Sustainability has become a key consideration for businesses, investors, and policymakers around the world. In 2020, the EU developed a taxonomy; a classification framework to assess the sustainability of economic activities based on their environmental and social impact. The EU taxonomy provides a standardized approach to identifying and categorizing economic activities that contribute to environmental objectives and support sustainable growth. Starting January 2023, it is mandatory for eligible businesses to disclose their alignment with the EU taxonomy.

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In this blog, we will cover what the difference is between estimating EU taxonomy alignment and accurately calculating it. We will also explain why it is important to base your disclosures on accurate calculations rather than estimates.

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What is EU taxonomy alignment?

EU taxonomy alignment is a measure of how sustainable an economic activity is, based on its environmental and social impact. The alignment is calculated by assessing an economic activity against a set of criteria. The alignment is expressed as a percentage, with a higher value indicating a higher degree of alignment with the EU taxonomy.

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What is an estimated EU taxonomy alignment?

Estimated EU taxonomy alignment is calculated using approximate data. This approach is typically used when there is a lack of precise or verified data, or when there are limitations in data collection or measurement. The estimated alignment is calculated using available data, assumptions, and modeling techniques. For example, a company may estimate its greenhouse gas emissions based on its energy consumption and emission factors, or an investor may estimate the social impact of an economic activity based on proxy indicators, such as employee turnover or community engagement.

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What is an accurate EU taxonomy alignment?

Accurate EU taxonomy alignment is calculated using complete and accurate data. This approach is typically used when there is sufficient and reliable data available to assess the environmental and social impacts of an economic activity. The exact alignment is calculated using precise and verified data that reflects the actual environmental and social impacts of the economic activity. For example, a company may measure its greenhouse gas emissions directly using metering or sensor technologies, or an investor may use survey data to measure the social impact of an economic activity on stakeholders, such as employees or local communities.

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Why is the difference between estimated and accurately determined EU taxonomy alignment important?

The difference between estimated and accurate EU taxonomy alignment is important because it affects the reliability and validity of the result. An estimated EU taxonomy alignment result can be useful for companies and investors to get a general idea of the sustainability of an economic activity, but it will not be as reliable or precise as the exact EU taxonomy alignment. This is because estimated alignment are based on assumptions and modeling techniques that may not fully reflect the actual environmental and social impact of the economic activity. As a result, an estimated alignment may overestimate or underestimate the sustainability of an economic activity, which could lead to incorrect decisions or misleading information.

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On the other hand, accurately calculated EU taxonomy alignment provides a more precise and reliable assessment of an economic activity's sustainability. This is because the alignment is based on  data that reflects the actual environmental and social impacts of the economic activity. An exact alignment can provide more confidence to companies and investors in their decision-making and reporting processes, as well as enable more precise comparisons between different economic activities.

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How can Celsia help

The EU taxonomy provides a standardized framework for assessing the sustainability of economic activities based on their environmental and social impact. However, there are different ways of calculating EU taxonomy alignment, including estimation and accurate calculation. While estimated scores can provide a general idea of the sustainability of an economic activity, accurately calculated alignment provides a more precise and reliable assessment based on actual data. Celsia's EU taxonomy reporting software is specifically designed to meet all your sustainability assessment needs. Our experts have 25+ years of experience in sustainability, and are ready to help you get started both with understanding regulatory requirements that apply to you and technical preparation that will ensure that you use Celsia to its full potential.

Click here to get an estimated score for free with our tool, or write to us at contact@celsia.io today!

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