EU Green Taxonomy: Is Your SME Activity Eligible?

Quick answer. The EU green taxonomy, defined by Regulation (EU) 2020/852 of 18 June 2020, classifies economic activities by their contribution to six environmental objectives. An activity is aligned with the taxonomy if it makes a substantial contribution to at least one objective, respects the DNSH principle (Do No Significant Harm) towards other objectives, and meets minimum safeguards on human rights. Since the Omnibus package adopted in December 2025, only companies with more than 1,000 employees and 450 million euros in turnover are directly subject to mandatory taxonomy reporting. SMEs are therefore not obliged to publish their taxonomy data, but remain indirectly affected by requests from their customers and financiers.

Regulation (EU) 2020/852, adopted on 18 June 2020, forms the European framework for classifying sustainable economic activities. The goal: harmonize the definition of what counts as a 'green' activity across the EU, protect investors from greenwashing, and redirect capital flows towards the green transition.

The Omnibus package, approved by the European Parliament in December 2025 and definitively adopted in early 2026 (Directive (EU) 2026/470), simplified the system. Before this reform, the taxonomy applied to a broader range of companies. From December 2025 onwards, mandatory taxonomy reporting applies only to large companies with more than 1,000 employees AND 450 million euros in annual turnover — the same thresholds as the CSRD (Corporate Sustainability Reporting Directive). This simplification shields SMEs from a disproportionate compliance burden while preserving their access to green financing.

Why this simplification? Because measuring and reporting on taxonomy is technically demanding and costly. For SMEs, the cost-benefit ratio had become untenable. The European Commission decided: only large companies face a legal obligation to publish. SMEs that wish to do so may voluntarily adopt the taxonomy to secure access to green financing or respond to customer demands.

The taxonomy classifies economic activities by their capacity to contribute to six distinct environmental objectives, defined in Regulation 2020/852:

An economic activity may contribute to multiple objectives simultaneously. For example, a solar panel installation contributes to climate change mitigation (objective 1) and can also support adaptation (reduced water consumption by displacing fossil-fuel thermal generation).

For an activity to be considered aligned with the green taxonomy, it must meet three cumulative conditions:

Condition 1: Substantial Contribution to At Least One Objective#

The activity must make a significant contribution to at least one of the six environmental objectives. This contribution is measured by Technical Screening Criteria (TSC) specific to each activity. For example, for a power plant to be aligned with the climate mitigation objective, it must emit less than 100 grams of CO2 equivalent per kilowatt-hour over its lifecycle.

These TSC criteria are highly precise and defined in delegated acts. They prevent vagueness and greenwashing by setting a quantified threshold.

Condition 2: DNSH (Do No Significant Harm) — No Material Harm to Other Objectives#

The activity must not cause significant harm to the five other environmental objectives. This is the 'do no harm' principle. For example, a wind farm contributes to climate mitigation (objective 1) but must not significantly harm biodiversity (objective 6) by killing birds or fragmenting habitats. Specific DNSH criteria set guardrails: siting in non-sensitive zones, preliminary ecological surveys, etc.

DNSH became more flexible with the Omnibus package (adopted December 2025): an activity representing less than 10% of a company's revenue, CapEx or OpEx can be exempted from DNSH assessment if the risk is judged low. This exemption eases the burden for SMEs and mixed-sector businesses.

Condition 3: Adherence to Minimum Safeguards#

The activity must respect minimum safeguards on human rights and social protection, including:

• Compliance with the OECD Guidelines for Multinational Enterprises.
• Respect for the UN Guiding Principles on Business and Human Rights.
• No child labour, no forced labour, decent work and fair wages.

For an SME operating in France or the EU, this condition is generally satisfied if the company respects national labour law and ISO 26000 standards on social responsibility.

Before December 2025: A Broader Obligation#

Before the Omnibus package, the taxonomy applied to large companies already subject to sustainability reporting (more than 500 employees, under the former NFRD then CSRD scope). This covered on the order of 50,000 companies across Europe.

From December 2025: New Threshold at 1,000 Employees#

The Omnibus package raised the threshold to 1,000 employees AND 450 million euros in turnover. This drastically reduces the number of affected companies: roughly 10,000 across Europe. SMEs with 50 to 1,000 employees exit the mandatory obligation.

Impact for SMEs: you are not required to publish your taxonomy data. But this does not mean the taxonomy is irrelevant to you.

Although not legally obliged to publish, SMEs remain indirectly affected by three mechanisms:

1. Demands from Clients and Financiers#

Large companies subject to CSRD and taxonomy reporting must measure value-chain emissions (scope 3). They increasingly ask their SME suppliers for data on whether their activities are eligible and aligned with the taxonomy. A major customer, a bank refinancing your investments, an insurer — all may ask: "Is your activity aligned with the green taxonomy?"

2. Access to Green Financing and Subsidies#

Green financing (ESG-linked loans, green bonds) and subsidies for ecological transition are often reserved for activities certified as taxonomy-aligned. If you want to finance a green investment (solar panels, low-energy buildings, pollution-reduction equipment), proving alignment strengthens your application for green financing from banks and public funds.

3. Resilience and Risk Management#

Understanding how your activity contributes to environmental objectives and identifying DNSH risks helps you anticipate coming regulations, adjust investments, and position yourself favourably with ESG-conscious clients and investors.

Here is the practical method to assess whether your SME is eligible and aligned:

1. Locate your economic activity in the taxonomy's delegated acts

The taxonomy covers more than a hundred economic activities, split by sector and environmental objective. Consult the European Commission portal or the French ESG portal to find your activity.

2. Check the substantial contribution criteria

Once your activity is identified, review its TSC. Document your data: energy consumption, measured emissions, process efficiency.

3. Assess DNSH for non-covered objectives

For each environmental objective not targeted, verify that you cause no significant harm. From December 2025, minor activities (<10% of revenue, CapEx or OpEx) can skip DNSH if risks are low.

4. Document minimum safeguards

Check your legal compliance: labour law respected, no child labour, fair pay. For a French SME, this is typically automatic.

5. Calculate your taxonomy KPIs

Calculate: aligned turnover %, aligned CapEx %, aligned OpEx %. These KPIs let you communicate with clients and financiers.

Food Service and Hospitality#

Hospitality and food service are not, as operating activities, among the activities covered by the taxonomy's technical screening criteria: a restaurant or hotel cannot report its day-to-day activity as "aligned." Its investments, however, can be: building energy retrofits, on-site renewable energy generation, low-emission vehicle fleets. It is this "through investments" route that concerns the sector.

Construction and Buildings#

Construction and renovation are among the covered activities (objectives 1 and 2, climate). For a new building, the main criterion concerns energy performance: a primary energy demand at least 10% below the nearly zero-energy building (NZEB) threshold. For a major renovation, at least a 30% reduction in primary energy demand is expected. DNSH criteria (water, waste, materials) must also be respected.

Services and Wholesale#

Pure services are not typically covered. However, their investments may be aligned (green real estate, energy-efficient IT, electric transport).

• Do not confuse eligibility with alignment. An activity can be eligible but not aligned.
• DNSH is not a formality. Significant harm disqualifies alignment.
• TSC criteria evolve. Check the official database regularly.
• Percentage calculations matter. Measure each product line/service distinctly.
• Ultimate beneficial ownership counts. Your ownership may be scrutinized by ESG investors.

Recently, we advised an SME of 180 employees in construction considering green financing for a head-office renovation (to the BBC low-energy renovation standard). The sponsor assumed that, given the removal of CSRD and taxonomy obligations for SMEs, he had nothing to prove. Wrong. His lender, itself subject to CSRD, requested a taxonomy attestation. We performed a rapid assessment: the renovated building meets the technical criteria (more than 30% reduction in primary energy demand). Materials, insulation, HVAC: all documented. DNSH: no issues. The SME secured green financing at a favourable rate. Without this due diligence, the application would have stalled.

The lesson: the taxonomy is not a legal obligation for you, but it is a genuine key to unlocking sustainable financing. Ignoring it risks missing out on competitive green loans.

Hayot Expertise advice. Get ready now. A light self-assessment of your activities against the green taxonomy will prepare you for inevitable customer and financier queries. We offer a quick, pragmatic analysis: identify your activities, document relevant criteria, and build a compliance case. This upfront investment lets you communicate confidently to partners. For personalized guidance on your ESG strategy and reporting, or to prepare a green financing application, let's talk.