As sustainability becomes a core challenge for industries worldwide, the EU Green Taxonomy stands as a crucial framework guiding companies toward greener practices. This classification system provides clear criteria to determine which economic activities can be considered environmentally sustainable. For the construction industry, the Green Taxonomy not only sets a standard for sustainability but also shapes the future of investment and compliance in the sector.

What is the EU Green Taxonomy?

The EU Green Taxonomy is a regulatory framework designed to channel investment into projects and activities that contribute to the European Union’s climate and environmental goals. It creates a common language for investors, businesses, and policymakers to define and assess the environmental sustainability of different activities. By setting performance thresholds, the taxonomy ensures that only projects with significant environmental benefits are classified as "green."

As the EU's ambition is to become carbon-neutral by 2050, the Green Taxonomy plays a pivotal role in driving this transformation. It serves as a tool for financial markets to identify environmentally sustainable investments, aligning capital flows with the EU’s overarching environmental objectives, including climate change mitigation, resource efficiency, and biodiversity protection.

What are the 6 objectives of the Green Taxonomy?

1. Climate change mitigation
2. Climate change adaptation
3. Sustainable use and protection of water and marine resources
4. Transition to a circular economy
5. Pollution prevention and control
6. Protection and restoration of biodiversity and ecosystems

For an activity to be considered sustainable, it must make a substantial contribution to at least one of these objectives, while avoiding significant harm to any of the others. Additionally, activities must comply with minimum safeguards, such as international labor standards.

Adopted in June 2020, the taxonomy regulation has been gradually coming into effect since early 2022. It applies to over 107 economic sectors, representing 93% of greenhouse gas (GHG) emissions within the European Union, including the construction sector. The Taxonomy introduces three levels of classification:

• Sectors already recognized as low-carbon and compliant with the Paris Agreement (e.g., low-emission transportation).
• Sectors contributing to the transition towards a net-zero economy by 2050, despite facing economic and technological challenges (e.g., building renovations).
• Sectors facilitating the reduction of emissions in other industries by enabling or developing technologies that reduce overall emissions (e.g., a factory producing wind turbines).

By setting out criteria to determine which economic activities can be deemed environmentally sustainable, the Green Taxonomy aims to direct investments toward activities that substantially contribute to the European Union’s environmental goals, while ensuring they do not cause significant harm to other environmental objectives.

What is the impact of Green Taxonomy for the construction industry?

The construction industry, being one of the largest contributors to greenhouse gas emissions and resource consumption, is a key focus of the Green Taxonomy. It mandates stringent criteria for construction projects to be considered environmentally sustainable. These criteria apply to new buildings, renovations, and the operation of existing structures.

Carbon emissions and energy efficiency

Buildings are responsible for 37% of the global greenhouse gas emissions. To align with the Green Taxonomy, construction projects must meet specific energy efficiency standards, including low operational energy consumption and reduced embodied carbon in materials. For instance, new buildings must meet near-zero energy building standards, while renovations are expected to significantly improve the building's energy performance.

• Life Cycle Assessment (LCA)

For large buildings, those exceeding 5000m², the Taxonomy requires a Life Cycle Assessment (LCA) to measure their overall environmental impact. This includes carbon emissions throughout the building's life cycle - from material extraction to construction, use, and demolition. The LCA helps ensure that the entire process aligns with the EU’s decarbonization goals, making it a vital tool for sustainable construction projects.

• Resource efficiency and circular economy

The Green Taxonomy emphasizes the importance of a circular economy, encouraging the use of sustainable materials and the recycling or reuse of resources where possible. Construction projects that prioritize the efficient use of materials, minimize waste, and promote the use of recycled components are more likely to be classified as sustainable under the Taxonomy.

• Biodiversity and ecosystem protection

Construction activities must also avoid significant harm to ecosystems and biodiversity. The Taxonomy requires an assessment of potential impacts on natural habitats and promotes building practices that support biodiversity, such as integrating green roofs or creating urban green spaces.

However, the Taxonomy has faced criticism for not setting ambitious enough environmental standards, particularly in the construction sector. Critics argue that it allows carbon-intensive practices, such as the use of traditional concrete and steel, to qualify as sustainable, undermining the EU’s climate objectives. A key concern lies in the limited application of Life Cycle Assessments (LCAs). While the Green Taxonomy has introduced LCAs as a tool to measure environmental impact, they are not mandatory for new buildings under 5000sqm, a significant exemption considering the urgent need to address the construction sector’s carbon footprint. Moreover, vague criteria create the potential for greenwashing, risking the endorsement of practices that do not genuinely contribute to sustainability.

Which opportunities for our sector?

The EU Green Taxonomy has far-reaching implications for the construction industry, influencing not just regulatory compliance but also access to finance and investment opportunities.

• Sustainable investment - Under the Green Taxonomy, investors are increasingly required to align their portfolios with sustainable activities. Construction companies that meet the taxonomy’s strict criteria are more likely to attract green financing, benefiting from favorable lending terms and investment opportunities.
• Regulatory Compliance - As part of the EU’s broader sustainability push, compliance with the Green Taxonomy is becoming essential for construction firms. In addition to meeting the taxonomy’s sustainability thresholds, companies must also adhere to regulations like the Corporate Sustainability Reporting Directive (CSRD), which mandates transparency in environmental reporting.
• Competitive advantage - Companies that align with the Green Taxonomy gain a competitive edge in a market where sustainability is increasingly prioritized by both public authorities and private clients. Demonstrating compliance with the Taxonomy’s requirements can differentiate a company in tenders and bids, making sustainability a key factor in winning contracts.

The EU Green Taxonomy is reshaping the construction industry by establishing a clear and rigorous framework for sustainability. As the demand for sustainable buildings grows and regulatory requirements become stricter, LCA and energy efficiency measures will become indispensable tools for construction companies. By aligning with the Green Taxonomy, firms can not only ensure compliance with EU regulations but also position themselves as leaders in the green economy, securing both environmental and financial benefits in the transition to a carbon-neutral future.