The EU Taxonomy Regulation (Regulation 2020/852) and CSRD are related but distinct compliance obligations. CSRD requires a sustainability statement following ESRS. The EU Taxonomy requires large non-financial companies subject to CSRD to disclose — within that sustainability statement — the proportion of their turnover, capital expenditure (CapEx), and operating expenditure (OpEx) that are associated with Taxonomy-aligned economic activities. This is the Article 8 KPI disclosure.
For mid-cap industrial companies encountering Taxonomy reporting for the first time, the Article 8 process involves three distinct analytical layers that are often conflated, creating confusion about what actually needs to be calculated and when.
The Three Layers: Eligibility, Alignment, and Enabling
Layer 1 — Taxonomy eligibility: Does the company perform any economic activities covered by the Taxonomy? The Taxonomy currently covers activities under six environmental objectives: climate change mitigation (CCM), climate change adaptation (CCA), sustainable use of water (WTR), circular economy (CE), pollution prevention (PPC), and biodiversity (BIO). Each objective has a delegated act listing covered activities with NACE code references. A manufacturer whose primary activity is, for example, the manufacture of motor vehicle parts (NACE C29.3) needs to check whether that activity appears in any of the six objectives' annexes.
Layer 2 — Technical screening criteria: For eligible activities, does the activity meet the quantitative technical screening criteria for "substantial contribution" to the relevant environmental objective? This is the most technically demanding layer. For climate change mitigation, the criteria are typically expressed as performance thresholds — for example, electricity generation from solar PV is substantially contributing to CCM if the activity emits less than 100 g CO₂e/kWh on a lifecycle basis. For manufacturing activities, the criteria are often tied to GHG intensity benchmarks relative to the relevant EU ETS benchmark values.
Layer 3 — Do No Significant Harm (DNSH) and Minimum Social Safeguards: An activity that meets the substantial contribution criteria must also demonstrate that it does not significantly harm any of the other five environmental objectives, and that the company complies with minimum social safeguards (the UN Guiding Principles on Business and Human Rights, OECD Guidelines for Multinational Enterprises, and ILO core conventions). DNSH is evaluated per activity, per objective — meaning a manufacturing activity that substantially contributes to CCM must demonstrate it does not significantly harm CCA, WTR, CE, PPC, or BIO.
Calculating the Three KPIs from Financial Data
Article 8 requires disclosure of three KPIs, each expressed as a percentage of the total:
- Taxonomy-aligned turnover %: The proportion of net turnover derived from eligible, aligned activities. For manufacturers, this means identifying which product lines or service revenues are associated with covered activities that meet the technical screening criteria and pass DNSH assessment.
- Taxonomy-aligned CapEx %: The proportion of capital expenditure (as defined in the Taxonomy Delegated Regulation — the numerator broadly includes additions to property, plant, equipment, and right-of-use assets) that relates to Taxonomy-aligned activities or is part of a credible plan to transition to Taxonomy-aligned activities within a defined period.
- Taxonomy-aligned OpEx %: The proportion of operating expenditure (a more narrowly defined subset than IFRS operating expenses — focusing on R&D, building renovation, short-term lease, maintenance, repair) that is linked to Taxonomy-aligned activities.
The data sources for these KPIs span financial and carbon accounting systems. Turnover data comes from the financial statements. CapEx data comes from the fixed assets register, with annotations on whether specific capex items relate to covered activities. The carbon accounting layer enters when assessing whether a CapEx item — say, investment in a more energy-efficient production line — meets the technical screening criteria for substantial contribution to climate change mitigation.
A Practical Scenario: Manufacturing Company with Mixed Activity Profile
Consider a mid-cap German manufacturer — similar in profile to Veltmann Industrials GmbH — producing precision machined components for both conventional automotive drivetrain applications and electric vehicle platforms. Their FY2024 revenue split is approximately 60% conventional automotive parts and 40% EV platform components (electric motor housings, battery enclosures).
Under the Taxonomy CCM objective, the manufacture of components specifically for electric vehicles may be eligible as an enabling activity (helping other sectors achieve substantial contribution to CCM). The technical screening criteria and DNSH requirements for enabling activities are somewhat lighter than for principal activities. However, correctly attributing turnover between EV and conventional applications requires granular product line revenue reporting that many manufacturers' ERP systems do not provide without custom reporting configuration.
The CapEx KPI is where the Taxonomy intersects most directly with the company's investment strategy. If the company invested €4.2M in FY2024 in a new CNC machining line dedicated to EV component production (and that line meets the relevant technical screening criteria), that capex is potentially Taxonomy-eligible. Whether it qualifies as "aligned" depends on whether the DNSH assessment is passed — specifically, whether the new machining process introduces significant pollution risks (PPC objective) or significant water use (WTR objective) that are not mitigated.
Year 1 Reporting: Eligibility Disclosure Comes First
The Article 8 Delegated Regulation introduced a staged approach: in the first year of application, non-financial companies report eligibility — which activities they perform that are covered by the Taxonomy — with a note that alignment assessment will follow in subsequent periods. This staged approach gives companies time to build the data infrastructure needed for the more demanding technical screening and DNSH assessment without having to claim alignment prematurely.
For Wave 2 companies filing their first report in spring 2026 on FY2025 data, this means the Year 1 Article 8 KPI disclosure will typically show: a defined eligibility percentage (what proportion of turnover, CapEx, and OpEx is eligible but not yet assessed for alignment), with alignment percentages following in Year 2. This is legitimate and expected — the regulation's phased approach is designed for exactly this situation. What is not appropriate is claiming alignment without completing the technical screening and DNSH assessment steps.
Where Software Helps and Where It Does Not
The financial data components of Article 8 KPI calculation — extracting turnover, CapEx, and OpEx by activity from financial systems — are tractable with the right ERP configuration and reporting layer. The more conceptual work — deciding which NACE activities apply to the company's business, reading and interpreting the technical screening criteria in the delegated acts, and building the DNSH evidence pack — requires human judgment and familiarity with the Taxonomy text itself.
We're not saying that consultancy support is unnecessary for EU Taxonomy alignment — for companies navigating the technical screening criteria for the first time, specialist knowledge of the Taxonomy delegated acts is genuinely useful. What we are saying is that the data layer — pulling the right financial and carbon figures to populate the KPI calculations once the eligibility and alignment judgments have been made — is where automation yields the most time savings and the most audit-ready output. The eligibility and screening judgments still require a practitioner who has read the relevant Annex I and Annex II of the applicable Climate Delegated Act (Commission Delegated Regulation 2021/2139 as amended).
Connecting Taxonomy KPIs to ESRS E1 Disclosures
The EU Taxonomy Article 8 KPIs are disclosed within the CSRD sustainability statement, not as a separate standalone document. Under ESRS E1, the Taxonomy alignment information connects to the transition plan (E1-1), the climate targets (E1-4), and the financial risk disclosure (E1-8). A company whose CapEx is predominantly in conventional activities with low Taxonomy alignment is likely to face more significant transition risk under E1-8 than one with a higher aligned CapEx share. The Taxonomy percentage is, in this sense, not just a compliance figure — it is a signal about the strategic direction of the business that investors and lenders increasingly use in financing decisions. This is why getting the calculation methodology right from the first reporting year matters: it establishes the baseline against which progress in subsequent years will be measured.
Author: Tomas Varga, Head of Engineering, CarbSynq. Published .