope of the EU Taxonomy. There are two types of activities based on the level of compliance and environmental impact.

Taxonomy-eligible activities are those listed in the EU Taxonomy framework as having the potential to contribute substantially to one or more environmental objectives. However, eligibility alone does not guarantee that the activity meets all the required technical screening criteria for sustainability.
Taxonomy-aligned activities fully satisfy the Taxonomy’s strict requirements, including making a substantial contribution to at least one environmental objective, complying with the “do no significant harm” (DNSH) principle to other objectives, and adhering to minimum social safeguards. Only aligned activities can be officially recognized as environmentally sustainable under the framework.

Distinguishing between eligibility and alignment is crucial because it clarifies whether an activity is merely within the scope of the Taxonomy or if it genuinely meets the high standards necessary for a green classification.

Taxonomy-eligible examples	Taxonomy-aligned examples
Afforestation projects Wastewater treatment Wind and solar energy production Use of sustainably sourced timber in construction	Certified sustainable forest management Circular product design using 100% recycled materials Hydropower projects that meet biodiversity protection criteria

Required reporting provisions

EU taxonomy disclosure requirements make companies provide data on their eligible and aligned activities each financial year. This includes:

Turnover, CapEx, and OpEx linked to eligible and aligned activities
Qualitative disclosures on policies, strategies, and governance underpinning sustainability efforts
Clear documentation around calculation methodologies, data sources, and any estimates used

While updated thresholds and DNSH simplifications reduce administrative effort, disclosure still requires robust internal processes and technical expertise to ensure full compliance.

How FSC supports responsible reporting

Navigating the complexities of ESG frameworks like the EU Taxonomy presents significant challenges for organizations aiming to demonstrate credible sustainability performance. This includes barriers like:

Complex technical screening criteria across activities
Data quality and traceability challenges (especially in value chains)
Resource constraints, such as obtaining, aggregating, and validating sustainability data across multi-national operations

The Forest Stewardship Council® (FSC®) supports organizations by aligning certified forest management and supply chains with Taxonomy principles, including compliance with the DNSH rule. Our standards inherently prevent significant harm to biodiversity, water resources, and ecosystems through strict environmental and social safeguards.

For organizations seeking concrete support and practical tools to meet Taxonomy reporting obligations, FSC offers:

Verification services, such as for supply chain integrity, to ensure companies of all sizes keep certified and non-certified materials separated throughout the supply chain
Advanced technology, including blockchain-based FSC Trace and earth observation, to monitor operations in an objective and transparent way
Stakeholder engagement from solutions forums to direct engagement with local governments

Improve sustainability reporting compliance with FSC’s Verified Impact

The EU Taxonomy creates new opportunities and challenges for companies in forestry and related sectors. Engaging with FSC helps businesses to align their practices with the Taxonomy’s sustainability mandates, enhancing credibility, investment appeal, and transparency.

Verified Impact from FSC provides companies with audit-ready, independently verified data on forest investment impacts. Stakeholders can use this system as a guidance to demonstrate measurable progress in sustainability and regulatory compliance.

To learn more about responsible sourcing, eligibility assessments, and real-time impact reporting, explore other FSC solutions and the FSC digital toolbox for forest managers, businesses, and consumers. And utilize our ES-PRO Benchmarking Tool to align your ES report with several sustainability frameworks.

Additional resources

For further information on the EU Taxonomy and its global relevance, readers can visit the European Commission’s sustainable finance web pages, the official EU forestry sector taxonomy guidance, and recent academic publications on green finance reporting from sources like Sustainable Architecture for Finance in Europe and Springer Nature Limited’s Scientific Reports.

Global data on forest management, climate goals, and sustainable investments is regularly updated on platforms such as the Global Forest Watch and FAO forest statistics databases. You can also review the FSC sustainability strategy ebook for ESG-related guidance.