The EU Taxonomy Regulation

Article 3 of EU Regulation 852/2020 (the so-called EU Taxonomy Regulation) stipulates that an activity is defined as environmentally sustainable if it substantially contributes to the achievement of an environmental objective and if it does not cause significant harm to any environmental objective.

For the purposes of the aforementioned regulation, environmental objectives are understood to be:

a) climate change mitigation;

b) climate change adaptation;

c) the sustainable use and protection of water and marine resources;

 d) the transition to a circular economy; 

e) pollution prevention and control; 

f) the protection and restoration of biodiversity and ecosystems.

Article 17 of the Regulation considers that, taking into account the life cycle of the products and services provided by an economic activity, including evidence from existing life cycle assessments, an economic activity causes significant harm:

a) to climate change mitigation if the activity leads to significant greenhouse gas emissions;

b) to climate change adaptation if the activity leads to a worsening of the adverse effects of the current climate and the expected future climate on itself or on people, nature, or assets;

c) to the sustainable use and protection of water and marine resources if the activity harms:

i) the good status or good ecological potential of water bodies, including surface and groundwater; or

ii) the good ecological status of marine waters;

d) to the circular economy, including waste prevention and recycling, if:

i) the activity leads to significant inefficiencies in the use of materials or in the direct or indirect use of natural resources such as non-renewable energy sources, raw materials, water resources, and land, at one or more stages of the product life cycle, including in terms of durability, reparability, upgradability, reusability, or recyclability of products;

ii) the activity leads to a significant increase in the generation, incineration, or disposal of waste, with the exception of the incineration of non-recyclable hazardous waste; or

iii) the long-term disposal of waste could cause significant and long-term environmental harm;

e) to pollution prevention and control if the activity leads to a significant increase in emissions of pollutants into the air, water, or soil compared to the situation existing before its commencement; or

f) to the protection and restoration of biodiversity and ecosystems if the activity:

i) significantly harms the good condition and resilience of ecosystems; or

ii) harms the conservation status of habitats and species, including those of Eu interest.

Reading this European standard, it is therefore clear that for an activity not to cause significant harm to the circular economy objective (d), it must optimize the use of materials, particularly raw materials, and therefore foresee the use of recycled materials, as well as consider the recyclability of products.

Furthermore, the use of recycled material leads to a reduction in polluting emissions into the air, thus also contributing to the achievement of objective (e).

Moreover, among the requirements of the technical screening criteria (which identify the main potential contributions towards a specific environmental objective), these must refer to EU labeling and certification schemes.

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The new Technical Screening Criteria for the EU Taxonomy

The European Parliament and the Council of the European Union have approved Delegated Regulation (EU) 2023/2486 of June 27, 2023, which supplements Regulation (EU) 2020/852 (the so-called EU Taxonomy) by establishing the technical screening criteria that determine the conditions under which an activity can be considered to substantially contribute to the transition to a circular economy and whether it does not cause significant harm to any other environmental objective.

The new Regulation entered into force on December 11, 2023, but its provisions apply from January 1, 2024.

Recital 12 of Regulation 2023/2486 immediately clarifies that for a manufacturing activity to contribute to the transition to a circular economy, the technical screening criteria must, where possible, require the use of recycled materials for the manufacture of the product itself.

Annex II to the aforementioned regulation specifically lists the technical screening criteria for determining under what conditions an activity can be considered to substantially contribute to the transition to a circular economy and whether it does not cause significant harm to any other environmental objective.

The annex is divided by activity type, within which the importance of recycling for each category is indicated as a criterion for classifying the activity in line with the rules of the European Taxonomy.

• For manufacturing activities, and in particular for the manufacture of plastic packaging, circular raw materials must be used, meaning at least 35% of the packaging must consist of post-consumer recycled material (until 2028); from 2028, at least 65% of the packaging must consist of post-consumer recycled material.

• For construction activities, and in particular for the construction of new buildings, it is required that at least 90% of the construction and demolition waste produced is recycled or prepared for reuse. For the activity of renovation of existing buildings, at least 70% of the construction and demolition waste produced must be recycled or prepared for reuse.

• For the demolition of buildings, roads, railways, bridges, tunnels, and various installations, at least 90% of the non-hazardous construction and demolition waste produced on site must be recycled or prepared for reuse.

• For the maintenance of roads and highways, if the main road elements are demolished or removed, 100% of the non-hazardous waste generated on site must be recycled or prepared for reuse.

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The RRP and the DNSH Principle

Regulation 2021/241 stipulates that access to funding from the Recovery and Resilience Facility (RRF) is conditional on National Recovery and Resilience Plans (PNRRs) including measures that concretely contribute to the ecological transition for 37% of resources and that, in no case, violate the Do No Significant Harm (DNSH) principle.

All measures included in the NRRPs, whether investments or reforms, must comply with the DNSH principle, and it is the responsibility of Member States to demonstrate compliance with this principle. To facilitate Member States in evaluating and presenting the DNSH principle in their national plans, the Commission published technical guidance in February 2021.

Therefore, all projects and reforms proposed in the Italian National Recovery and Resilience Plan have been evaluated by the proposing Administrations, with the support of environmental experts, considering the DNSH criteria.

This evaluation process has substantially conditioned the selection of investments and reforms and qualified the characteristics of those selected (particularly those at high risk of impact) with specific indications aimed at containing their effect on environmental objectives to a sustainable level.

The first step in determining whether a measure could be considered environmentally sustainable was, therefore, to verify if it fell under an economic activity present within the taxonomy for sustainable finance.

If the activity did not fall into a specific NACE category of the taxonomy, the evaluation was based on verifying the sustainability criteria provided for the six environmental objectives already mentioned, consistency with the community legal framework, and compliance with Best Available Techniques (BAT), which are conditions, to be adopted during a production cycle, that are suitable for ensuring the highest environmental protection at reasonable costs.

The State General Accounting Department, with Circular 33 of October 13, 2022, updated the Italian DNSH Guidelines, confirming that the matter is continuously evolving. The first MEF (Ministry of Economy and Finance) guidelines were issued in December 2021.

It’s worth noting that the guidelines for various economic activities refer to the application of European GPP (Green Public Procurement) criteria, in addition to national Minimum Environmental Criteria, which define the requirements for an activity not to cause significant harm to the environment.