2 EU Taxonomy

The EU Taxonomy

The 2018 EU Action plan on financing sustainable growth sets out an EU strategy for sustainable finance with the aim of redirecting capital flows. In this plan, an EU classification system was established to determine which economic activities qualify as sustainable. This sustainability classification system is generally referred to as the EU Taxonomy and is part of the EU’s overall efforts to reach the objectives of the European Green Deal and make Europe climate-neutral by 2050.

The EU Taxonomy entered into force on 12 July 2020, establishing criteria for environmentally sustainable economic activities related to six environmental objectives. The taxonomy regulation also amended the EU Accounting Directive (2013/34/EU) on non-financial information by expanding the scope of content that needs to be disclosed by large companies in the Management Report. It requires companies to disclose the proportion of their activities that qualify as environmentally sustainable.

The disclosure requirements are set out in a Delegated Act under Article 8(4) of the Taxonomy Regulation (published 6 July 2021). From 2022 onward, companies are required to also disclose the proportion of taxonomy-aligned activities, in addition to the information already provided on the proportion of taxonomy-eligible and taxonomy non-eligible economic activities. For this purpose, DSM has to disclose the proportion of activities that meet the eligibility and alignment criteria using the indicators turnover, capital expenditure, and operational expenditure, as well as qualitative information. We have assessed our economic activities for eligibility and, if applicable, alignment in relation to the first two environmental objectives as per the EU Taxonomy.

The first Delegated Act with climate objectives aims to identify those industries that can make the largest contribution toward a carbon-neutral society. These include energy, selected manufacturing activities, transport and buildings. As a Health, Nutrition & Bioscience company, we have concluded that our economic activities are not covered by the Climate Delegated Act, and consequently, we are not in the primary scope of industries that are relevant to the two climate-related objectives. As such, despite our significant efforts and investments in reducing greenhouse gas emissions with the aim of reaching our specified Science Based Targets and net-zero commitments (see also Climate change mitigation), the activities through which we try to achieve these goals are currently not included in the Taxonomy. These activities relate to food system transformation, including the reduction of greenhouse gas emissions.

Our eligibility for the first two environmental objectives

In 2021, we provided information on the Taxonomy-eligible activities that related to the production of primary plastics. These activities were classified as discontinued operations in 2022 following the announced divestment of our Materials businesses, and so these activities are excluded from our Taxonomy disclosures (in accordance with Article 8 Delegated Act, Annex 1.1.1). As our economic activities are not in the primary scope of the Taxonomy, we concluded that no turnover currently qualifies as Taxonomy-eligible and, as a consequence, Taxonomy-aligned regarding the first two environmental objectives (climate mitigation and climate adaptation). In line with our turnover, we also assessed the CAPEX and OPEX that qualifies as Taxonomy-eligible and Taxonomy-aligned as negligible.

Based on the standard table as provided in the EU Taxonomy (Article 8 Delegated Act, Annex 2) and as no economic activities qualify as Taxonomy-eligible, DSM reports the following condensed format of the table for 2022:

We welcome the implementation of the EU Taxonomy and have assessed its impact on our company in line with its overall objectives, albeit accepting that parts of the Taxonomy Regulation are subject to interpretation, which may lead to variety in its application. Considering the level of complexity as well as the evolving character of the framework, we expect that Taxonomy reporting will develop over time. As such, we shall apply a conservative approach to and interpretation of the Taxonomy legislation until we believe it has sufficiently matured. We will periodically revalidate our methodology and our reported KPIs based on the evolution of the regulations and forthcoming guidance from, among others, the European Commission and the European Securities and Markets Authority (ESMA).

More information on our strategy and sustainability commitments can be found in the sections on Delivering a long-term, purpose-led, positive impact, and the DSM Responsible Care Plan. For more information on our climate risk assessment, our ambitions and actions, including our path to reduce emissions by 2030, please refer to Climate adaptation and Climate-related risks.