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FAQs on the EU Taxonomy

What is the EU Taxonomy?

The Taxonomy Regulation of 18 June 2020 (Regulation (EU) 2020/852) is conceived as a classification system for sustainable economic activities in the EU. It forms the backbone of the Sustainable Finance initiatives and is intended to help redirect capital flows towards sustainability. To this end, the Regulation establishes six environmental objectives, at least one of which a company must contribute to in order to pursue a sustainable economic activity ("significant contribution"). At the same time, that economic activity must not significantly undermine any of the other environmental objectives ("do no significant harm").

Companies that are currently required to prepare non-financial reports in accordance with the Nachhaltigkeits- und Diversitätsverbesserungsgesetz (NaDiVeG) must include qualitative and quantitative information in those reports reflecting the degree to which their economic activities align with the classification system under the Taxonomy Regulation. From financial year 2024 onwards, a growing number of companies will be required to make these disclosures as part of the sustainability reports then required under the EU's Corporate Sustainability Reporting Directive (CSRD). This will expand the number of companies subject to the Taxonomy Regulation many times over.

What role does "climate change adaptation" play in the EU Taxonomy?

One of the six environmental objectives of the EU Taxonomy is climate change adaptation. A separate delegated act sets out detailed assessment criteria ("technical screening criteria") for determining whether an economic activity makes a contribution to this environmental objective. In addition, the assessment criteria for the second environmental objective already covered by the Taxonomy Regulation — climate change mitigation — also consistently include requirements for a do-no-significant-harm test with respect to the environmental objective of climate change adaptation. In other words, every economic activity that is to be classified as sustainable within the meaning of the Taxonomy Regulation must currently engage with questions of climate change adaptation to at least a minimum degree.

What is a climate risk analysis needed for, and are there any recommendations?

The technical screening criteria for the two existing environmental objectives consistently require the carrying out of "climate risk and vulnerability analyses" in order to provide the necessary evidence: both the significant contribution tests for climate change adaptation and the do-no-significant-harm tests for climate change mitigation. The annex to the delegated act for these two environmental objectives sets out specific minimum requirements that these analyses must meet (including the scope of scenarios and individual risks to be considered). Further details on the requirements are contained in an FAQ document published by the European Commission on 19 December 2022 (which is, however, not legally binding).

It's worth noting that further regulatory requirements have recently been adopted that effectively oblige companies to carry out climate risk analyses. The proposals for ESRS E1 ("Climate Change", https://www.efrag.org/lab6), which is intended as the new reporting standard for sustainability reporting under the Corporate Sustainability Reporting Directive (CSRD), points in the same direction from a different angle. Scenario-based engagement with climate risks is thus becoming a necessity for many companies in the EU as part of their corporate reporting.

What is a climate risk analysis? And what does 'risk' generally mean?

First off, it's worth pointing out the importance of using the term climate risk consistently. The IPCC defines this term, for example, in the current sixth assessment report (AR6) of Working Group 2 in the Glossary. In brief: risk is defined as potential consequences determined by the interplay of hazard, vulnerability, and spatiotemporal exposure. Risk should therefore not be understood as uncertainty or the probability of change in a climatological parameter (as is often the case in corporate risk management), but rather as a combination of the aspects mentioned above. In everyday language, however, the terms risk and hazard are frequently conflated.

Vulnerability is a sub-component of risk and refers to the predisposition to be adversely affected. It encompasses a wide range of concepts and elements, including sensitivity or susceptibility to harm and a limited capacity to cope with or adapt to the hazard in question. Vulnerability can often be broken down into different dimensions, such as physical, social, economic, institutional, and so on. Put very simply, hazard covers natural environmental and climatological factors, whilst vulnerability addresses societal factors and the characteristics of infrastructure.

How is a climate risk analysis typically carried out? Are there any recommendations for the EU Taxonomy?

There are various methods for conducting a climate risk assessment. The choice of method and the associated data (both climate data/projections and any additional data needed to assess hazards, vulnerabilities, and exposures) depends crucially on a clear definition of the risk being examined — particularly in terms of its dimension (physical, social, economic, institutional risk, etc.) and its spatiotemporal characteristics (e.g. a single object, or data for federal states/Austria at a spatial resolution of xy). From this, the requirements for methods and models (e.g. additional impact models for hazards and/or the use of proxies such as climate indices where appropriate) and data (including climate models, land use data, socio-economic data, etc.) can be derived. Methods can in principle be quantitative, qualitative, or a combination of both, and are guided by the objectives of the risk assessment — and often pragmatically by the availability of the necessary data. A standardised process for a climate risk and vulnerability analysis has been defined, for example, in ISO14091.

It's worth noting that the data available in Austria for climate risk analysis is generally very good; this covers the full range from climate data (see below) through to socio-economic data (see here as an example a study in the context of flooding). Appropriate methods are available, but these depend on the context and requirements. 

The German Federal Environment Agency has produced a recommendation for companies on conducting a robust climate risk and vulnerability analysis in accordance with the EU Taxonomy. This is currently the only concrete recommendation on how such an analysis can be implemented. This recommendation is closely based on ISO14091. 

In our view, however, the EU Taxonomy is too vaguely worded with regard to methodology to ensure a standardised, scientifically sound risk assessment. We therefore consider it essential that reports transparently present the data and methods used. This should include a description of the applied methodology with explicit reference to recognised approaches and the scientific findings on which it is based, an account of the key data and indicators used in applying this methodology, and a presentation of the associated uncertainties.

What uncertainties are associated with the available data? And what's the best way to deal with them?

Generally speaking, and also in the specific context of the EU Taxonomy, we'd like to highlight the importance of using climate scenario data competently. This requires an expert assessment of robustness, informative value, and uncertainties — ideally through a transparent measure of robustness. Uncertainties and model spread — for example in relation to projections in the context of precipitation — were addressed in detail in the ÖKS15 project report.

In addition, the spatial resolution for the particular research question requires competent contextualisation (see also point b) in the context of a risk analysis). For instance, very specific statements at the level of individual objects (such as buildings) need to be properly interpreted and are accordingly dependent on the research question. This also applies to daily resolution. This primarily serves to provide data for further models, such as 'impact models' (e.g. hydrological models, etc.).

What climate scenarios are available for Austria? Are they available at a sufficient resolution? And which scenarios are needed?

The current state of the art/state of knowledge in Austria is represented by the Austrian Climate Scenarios 2015 - ÖKS15 - Data and the further developments and derived data/analyses built upon them (e.g. CLIMA-MAP, STARC-Impact, FUSE-AT for snow).

The guideline lists all RCP scenarios as a starting point. RCPs stand for Representative Concentration Pathways and define different possible pathways of future greenhouse gas concentrations in the atmosphere for the coming decades through to the end of the 21st century and beyond. RCPs therefore substantially determine the extent of future warming (further information is available here).

For Austria, high-resolution climate projections are currently available for RCP2.5, RCP4.5 and RCP8.5 for the period 2018 to 2100 on a daily basis with a spatial resolution of 1x1 km². With regard to the currently available RCPs, this represents a sufficient range to estimate possible future climate developments on the basis of the current state of knowledge. RCP6.0 could not be taken into account so far due to the lack of model availability of regional climate models for Europe (EURO-CORDEX simulations). The corresponding RCPs are available for global models (with low spatial resolution); however, these are not sufficiently suitable in terms of their informative value for Austria and for small-scale assessments in general, and therefore do not represent the state of the art for Austria either, given that regionalised data such as ÖKS15 are available.

The core parameters of temperature, precipitation and global radiation are available on a daily basis. Climate indices have been calculated from these (e.g. heat days, maximum five-day precipitation totals, etc.), which can serve as proxies or approximations for the assessment of climate hazards. For ÖKS15, a comprehensive overview of the indices produced is available in the project report. In principle, the data are available via the CCCA data server.

For ÖKS15, the data were aggregated temporally for the 'Near Future' (2021–2050) and 'Distant Future' (2071–2100). Aggregation into any desired time slices is technically possible at any time given the aforementioned daily basis. Climate normal periods of 30 years are standard for deriving trends. Aggregation into 10-year time slices — as provided for in the technical screening criteria for Regulation (EU) 2020/852 (Taxonomy Regulation) — is therefore possible.

Will there be updated scenario data for Austria in the future?

Work is currently under way on the conceptual design of a 'new edition' of the climate scenarios — based on the new climate scenario framework (see IPCC AR6 Working Group 1; Regional Climate Information Distillation). These will be available at the earliest in 2026 and will be based on the newer global climate models CMIP6. The lead time results from the regionalisation steps required (regional climate simulations), which are currently being developed by the research community for Europe, as well as further processing steps (systematic bias correction, robustness assessment, information generation, etc.). Until the publication of the new Austrian climate scenarios, the ÖKS15 data and the follow-on products built upon them currently represent — even by European standards — the best state of the art and state of knowledge for Austria, and can be further processed for additional research questions ('climate indices').

Further information will be published on this website over the coming months and years.

Can assessments be made for hazards?

In the context of climate scenarios, it should also be noted that these typically form the basis (= input) for further hazard models (see above, impact models). Depending on the context and the hazard or research question, climate indices can be used — at least as a proxy — for an assessment. In general, however, a well-founded climate risk assessment based solely on climate indices is not sufficient.

A thorough response to each of the individual hazards (as listed in the EU Taxonomy) cannot be provided here in brief.

What are sensible requirements for adaptation measures?

As the ultimate core outcome of climate risk analyses, the Taxonomy Regulation calls for the identification, assessment and implementation of physical and non-physical solutions (so-called "adaptation solutions") "that substantially reduce the most important physical climate risks that are material to that activity." The implementation of these adaptation solutions must be documented and coordinated in the form of an action plan. Minimum requirements are set out in the text of the Regulation only with regard to the substantive requirements for the measures contained therein: for instance, they must not "adversely affect the adaptation efforts or the level of resilience to physical climate risks of people and nature, cultural heritage, assets and other economic activities," and must also take into account interactions with their surroundings (e.g. politically agreed adaptation plans). The requirements for adaptation solutions in order to achieve the environmental objective of "climate change adaptation" go beyond the requirements under the environmental objective of "climate change mitigation". However, further clarifying guidelines are lacking.

In the interest of methodological consistency, it is necessary that the relevant measures be derived directly from the results of the climate risk analysis itself. For the process required in this regard, methodological recommendations and best practice standards are available that should be followed: for example, the Urban Adaptation Support Tool of the Covenant of Mayors for Climate & Energy Europe. Appropriate documentation of the process is already indispensable for the external review of reporting in accordance with the Taxonomy Regulation (as will be required by the CSRD in future); when in doubt, professional expertise should be drawn upon for the process of deriving adaptation solutions.