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For investments and reputation Good sustainability assessment is crucial for the metal industry

A guest post by Julia Eckelt | Translated by AI 4 min Reading Time

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The EU taxonomy creates clear rules for evaluation and reporting. Therefore, a comprehensive concept for efficient reporting is necessary.

Auditor and tax consultant Bernhard M. Kinzinger, from RTG Dr. Böhmer and Partner in Ludwigshafen.(Image: Backofen Photo Studio)
Auditor and tax consultant Bernhard M. Kinzinger, from RTG Dr. Böhmer and Partner in Ludwigshafen.
(Image: Backofen Photo Studio)

The European Union, with the signing of the Paris Climate Agreement and the Green Deal, has set ambitious climate and environmental targets that are putting increasing pressure on companies in the metal industry. With the EU taxonomy, clear rules and framework conditions for sustainable business practices have been created, informs the Ludwigshafen auditing and tax consulting firm RTG Dr. Böhmer and Partner, member of the international HLB network. Companies in mechanical engineering and industry, which are rated well in this sense, stand out positively from their competitors and can thus benefit from higher investment subsidies and faster loan approvals. "The legislation wants to reward environmentally friendly actions through a focus on investment," says auditor and tax consultant Bernhard M. Kinzinger. The long-term goal is to finance the economic transformation process towards sustainability by redirecting financial flows into sustainable activities.

The six environmental goals represent the evaluation standard for the EU taxonomy:

  • Climate protection

  • Adaptation to climate change

  • Sustainable use and protection of water and marine resources

  • Transition to a circular economy

  • Prevention and reduction of environmental pollution

  • Protection and restoration of biodiversity and ecosystems

The classification is based on four criteria that build on the six environmental goals.

The economic activity...

  • ... contributes to at least one of the environmental objectives.

  • ... does not significantly harm any of the environmental objectives.

  • ... meets a minimum of safety standards, such as the UN Guiding Principles on Business and Human Rights, to avoid a negative social impact.

  • ... meets the technical screening criteria developed by the EU Technical Expert Group.

Kinzinger explains: "To be classified as sustainable according to the EU taxonomy regulation, industrial companies must not only contribute to at least one of these environmental goals, they must also not violate the others." An activity aimed at protecting the climate but at the same time negatively affecting biodiversity therefore cannot be rated as sustainable.

Reporting obligation for sustainability

"It is clear that there is a lot of work ahead for companies in the industry and production sectors," says Kinzinger. The EU taxonomy creates reporting obligations for companies on their sustainability. Large, capital-market-oriented companies with more than 500 employees that are not financial companies have been required to indicate in their non-financial statement since January 1, 2022, the proportion of the three key indicators of revenue, capital expenditure, and operating expenses that is associated with environmentally sustainable economic activities in the sense of the EU taxonomy. In addition, further explanatory statements on the three key figures are expected.

"From 2025, further companies will have to meet the requirements of the EU taxonomy - those that will be obliged to report on sustainability for the first time due to the Corporate Sustainability Reporting Directive (CSRD)," says Kinzinger. In addition, under the new accounting directive, companies must disclose their sustainability reporting and their taxonomy-related key figures in a clearly marked section of their management report.

What does the EU taxonomy mean for companies?

The EU taxonomy, together with the CSRD, creates the prerequisites for standardized sustainability reporting. In order for the data on climate, air pollution, biodiversity, and water use - but also for example on occupational safety - to be usable for investors and other stakeholders across sectors, they must be comparable. The affected companies must record the impact of sustainability aspects on their economic situation and at the same time disclose how their economic activities affect various aspects of sustainability.

By 2024, corporations that already comply with the NFRD (Non-Financial Reporting Directive) requirements must submit a sustainability report in accordance with CSRD regulations.

From 2026, the CSRD reporting obligation and thus the EU taxonomy applies to the following companies:

  • Listed companies (excluding listed micro-companies)

  • Companies with more than 250 employees, a balance sheet total of more than 25 million euros and net sales revenues of more than 50 million euros, if at least two of these three criteria are met.

  • Banks, insurers and other companies classified as relevant to the public interest by national authorities.

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When the CSRD reporting obligation comes into effect, more than 10,000 companies across Europe will have to detail their sustainable business practices. In perspective, the regulations of the EU taxonomy are to be extended to social goals in addition to environmental goals. Regardless of this, laws and regulations relevant to sustainability enacted by the EU or its member states will in future be based on the EU taxonomy and CSRD as a common understanding of sustainability.

Kinzinger advises the affected companies to deal with the concept of the EU taxonomy early on. Next, as a first step, an analysis of the individual economic activities in terms of their taxonomy capability and the taxonomy conformity based on the key figures Cap Ex, Op Ex and turnover should be reviewed. In addition, for the later reporting of financial key figures, other areas such as systems, processes and control environment should be taken into account in the analysis.

"Sustainability is causing a lot of movement in the future, so companies constantly have to adapt to changes," Kinzinger emphasizes. "The EU taxonomy will sharpen the ecological awareness in companies. At the same time, it leads to the merging of sustainability reporting and financial reporting, and many companies have to adjust their internal processes accordingly."

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