29/10/2026
Category
Financial Reporting & Disclosures
The EU Taxonomy is the classification system deciding which economic activities count as environmentally sustainable. For non-EU manufacturers it matters through customers and capital: EU companies reporting taxonomy alignment demand supplier data, and European investors apply the same lens to Asian assets. This guide explains the six environmental objectives, how eligibility and alignment differ, and what export-oriented Asian manufacturers must measure and report. —
If your company manufactures products in Asia and sells them into European markets, the EU Taxonomy is no longer a distant regulatory concept. It is a reporting framework that is already shaping how your EU-based customers evaluate suppliers, how banks assess creditworthiness, and how investors allocate capital. Understanding what the EU Taxonomy requires, and preparing your data accordingly, is becoming a practical commercial necessity. The EU Taxonomy is a classification system established by the European Union to define which economic activities can be considered environmentally sustainable. It was introduced as part of the EU’s broader Sustainable Finance Action Plan and is now a central component of the European regulatory architecture for sustainable finance. The framework provides a common language and a set of scientific criteria that companies, investors, and regulators can use to assess whether an economic activity makes a genuine contribution to environmental sustainability. At its core, the EU Taxonomy answers a simple but important question: is this activity genuinely green, or is it merely labelled as such? By providing clear, evidence-based criteria, the taxonomy aims to eliminate greenwashing and direct capital towards activities that deliver measurable environmental benefits.
The EU Taxonomy is built around six environmental objectives. For an activity to be considered taxonomy-aligned, it must substantially contribute to at least one of these objectives while doing no significant harm to the others. The six objectives are:
For manufacturers in Singapore, Taiwan, Thailand, Indonesia, and Malaysia, the first two objectives, climate change mitigation and climate change adaptation, are the most immediately relevant. They are the only objectives for which technical screening criteria have been fully adopted and are currently in force. Criteria for the remaining four objectives are being developed through subsequent delegated acts and will become applicable in the coming years. However, the DNSH assessment, which we will discuss in detail later, requires companies to consider all six objectives even when only claiming alignment with one or two.
Although the EU Taxonomy is a European regulation, its influence extends well beyond the borders of the European Union. The framework is shaping global capital markets, supply chain requirements, and reporting standards in ways that directly affect non-EU manufacturers. European institutional investors, who manage trillions of euros in assets, are increasingly using the EU Taxonomy as a benchmark for evaluating investments. If your company is seeking European capital, or if your customers are subject to taxonomy reporting requirements, your environmental performance will be assessed against these criteria. The EU Taxonomy also serves as a reference model for other jurisdictions. Countries and regions developing their own sustainable finance taxonomies, including several in Asia, are looking to the EU framework as a starting point. This means that the data systems and reporting processes you build for EU Taxonomy compliance are likely to serve you well as similar requirements emerge closer to home. For CFOs and Sustainability Officers at manufacturing companies exporting to the EU, the practical takeaway is clear: the EU Taxonomy is not something you can ignore simply because your headquarters are outside Europe. It is already affecting your business relationships, your access to finance, and your competitive position in European supply chains.
| Concept | Meaning | Evidence Needed |
|---|---|---|
| Eligible | Activity appears in taxonomy sector list | Activity classification mapping |
| Aligned | Eligible and meets all criteria | Technical screening, DNSH proof, minimum safeguards |
| Non-eligible | Activity not in taxonomy list | None, simply outside scope |
Understanding the distinction between taxonomy-eligible and taxonomy-aligned activities is fundamental to EU Taxonomy compliance. These are two different concepts, and confusing them is one of the most common mistakes we see among companies approaching the taxonomy for the first time.
An activity is taxonomy-eligible if it is listed in the EU Taxonomy’s classification system as an activity that can potentially contribute to at least one of the six environmental objectives. Eligibility is essentially a screening step. It means the activity is, in principle, capable of being environmentally sustainable according to the taxonomy’s definitions. The EU Taxonomy Regulation includes an extensive list of NACE codes (the European statistical classification of economic activities) that are considered eligible. For manufacturers, several activity categories are relevant:
Eligibility is determined at the activity level, not at the company level. A single manufacturing company may have multiple activities, some of which are taxonomy-eligible and some of which are not. It is also possible for an activity to be eligible under one environmental objective but not under others.
Alignment is a significantly higher bar than eligibility. For an activity to be taxonomy-aligned, it must meet three conditions:
The substantial contribution criterion is assessed against specific technical screening criteria that are set out in the taxonomy’s delegated acts. These criteria vary by activity and by objective, and they are often quantitative. For example, a manufacturing activity claiming substantial contribution to climate change mitigation might need to demonstrate that its process emissions fall below a specific threshold per unit of output, or that a certain percentage of its energy consumption comes from renewable sources. The DNSH requirement means that the activity must be assessed against each of the other five environmental objectives to confirm that it does not cause significant harm to any of them. DNSH assessment is where most alignment claims fail. The minimum social safeguards require that the activity complies with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights. This includes labour standards, human rights due diligence, and anti-corruption measures. For practical purposes, a manufacturer might find that 60% of its activities are taxonomy-eligible, but only 25% are taxonomy-aligned. Both figures must be reported, and the gap between eligibility and alignment is where the most valuable improvement opportunities often lie.
The first step in preparing for EU Taxonomy reporting is to conduct a thorough assessment of your activities against the taxonomy’s classification system. This involves mapping your company’s operations to the relevant NACE codes, identifying which activities are eligible, and then evaluating whether each eligible activity meets the alignment criteria. For a diversified manufacturer, this can be a complex exercise. A steel manufacturer, for instance, may have multiple production lines, each with different processes, emission profiles, and product specifications. Some lines may be eligible and potentially aligned, while others may not. The assessment needs to be conducted at a sufficiently granular level to capture these differences. At Evercomm, we work with industrial clients to map their activities to the EU Taxonomy classification system and evaluate their alignment status. Our NxMap platform supports taxonomy-aligned reporting by organising emissions data, energy consumption data, and environmental performance metrics against the taxonomy’s technical screening criteria. This provides a structured, evidence-based approach to determining eligibility and alignment, rather than relying on rough estimates or assumptions.
To see how Evercomm helps industrial enterprises measure, reduce, and finance their transition to sustainable operations, visit https://evercomm.io.
Yes. Under the Corporate Sustainability Reporting Directive (CSRD), non-EU companies that generate more than EUR 150 million in net revenue within the EU over two consecutive financial years are required to publish sustainability reports aligned with the European Sustainability Reporting Standards (ESRS). These standards include EU Taxonomy disclosure requirements, meaning affected non-EU manufacturers must report on the proportion of their turnover, capital expenditure, and operating expenditure that is taxonomy-aligned.
Taxonomy-eligible means an activity is listed in the EU Taxonomy’s classification system as capable of contributing to at least one of the six environmental objectives. Taxonomy-aligned goes further: the activity must substantially contribute to at least one objective, do no significant harm to any of the other five, and comply with minimum social safeguards. Eligibility is a prerequisite for alignment, but not all eligible activities achieve alignment.
The EU Taxonomy defines six environmental objectives: climate change mitigation, climate change adaptation, sustainable use of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems. For an activity to be taxonomy-aligned, it must substantially contribute to at least one of these objectives while doing no significant harm to the others.
DNSH stands for ‘Do No Significant Harm’. It is a core principle of the EU Taxonomy requiring that an activity which substantially contributes to one environmental objective must not cause significant harm to any of the other five objectives. For example, a manufacturing activity that reduces carbon emissions must not significantly increase water pollution or harm biodiversity. The DNSH assessment requires specific technical evidence across each relevant objective.
The EU Taxonomy alignment ratio is calculated using three KPIs: the proportion of taxonomy-aligned turnover (numerator divided by total net revenue), the proportion of taxonomy-aligned CapEx (capital expenditure related to aligned assets or processes divided by total CapEx), and the proportion of taxonomy-aligned OpEx (direct non-capitalised costs related to aligned activities divided by total OpEx). Each KPI must be reported separately, and companies must disclose both the eligible and aligned proportions.
Under the CSRD phased implementation, non-EU companies meeting the revenue threshold of more than EUR 150 million in EU net revenue over two consecutive years will begin reporting in financial year 2028 (covering FY 2027 data). However, many Asian manufacturers are preparing earlier due to supply chain pressure from EU-based customers who already require taxonomy-related data from their suppliers, even before the regulatory deadline.
Technology platforms automate the collection and processing of operational data needed for EU Taxonomy disclosures. IoT sensors capture real-time energy and emissions data, carbon accounting platforms calculate taxonomy-relevant KPIs, and monitoring tools track DNSH criteria such as water consumption, waste generation, and pollution levels. This automation improves data accuracy, reduces manual effort, and creates auditable data trails that support assured reports and third-party verification.
Climate change mitigation, climate change adaptation, sustainable use of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems. An activity must substantially contribute to one objective while doing no significant harm to the others.
It binds EU companies subject to CSRD reporting, who must disclose taxonomy eligibility and alignment of their activities, which cascades data requests to non-EU suppliers. Non-EU groups with large EU operations can face direct reporting themselves in later waves. For most Asian manufacturers today the taxonomy arrives as customer data demands, not direct obligation.
Do No Significant Harm. An activity aligned with one objective must not significantly harm the other five, verified against specific technical criteria such as emissions thresholds, water use, or waste controls. DNSH is where most alignment claims fail, because it requires evidence across multiple environmental dimensions, not just carbon.
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