How to get started with the EU Taxonomy module

With Daato, we have developed an intuitive workflow to support you in calculating taxonomy eligibility and aligment. You benefit from:

• Efficient data collection options
• Simplified way to determine taxonomy eligibility
• User-friendly questions to determine taxonomy alignment
• Overview of the results and report export of the taxonomy table

In this article, we will show you how to start working with the taxonomy module on Daato and get your first taxonomy report.

Before you get started, take another look at the roles in the taxonomy module here.

Background EU Taxonomy

The EU Taxonomy Regulation provides a framework for the standardised classification of sustainable economic activities. It centres on six environmental objectives:

• Climate protection
• Adaptation to climate change
• Sustainable use and protection of water and marine resources
• Transition to a circular economy
• Prevention and control of pollution
• Conservation and restoration of biodiversity and ecosystems

For an economic activity to be considered sustainable under the EU Taxonomy Regulation, it must contribute to at least one of these environmental objectives while ensuring that it does not negatively impact any of the other objectives. For example, an activity that contributes to climate protection but damages biodiversity cannot be considered sustainable.

The assessment of the sustainability of an economic activity is based on the following criteria, which relate to the stated environmental objectives:

• The economic activity of the company is recognised as eligible under the EU taxonomy.
• The activity fulfils basic safety standards, such as the UN Guiding Principles on Business and Human Rights, in order to avoid negative social impacts.
• The activity contributes significantly to at least one of the environmental objectives.
• The activity does not significantly harm any of the environmental objectives (Do No Significant Harm, DNSH).

These criteria ensure that sustainable economic activities are not only environmentally beneficial, but also have no negative impact on other environmental objectives.

Launchpad

In the Launchpsd, as in each of the Daato modules, we present the most important steps on the way to your taxonomy report. Here you can see the launchpad:

Create entities

If you want to collect data from several entities as part of your taxonomy report or include them in your group taxonomy calculation, you must create them in the organisational structure and assign managers and approvers to them. 

Create a new report

The first step in the module is to create a taxonomy report. This is done in the Reporting menu item. Click on the ‘New report’ button to create your first taxonomy report.

In this step you also have to make the first important decision: do you want to record data from subsidiaries or do you have all the information available at group level? Here is an explanation:

• If, for example, you have no subsidiaries, or all financial data (sales, capex, opex) including that of possible subsidiaries is available at group level and there is also sufficient knowledge here about the business activities of all companies, you can decide against collecting data from subsidiaries.
• If you have subsidiaries whose financial data you do not have directly, or subsidiaries with business activities that are very different from yours and for which you do not have detailed information, you should include subsidiaries.

EU taxonomy assessment without subsidiaries

Once you open your first taxonomy report, you will see a step-by-step process that guides you through the different requirements on the way to the taxonomy report. These are as follows:

Taxonomy Elibility

Having assessed the minimum protection standards, the next step is to assess the taxonomy eligibility of your organisation. In this regard, the Taxonomy Regulation outlines various business activities that potentially contribute to one (or more) of the environmental criteria. Here you should check which economic activities you fulfil as a company or in which you are active, or in which of the areas you record CAPEX or OPEX expenditure. 

If your company produces cement, for example, the category ‘Production of cement’ would be relevant, particularly with regard to turnover. If, on the other hand, you operate photovoltaic systems and generate electricity, for example, this would be relevant for your company.

Please note that you as a company or in your group can also have several sub-activities in one taxonomy activity. You can use the activity's description function for this. For example, if you produce different types of cement, it is possible that one of the products fulfils the technical screening criteria with regard to the substantial contribution to an environmental goal and the DNSH criteria, while another product from your product portfolio does not. In this case, you should create two sub-activities in the taxonomy activity ‘Production of cement’, e.g. labelled as ‘Climate-neutral cement’ and ‘Common cement’. 

This breakdown will allow you to answer the questions on the substantial contribution and the DNSH criteria for both sub-activities and help Daato to understand which activities in your portfolio are taxonomy-eligible and which are taxonomy-compliant.

Minimum social standards 

The so-called minimum safeguards under Article 18 of the EU Taxonomy Regulation (EU) 2020/852 are intended to ensure that an economic activity can only be considered ‘sustainable’ (taxonomy-compliant) if it also complies with international human rights standards and regulations on issues such as bribery and corruption, taxation and fair competition. 

Daato has translated the relevant criteria from the Taxonomy Regulation into user-friendly and easy-to-understand questions that you can answer. We also recommend uploading possible documents, e.g. for audit purposes, to be able to substantiate your answers. 

With Daato, you answer the questions per activity. If you fulfil the standards, you can continue the process with the taxonomy capability assessment for the respective activity. If you do not meet the standards, you have no chance of taxonomy compliance.

Taxonomy alignment

Following the assessment of taxonomy capability and the creation of your economic activities, the next question is whether the technical screening criteria have been met. There are two key questions here:

• Does the activity make a substantial contribution to one of the six environmental objectives?
• Does your activity not have a negative impact on the other five environmental objectives (DNSH criteria)?

Both questions can be assessed using several complex criteria derived from the Taxonomy Regulation and its delegated acts. Daato has formulated these criteria in the form of user-friendly questions, allowing you to assess both aspects in a simplified way. Meanwhile, you can constantly see how your answers affect your taxonomy compliance assessment - for example, whether they are still aligned or no longer aligned due to a particular answer. You can also upload documents at any time, e.g. as receipts, and forward the questions to colleagues. 

Overview of taxonomy-aligned activities:

Answering the criteria for the respective activity:

Add financial data

Last but not least is the addition of financial data, which is necessary for Daato to calculate your specific taxonomy eligibility and compliance. This works as follows:

You specify the total turnover, CAPEX and OPEX of your company

1. In order to calculate how much of your turnover, CAPEX and OPEX is taxonomy-eligible and taxonomy-compliant, we need the total values. You can simply enter these in the corresponding windows.
2. You assign the corresponding turnover, CAPEX and OPEX to your activities (and any sub-activities)

Now you need to assign the partial turnover, CAPEX and OPEX to your activities and sub-activities, as this is the only way Daato can calculate the percentage of taxonomy eligibility and compliance. There are two ways to do this in the system:

1. Simple: you enter the overarching figures per activity, i.e. the turnover, CAPEX and OPEX per activity or sub-activity.
   
   
   
2. Advanced: You upload all financial accounting postings from the areas of turnover, CAPEX and OPEX and then assign them to the respective activities or sub-activities. This allows you to document the postings directly in the tool, which can be helpful for auditors. To simplify this process, you can also upload a booking standard. There is a separate menu in the module for this. There you can assign certain accounts to the sales, CAPEX or OPEX criterion and thus ensure that the postings are assigned to the correct categories when uploaded to Daato.
   
   
   
3. Daato calculates taxonomy eligibility and alignment

As soon as you have added the financial data for your entire company, as well as the activities and sub-activities, Daato will automatically calculate your taxonomy eligibility and compliance in the background.

Analysis & report

In the final step, you now have two options for viewing the results of your report:

• An analysis dashboard with all the relevant figures.
• The taxonomy table, which must be published.

You can then download the taxonomy table by clicking on ‘Export report’.

EU taxonomy assessment with subsidiaries

The taxonomy assessment process involving subsidiaries is very similar to the process described above, but several of the steps mentioned are not only carried out once at group level, but also by the subsidiaries. This applies in particular to the steps for taxonomy capability and conformity as well as the addition of financial data. The minimum protection standards are answered at group level. 

The module draws on the organisational structure in which you, as the user, can store managers responsible for all entities (and, if desired, those authorised to approve) for the taxonomy module. If you select the data entry of entities or subsidiaries in the taxonomy module at the beginning, they will then receive requests after completing the step on the minimum protection standards in order to complete the following steps themselves:

• Taxonomy capability
• Taxonomy compliance
• Add financial data

The data entries of the subsidiaries are then aggregated so that you automatically have an overall overview of your taxonomy eligibility and compliance at group level.

Structure of the step sequence at group level:

Setup of data collection, including deadline and selection of entities:

Overview and start of data collection:

The subsidiaries will then see the workflow described above for the parent company level to determine taxonomy-eligible activities, assess compliance, add financial data and send their data back to you.